Accruing interest on your defaulted loan or credit card can inflate the total amount you owe when a creditor attempts to sue you to force repayment. Each state has varying rules for how to handle the interest rate of a court judgment, including adding the accrued interest straight to the amount you owe.
Pre-Judgment Debt Interest
A court may allow a creditor to capitalize interest accrued on your debt before suing you in civil court. This adds the accrued interest directly to the balance of the defaulted loan or line of credit, thereby increasing the total amount of debt you owe. The court may also add any accrued fees or court costs to the balance of your debt provided your creditor isn't tacking on unnecessary charges as a means of artificially inflating the total amount you must repay.
Post-Judgment Interest Rates
Each state across the country sets its own rules regarding the interest rates for court judgments. For example, as of July 2011 the interest rate for credit judgments in Pennsylvania is 6 percent while the interest rate in Colorado is 8 percent, according to BCS Alliance. Once a creditor secures a judgment against you, the creditor must abide by the state's cap on post-judgment interest rates when collecting the money you owe. It is illegal for a creditor to charge its own interest rate or additional fees when attempting to collect on a judgment.
Renewable Debt Judgments
Some states, including California, provide a legal means for a creditor to renew a court judgment against you and avoid the expiration of its statute of limitations. This allows a creditor to continue collection practices against you including wage garnishment. When the court grants a creditor a renewal of a judgment, any accrued interest on the debt up to the point of renewal capitalizes to the balance. The creditor can then charge interest per state regulations on the new larger debt balance.
Federal Court Judgments
A judgment obtained in federal court for a civil, criminal or bankruptcy debt carries different interest rate rules than claims at the state level. According to the United States Courts website, the interest rate for a judgment obtained in federal court varies by the weekly average one-year constant maturity yield controlled by the Federal Reserve System. A federal court may capitalize any interest existing on a debt prior to the judgment or eliminate the interest in favor of continuing with the federal system.
0 comments:
Post a Comment