Post-Judgment Interest

Post-judgment interest is interest that accrues on a money judgment from the date of entry until the judgment is fully satisfied. Post-judgment interest serves two functions: (1) compensating the prevailing party for the time value of money during the pendency of appeal and collection efforts; and (2) providing economic incentive for prompt satisfaction of judgments. Texas post-judgment interest is governed by Chapter 304 of the Texas Finance Code, with a rate framework keyed to the federal prime rate.

The rate framework

Section 304.003 applies to judgments not governed by a contract rate. The rate is the prime rate published by the Board of Governors of the Federal Reserve System, but not less than 5 percent or more than 15 percent a year. On the 15th day of each month the consumer credit commissioner determines the rate for judgments rendered during the following calendar month, and the rate is published in the Texas Register. A judgment on a contract that provides for interest is governed instead by section 304.002, which sets the rate at the lesser of the contract rate, which may be variable, or 18 percent a year.

Contractually specified rates

Where the contract provides for interest, section 304.002 sets the postjudgment rate at the lesser of the contract rate or 18 percent a year. A judgment on a note bearing 4 percent carries 4 percent, because the 5 percent floor in section 304.003 does not apply to these judgments. A judgment on a 12 percent note carries 12 percent.

Accrual and compounding

Post-judgment interest accrues from the date the judgment is rendered until it is satisfied (Section 304.005(a)). If a party who was a claimant at trial obtains an extension of time to file a brief on appeal, interest does not accrue during the extension (Section 304.005(b)). Under section 304.003(a), interest runs on the judgment including any court costs and prejudgment interest awarded. Section 304.006 provides that post-judgment interest compounds annually. For a judgment under section 304.003, the rate set for the month of judgment continues to apply even if the prime rate later changes. A contract-rate judgment under section 304.002 may carry a variable rate.

Pre-judgment vs. post-judgment interest

Pre-judgment interest (interest from the date of breach or accrual to the date of judgment) operates under different rules. For statutory and common-law claims, pre-judgment interest typically equals the post-judgment rate but accrues only from a specified starting point, typically 180 days after written notice of claim, or the date the claim is filed (whichever is earlier), under Johnson & Higgins. For contractual claims with a specified pre-judgment interest rate, the contract rate governs subject to usury limits. Pre-judgment interest is added to the principal amount of damages to determine the judgment amount on which post-judgment interest will accrue.

Federal vs. state judgments

Federal court judgments in diversity cases use federal post-judgment interest under 28 U.S.C. § 1961: the weekly average 1-year constant maturity Treasury yield for the calendar week preceding the date of judgment, compounded annually. Federal court judgments in federal-question cases also use § 1961.

Practical impact

For multi-million-dollar judgments pending on appeal, post-judgment interest accumulation is substantial: a $5 million judgment at 8.5% accrues approximately $425K per year in interest. This drives both (a) the appellant's incentive to expedite appeal or post supersedeas bond to delay execution; and (b) the appellee's incentive to resist supersedeas relief.