Calculating Interest and Attorney's Fees in Collections Cases

Comprehensive Guide for Calculating Interest, Attorney's Fees, and Post-Judgment Interest in Collections Cases

Step 1: Determine the Type of Debt and Applicable Interest Rate

The first step in any collections case is to determine the type of debt and whether it falls under a special category that affects the interest rate. Here’s how you determine which rate applies:

1. General Debts and Judgments (10% Interest):

   • Default Rule: For most collections cases where the debt is not related to residential rent or specific contracts, the legal interest rate on the judgment is 10% per annum.

2. Residential Rent Judgments (6% Interest):

   • Special Rule for Residential Rent: If the judgment involves unpaid rent for a residential property, the interest rate is 6% per annum—lower than the default 10%.

3. Delinquent Real or Personal Property Taxes:

   • For cases involving delinquent real or personal property taxes, the interest rate will be the greater of:

     • The sum of the rates fixed under the Tax-Property Article, or

     • The 10% statutory rate.

Step 2: Calculate Attorney’s Fees

Attorney’s fees are typically calculated as a percentage of the principal debt (the original amount owed) before interest is added. Make sure you follow the fee agreement or contract provisions.

For example, if the agreement allows for 15% attorney's fees, you apply that percentage to the principal debt (before interest is calculated).

Step 3: Calculate Interest Before Judgment

Next, calculate the interest on the unpaid debt prior to the judgment:

• General Money Judgments: Use the 10% interest rate.

• Residential Rent Judgments: Use the 6% interest rate.

Interest is calculated based on how long the debt has been unpaid before the court enters a judgment.

Step 4: Apply Post-Judgment Interest

Once a court issues a judgment, post-judgment interest begins to accrue on the unpaid balance of the judgment (including the original debt, pre-judgment interest, and attorney’s fees). Post-judgment interest is typically at the same rate as the pre-judgment interest:

• General Debts/Judgments: Post-judgment interest accrues at 10% per annum.

• Residential Rent: Post-judgment interest accrues at 6% per annum.

Post-judgment interest continues to accrue until the judgment is fully paid.

Step 5: Add Everything Together

Finally, add the principal debt, attorney’s fees, pre-judgment interest, and any post-judgment interest (calculated for the relevant period of time) to get the total amount owed.

Examples for Different Scenarios

Example 1: General Debt Collection Case (10% Interest Rate with Post-Judgment Interest)

Let’s say we are handling a collections case where the principal debt is $10,000. The contract allows us to collect 15% attorney’s fees, and the 10% interest rate applies. The debtor has not paid the judgment for 6 months after the court issued it.

1. Attorney’s Fees Calculation:

   • 15% of $10,000 = $1,500 in attorney’s fees.

2. Pre-Judgment Interest Calculation:

   • 10% of $10,000 = $1,000 (if the debt has been unpaid for 1 year before the judgment).

3. Post-Judgment Interest Calculation:

   • After the court issued the judgment, post-judgment interest accrues at the 10% rate.

   • For 6 months of post-judgment interest:

     • Post-judgment interest = 10% of $11,500 (Principal + Attorney's Fees + Pre-judgment Interest) = $1,150 per year.

     • For 6 months, this would be $575.

4. Total Amount Owed:

   • Principal Debt = $10,000

   • Attorney’s Fees = $1,500

   • Pre-Judgment Interest = $1,000

   • Post-Judgment Interest = $575 (for 6 months)

5. Total Amount Owed = $10,000 + $1,500 + $1,000 + $575 = $13,075.

Example 2: Residential Rent Collection Case (6% Interest Rate with Post-Judgment Interest)

Now, let’s handle a case where a tenant owes $5,000 in unpaid rent for a residential property. The landlord is entitled to 15% attorney’s fees, and the 6% interest rate applies. The tenant hasn’t paid the judgment for 4 months after the court entered it.

1. Attorney’s Fees Calculation:

   • 15% of $5,000 = $750 in attorney’s fees.

2. Pre-Judgment Interest Calculation:

   • 6% of $5,000 = $300 (if the rent has been unpaid for 1 year before the judgment).

3. Post-Judgment Interest Calculation:

   • After the court issued the judgment, post-judgment interest accrues at the 6% rate.

   • For 4 months of post-judgment interest:

     • Post-judgment interest = 6% of $5,750 (Principal + Attorney's Fees + Pre-judgment Interest) = $345 per year.

     • For 4 months, this would be $115.

4. Total Amount Owed:

   • Principal Debt = $5,000

   • Attorney’s Fees = $750

   • Pre-Judgment Interest = $300

   • Post-Judgment Interest = $115 (for 4 months)

5. Total Amount Owed = $5,000 + $750 + $300 + $115 = $6,165.

Summary for Employees

1. Step 1: Determine the type of debt and apply the appropriate interest rate (10% for general debt, 6% for residential rent).

2. Step 2: Calculate attorney’s fees based on the principal debt.

3. Step 3: Calculate pre-judgment interest on the unpaid debt before the court enters a judgment.

4. Step 4: After the court enters a judgment, calculate post-judgment interest on the total amount owed.

5. Step 5: Add together the principal debt, attorney’s fees, pre-judgment interest, and post-judgment interest to get the total amount owed.