Kentucky Modifies Judgment Rates of Interest
By David Haney
On March 30, 2017, Governor Bevin signed into law HB 223, which lowered the statutory judgment interest rate from 12% to 6%, compounded annually. KRS 360.040 was also amended to include pre-judgment interest as well as post-judgment interest.
Previously, Kentucky’s post-judgment interest rate was one of the highest in the nation. The business community, including the U.S. Chamber of Commerce, has applauded this amendment to Kentucky law.
In the civil context, Kentucky’s judgment interest rate remains at a fixed rate, as opposed to that of its federal counterpart, which is calculated “at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding the date of the judgment.” See 28 U.S.C. 1961
Many in the business community have previously advocated for an index-based approach, such as basing the figure on Treasury bill rates. For instance, in Georgia, the judgment interest rate is equal to the prime rate as published by the Federal Reserve, plus 3%. Georgia Code Title Section 7-4-12. In North Dakota, the rate is equal to the prime rate published in the Wall Street Journal on the first Monday in December of each year plus three percentage points rounding up to the next one-half percentage. ND Code 28-20-34. South Carolina takes the Wall Street Journal’s prime rate and adds four percentage points. SC Code 34-31-20(B)).
With respect to pre-judgment interest, Kentucky’s long-standing view has been that an award of prejudgment interest is an “issue properly entrusted to the sound discretion of the trial court.” See Nucor Corp. v. General Elec. Co., 812 S.W.2d 136 (Ky. 1991); see also TECO Mech. Contr., Inc. v. Ky. Labor Cabinet, 474 S.W.3d 153, 159 (Ky. Ct. App. 2014). If a party to a contract wishes to secure prejudgment interest, a best practice is to incorporate such terms in the contract from the outset.
Despite Kentucky’s statutory language, the rate of judgment interest may also be established at a different rate determined by contracts, promissory notes, and other written obligations. Judgments for unpaid child support bear a 12% interest compounded annually.