Local Law Blogs

Collecting Prejudgement Interest on Debts

I am often asked by clients whether prejudgment interest can be obtained from debtors on unpaid claims. Prejudgment interest is usually awarded by the courts in New Jersey only when a written contract exists between the creditor and the debtor which includes a provision for the assessment of interest if payment is not received by the creditor in a timely manner. The written contract can be a simple as a purchase order or an invoice. However, some counties will not award prejudgment interest unless the contract is actually signed by the debtor.
 
Prejudgment interest may run on contract claims not as a matter of right but rather in accordance with equitable principles. Absent, however, unusual circumstances the prejudgment rate should be the same as that provided for by the rule governing post-judgment interest. The current post-judgment rate of interest for 2008 is 5.5%. This rate is adjusted on a yearly basis. Equitable principles do not apply to the same extent where the parties have obligated themselves to a certain interest rate by contract. See Pressler, Current N.J. Court Rules, Comment R. 4:42-11, (Gain).
 
Creditors should seek to protect themselves from debtors who fail to pay their obligations in a timely manner, and additionally should commit their agreements to writing with an appropriate interest provision whenever possible. Creditors should insist that their clients execute such agreements so that misunderstandings are avoided and creditors are protected in the event invoices are not paid in accordance with the agreement between the parties.   

Full post as published by New Jersey Law Blog on January 11, 2008 (boomark / email).