Being A Kentucky Judgment Creditor Is Not As Lucrative As It Used To Be

In Kentucky, like many other states (perhaps every other state), a judgment will entitle the judgment creditor (the party in whose favor the judgment for money damages was granted) to collect interest on the judgment.  Until this year, judgments bore interest at a rate of 12% compounded annually from the date of judgment under the prior version of KRS 360.040.  This was for judgments on liquidated (i.e., fixed) sums.  A judgment on a claim for unliquidated damages could bear interest at a lesser rate, in the discretion of the trial judge.  Also, if the judgment was based on a written instrument or contract providing for a higher rate of interest, the judgment would accrue interest at that higher rate.

In March of this year, HB 223, which amended KRS 360.040, was signed into law, and became effective on June 29, 2017.  It reduced the rate of interest on judgments rendered after its effective date to 6% compounded annually.  It also preserved the discretion of trial judges to reduce the rate on judgments for unliquidated damages to below 6% (this is now found at KRS 360.040(4).  HB 223 left intact the rule that a judgment entered on a written obligation calling for a higher rate of interest will likewise bear interest at that higher rate.  And – for family law practitioners – be aware that a judgment for unpaid child support still bears interest at 12% compounded annually.  KRS 360.040(2).

Contrary to some reports I have seen, the maximum rate of prejudgment interest has not been reduced from 8% to 6%.  It is true that HB 223 amended KRS 360.010, which establishes the rate of prejudgment interest.  However, the amendment was a housekeeping measure to clarify that KRS 360.040 is an exception to the otherwise maximum legal rate of interest in Kentucky established by KRS 360.010(1).  Nonetheless, the revision to the statutory post-judgment interest rate gives a soon-to-be judgment debtor new ammunition to fight against an award of prejudgment interest at the 8% rate where the claim asserted seeks damages of an unliquidated nature.  On such claims, a plaintiff has no “right” to prejudgment interest.  See Fields v. Fields, Ky., 58 S.W.3d 464, 467 (2001).   Moreover, even if a court determines prejudgment interest is appropriate, it may set the rate at any percentage up to 8%.  Id.  One could certainly argue that it is anomalous to award pre-judgment interest at a higher rate (when not only is the damage amount uncertain, but the claim has yet to be established) than interest on a judgment (where the validity of the claim has been established and the amount has become fixed by the finder of fact).