Can You Include Interest in Default Judgments During the COVID-19 Shutdown?

gold gavel to represent default judgment interestNew York on PAUSE during the COVID-19 pandemic initially meant that other than emergency applications, no New York debt collection litigation cases could be filed. Creditors could not use the courts to collect monies owed to them.

When the courts re-opened, only cases filed pre-shutdown (before March 22, 2020) could proceed. New filings were permitted beginning May 2020, allowing creditors the ability to help get themselves paid. Unfortunately, because of extensions ordered by the state, default judgments on cases filed after March 22, 2020, could not be submitted until early November 2020, during which time many businesses closed, resulting in debtors without means to repay and creditors without recovery.

Today, New York’s 62 supreme courts are processing judgments on default and on the merits. But, as we have written previously, although part of New York’s unified court system, the supreme courts will have different processes and procedures for moving cases along, which includes the submission and entry of judgments.

Can You Include Interest in Default Judgments?

This week was no exception. Judgment on a breach of contract case in which our client was not paid for goods sold was rejected by the county clerk. The reasoning behind the rejection was that our judgment included the legal rate of interest, 9%, from the date the invoice was due to the date the proposed judgment was prepared for submission.

The inclusion of interest in default judgments at the legal rate from the date of default or the date of demand is customary and within the court’s discretion to approve without the intervention or authorization by a judge. That is, of course, unless there is an agreement to pay a higher amount than New York’s legal rate or the parties have agreed to waive interest.

However, in this instance, the judgment clerk returned the judgment, taking New York on PAUSE to a new level. Specifically, the clerk stated, “Interest is calculated up to 3/20/2020 and thereafter from 11/4/2020.” The clerk’s reason for rejection indicates that the creditor should not include recovery for interest during the pandemic.

For whatever reason, the Kings county clerk processes default judgments differently than the other 61 counties.  They have, for whatever reason, interpreted executive orders and directives from Governor Andrew Cuomo and Chief Judge Janet DiFiore as barring the inclusion of interest on a default judgment for the period during which New York was on PAUSE.

What are creditors to do?  Waive more than 6 months of interest or make a motion for a court order directing the clerk to include interest?  The answer depends on the court’s timing for hearing, deciding, and rendering a decision on the motion. The debtor’s economic state is also a factor.

A skilled debt collection law firm – like Frank, Frank, Goldstein and Nager – can help you decide whether cutting your losses and proceeding to judgment will give you the best chance of recovery. Creditors should be aware of the various issues in New York debt collection and work with a strategic partner to find the best path for them. Contact us today for a free consultation. We have the experience that pays.