It has been said that nothing is free in this world, and that includes money waiting to be paid out in court judgments. The philosophy behind our court system is that during the time between a wrong occurring, and the court rendering a judgment to right that wrong, the money no longer belongs to the wrongdoer.
The same is true when a judgment has been entered, but compensation hasn’t been paid out yet. That money belongs to the victorious party in the lawsuit, as determined by the judge or the jury. The winner of the judgment could have invested that money in the stock market or in a startup business, in which cases the money might have earned even more money for the victorious party.
It is unfair for defendants to be unjustly enriched by money that does not belong to them. Therefore, interest accruing during these times is an undeniable fact in our judicial system.
Whether you are a defendant needing to understand how much the true payout for the lawsuit will be, or a plaintiff waiting to collect your money, experienced attorney Seth Kretzer can help you navigate how interest is calculated on judgments.
The Texas Legislature has defined “interest” as “compensation for the use, forbearance, or detention of money.” TEX. FIN. CODE § 301.002(a)(4). Many times, with civil lawsuits, you will hear such terms as “just compensation” for the plaintiff, or an award of money which is designed to “make the plaintiff whole.”
Where the plaintiff prevails in his or her lawsuit, interest is designed to make the plaintiff whole for the full value of money he or she should have had since a wrong was committed. This is known as “pre-judgment interest.”
On a related note, “post-judgment interest” covers the period from when the plaintiff wins his or her lawsuit, to when they collect their compensation. Because collecting a judgment in Texas can be difficult, most lawsuits will involve a defendant having to pay both kinds of interest – pre-judgment interest and post-judgment interest – on court judgments.
Although we discuss here mostly what happens in State courts, we want you to also be aware that there is interest applied in the federal courts. Federal statute 28 U.S.C. 1961 governs the federal post-judgment interest rate on a money judgment for civil cases in a district court (there is no specific federal judgment interest rate for pre-judgment interest, though courts have upheld such interest being added to a judgment).
The interest rate is equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the preceding calendar week. Interest is computed daily. For more information, visit the federal courts’ website.
The Texas Supreme Court has defined prejudgment interest as “compensation allowed by law as additional damages for lost use of the money due as damages during the lapse of time between the accrual of the claim and the date of judgment.’ Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 528 (Tex. 1998) (quoting Cavnar Quality Control Parking, Inc., 696 S.W.2d 549, 552 (Tex. 1985)).
There are two purposes behind pre-judgment interest: to encourage settlements, and to expedite settlements and trials by removing any incentive for defendants to delay. But courts have cautioned that the prejudgment interest is awarded to fully compensate the injured party, not to punish the defendant. Brainard v. Trinity Universal Ins. Co., 216 S.W.3d 809, 812 (Tex. 2006).
The law recognizes three grounds for an award of prejudgment interest:
Statutory prejudgment interest provisions apply to only certain types of cases – wrongful death, personal injury, and property damage cases. TEX. FIN. CODE § 304.102. However, in Johnson & Higgins and other cases, Texas’ highest courts have begun expanding the concept to other types of lawsuits not covered by statute. Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 531-32 (Tex. 1998). If you need help from a Breach of Contract Attorney in Houston, contact the Law Offices of Seth Kretzer to learn more.
Post-judgment interest accrues on the entire amount of the judgment, including pre-judgment interest and court costs. TEX. FIN. CODE § 304.003(a). All money judgments must specify the post-judgment interest rate applicable to that judgment. TEX. FIN. CODE § 304.001. Post-judgment interest does compound annually. TEX. FIN. CODE § 304.006.
There are specific formulas under the law for calculating judgment interest in both state and federal courts. To help you, our firm also provides a judgment interest calculator at the top of this page.
The pre-judgment interest rate is the same as the post-judgment rate. Generally, pre-judgment interest accrues on the amount of a judgment during the period beginning on the earlier of the 180th day after the date the defendant receives written notice of the plaintiff’s claim or the date the suit is filed, and stops being calculated on the day preceding the date judgment is rendered. TEX. FIN. CODE § 304.104.
In other words, when the defendant knew or should have known that there was a lawsuit against them, up until the day the lawsuit is resolved, interest is always adding up.
Pre-judgment interest is computed as simple interest and does not compound. TEX. FIN. CODE § 304.104. It may not be assessed on any portion of damages that look ahead to the future, and these will have to be removed from the calculation. TEX. FIN. CODE § 304.1045.
To calculate your own pre-judgment interest, count the number of days between the 180th day after you notified your defendant of a pending lawsuit or the date you filed the lawsuit, and multiply the number of days by the appropriate rate. You may also use the pre-judgment interest calculator provided by our firm at the top of this page.
Post-judgment interest accrues from the date the judgment is rendered forward. The expiration date of post-judgment interest is left to the discretion of the court. Post-judgment interest may be determined in a contract action by a number equal or lesser to a number agreed upon by the parties in the contract, or 18% of the judgment. TEX. FIN. CODE § 304.002.
There are several scenarios where TEX. FIN. CODE § 304.002 and its rates do not apply, such as when the parties in the contract did not set a rate, or the judgment is not related to a contract action. In those cases, TEX. FIN. CODE § 304.003 applies instead, and post-judgment interest is either:
To calculate your own post-judgment interest, count the number of days between judgment was rendered and the date set by the court, and multiply the number of days by the appropriate rate. You may also use the post-judgment interest calculator provided by our firm at the top of this page.
While the rates of interest are limited to certain statutory ceilings that set forth in TEX. FIN. CODE §304.003, remember that pre-judgment interest can be assessed on as many days as it takes to resolve the case, and post-judgment interest can accrue on as many days as the court permits up until the judgment is paid in full.
Additionally, post-judgment interest, which is assessed on the judgment and pre-judgment interest, can compound annually. Some defendants on the losing end of a judgment have complained that the interest is greater than the judgment itself!
To help you understand your interest exposure, we have provided a judgment calculator with payments at the top of this page. This judgment payoff calculator will help you see how many payments that interest and judgment might be spread over.
If you or your client needs to understand judgment interest, you will need a lawyer that has experience with judgment interest calculation and the right knowledge and resources to help protect your rights. Call Seth Kretzer today at 713-775-3050 to discuss your case and learn more about nationwide post-judgment collections.
Seth is on your side and knows how to help you understand judgment interest and ensure your rights are protected. Additionally, he has worked on countless nationwide judgment collection cases, and will do everything in his power to help you!
