Kentucky’s 12% Judgment Interest Law

To compensate successful plaintiffs for any delay in the payment of a money judgment awarded by the court, defendants are required to pay interest on the judgment until it is paid in full.  The rate of interest in Kentucky is currently set by statute at a 12% annual rate.  Therefore, if a plaintiff appeals a case and loses, interest will accumulate during the appeal period at 12% annually.

This 12% rate is out of step with current money market rates and with the rates in surrounding states.  As a result, Kentucky consumers and businesses who owe judgments end up paying substantially more to extinguish the debt after appeals than successful plaintiffs could have made by investing the amount of the judgment themselves.  IIK believes that this is an injustice to Kentucky consumers and businesses which needs to be remedied.

The current 12% judgment interest rate was set by the legislature in 1982 when money market rates hovered in the 12-14% range.  By comparison, current money market rates are in the 3-5% range.  The rate set in 1982 may have been fair for that time, but it has failed to keep pace with changing market conditions.

Kentucky’s rate is also a fixed rate, meaning that it will stay at 12% until the law is changed.  As a contrast, many states and the federal courts use a variable rate approach which allows the rate to fluctuate based on current interest rates.  IIK supports adopting a variable rate approach for Kentucky.

It is clear how out of step Kentucky is with our neighbors by looking at the following map:

Kentucky has the highest rate of all our neighboring states, and three of our neighbors also use a variable rate.  Kentucky clearly needs to make a change to remain competitive with our neighbors.  To further illustrate the problem in Kentucky, the map above shows that Kentucky’s rate exceeds those in both New York and California.

In fact, Kentucky’s 12% judgment interest rate is tied for highest in the nation with five other states: Alabama, Massachusetts, Rhode Island, Vermont, and Wisconsin.  Of the remaining 45 states plus the District of Columbia, 23 have variable rates, and the other 22 have rates lower than Kentucky’s.  It is time that Kentucky moved out of this select company.

It should also be kept in mind that this judgment interest applies to all kinds of judgments.  Therefore, the growing number of Kentuckians facing mortgage foreclosure judgments will also face this unfair rate of 12%. 

IIK supported the passage of recent legislation that would have changed Kentucky’s judgment interest rate from a fixed rate to a variable rate.  HB 368 was filed in the 2007 legislative session by Rep. Joe Fischer, and HB 332 was filed in the 2008 legislative session by Rep. Arnold Simpson. 

Each of these bills would have replaced Kentucky’s fixed rate of 12% with the tax rate of interest calculated annually by the Commissioner of Revenue under KRS 131.183(1).  This rate has been set at 7% for 2009 and was 8% for 2008.  The bills also set a floor of 6% for the judgment interest rate and also exempted child support judgments from the variable rate.

Under the statute, the Department of Revenue has established the following rates for recent years prior to 2009:

IIK believes that Kentucky’s judgment interest rate should finally come into alignment with the majority of the country.  In our opinion, the best way to accomplish this would be the adoption of a variable rate of interest on judgments.

A Summary of Other States and the District of Columbia:

Five (5) states besides Kentucky are tied for highest rate in the nation with a 12% judgment interest rate:

Alabama, Massachusetts, Rhode Island, Vermont, and Wisconsin. 

Twenty-three (23) states use a variable approach to determine their rate of judgment interest:

Twenty-two (22) states have fixed rates of judgment interest lower than Kentucky’s 12% rate:

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