Interest on Judgements

    Illinois Governor J.B. Pritzker recently signed House Bill 88 into law, and it is expected change the face of debt collection in Illinois.  The basic idea behind the new law, known as the Consumer Fairness Act, is to provide relief to millions of Illinoisans who have struggled with consumer debt to the point where they have difficulty being productive members of society.  To accomplish this task, the Act provides certain percentages and time frames that Illinois debt collectors need to follow.

    Taking effect after January 1, 2020, the new law will lower the interest rate on post-judgment consumer debt under $25,000 from 9% to 5%, and it will reduce the amount of time that creditors can collect on a judgment from 26 to 17 years by limiting judgment revivals.  Before the new law officially takes effect on January 1, 2020, here are a few things to keep in mind.

    1.  The new law is limited to post-judgment debt collections against "natural persons."  Only certain types of consumer debt will be affected by the change.  The new law will be limited to post-judgment debt owed by natural persons only.  Legally, corporations, partnerships, trusts, estates, and other entities are "persons."  A "natural person" is a human being.  If a natural person and a corporation are both liable on a debt, the new law will not apply.

    "Post-judgment debt" refers to debt that has been brought before the court and a judgement entered against the debtor.  Thereafter, and beginning on the day judgment is entered by the court, the outstanding debt will begin to accrue a certain amount of interest on the principal balance.  Presently, the rate of post-judgment interest is generally 9%.  However, as of January 1, 2020, the interest on post-judgment debt of natural persons will be 5% under most circumstances.

    2.  The $25,000 consumer debt threshold applies to each individual judgment.  Just because a person owes money all over town does not necessarily mean that he cannot still enjoy the lower 5% post-judgment rate once the new law takes effect.  Even in situations where a person has more than $25,000 in outstanding post-judgment consumer debt, as long as each individual judgment is for less than $25,000 (and the judgment was entered after January 1, 2020), all of the individual's outstanding post-judgment consumer debt will bear interest at 5% until it is paid off.  All judgments against natural persons that are in excess of $25,000 will continue to accrue interest at the rate of 9%.

    3.  The 5% rate won't automatically take effect on large judgements entered against natural persons after January 1, 2020, once their outstanding balance falls below the $25,000 threshold.  As written, the new law will only apply to judgement amounts – not to the outstanding balance on a judgment.  By way of example, if a person has a judgment entered against him after January 1, 2020, for $40,000, and he is later able to pay the outstanding balance down below $25,000, the remaining balance will still accrue interest at a 9% rate even though the total amount owed is less than $25,000.  Said another way, the figures set forth in judgement will determine the appropriate interest rate.  And, in the absence of a second judgement, once the outstanding balance of the consumer debt falls below $25,000, the 9% rate will continue to apply until the entire debt is paid off.

    4.  All judgments for consumer debt that exist before January 1, 2020 will continue to be charged at the current 9% APR rate even after the new law takes effect.  The law only applies to judgments that are entered after January 1, 2020.  This means that all existing judgments (including those entered up until the very end of 2019) will continue to accrue interest at the rate of 9% until the debt is paid off in full.  The law contains no language in which an existing 9% judgment will transform into a 5% judgment at the beginning of 2020, or otherwise.

    5.  If you have any questions about the new law, you should reach out to a qualified attorney.  If you owe or are owed consumer debt, it might be a good idea to seek legal counsel from an attorney who has a background in Illinois consumer debt collections.  Since the upcoming change will (for better or worse) carry with it some drastic ramifications for post-judgment consumer debt, you should be in touch with someone who knows how to use the law to your financial advantage.

This article is for informational and educational purposes only and does not constitute legal advice.