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What is Judgment Interest?
Judgment Interest is the additional amount of interest added to a court-awarded monetary judgment to compensate the creditor for the time between the judgment and the actual payment.
Definition
Judgment Interest is legally mandated interest applied to unpaid judgment amounts, accruing from the date of judgment until the debtor fully satisfies the obligation.
Key Takeaways
- Judgment Interest compensates creditors for delayed payment.
- It accrues from the date the court issues the judgment.
- Rates are determined by statute, contract, or court order.
Understanding Judgment Interest
When a court issues a monetary judgment, payment is not always made immediately. To prevent debtors from benefiting from delay and to ensure fairness, interest is added to the outstanding balance.
Judgment Interest may be:
- Statutory: Set by law.
- Contractual: Based on the contract terms.
- Discretionary: Determined by the court.
It ensures that the real value of the award does not diminish over time due to inflation or delayed payment. Judgment Interest often continues accruing until the full amount—including fees—is paid.
Formula (If Applicable)
A common formula is:
Judgment Interest = Judgment Amount × Interest Rate × Time
Example: For a P50,000 judgment at 7% annual interest over 2 years:
P50,000 × 0.07 × 2 = P7,000 in Judgment Interest.
Real-World Example
If a business wins a lawsuit and is awarded P120,000, but the debtor delays payment for three years, statutory interest continues adding to the amount owed until the debt is settled.
Importance in Business or Economics
Judgment Interest is crucial because it:
- Prevents unjust financial gain from payment delays.
- Encourages timely settlement of debts.
- Protects the value of court awards.
- Helps creditors recover real economic losses.
Companies monitor Judgment Interest when settling disputes, restructuring debt, or negotiating payment plans.
Types or Variations
- Pre-Judgment Interest: Interest accumulated before the judgment.
- Post-Judgment Interest: Interest accumulated after the judgment.
- Compound Judgment Interest: Less common; interest accrues on unpaid interest.
Related Terms
- Judgment Debt
- Interest Rate
- Court Enforcement
Sources and Further Reading
- Civil Procedure Acts
- Legal Policy Papers on Judgment Enforcement
- Judicial Guidelines
Quick Reference
- Interest applied to unpaid court-ordered payments.
- Rate determined by law or contract.
- Encourages prompt debt settlement.
Frequently Asked Questions (FAQs)
Is Judgment Interest always mandatory?
In many jurisdictions, yes—courts apply it automatically.
Can Judgment Interest be negotiated?
Sometimes. Creditors may agree to waive or reduce it during settlement negotiations.
Does Judgment Interest stop when payments begin?
No. It continues until the full amount is paid.
