Payment plan for a judgment debt.

[dstebbins]

John has just sued Company, Inc. for P dollars. Company, Inc, due to the state of the economy, cannot afford to pay the debt in one lump sum, so he has to use a payment plan.

 

In the applicable state, judgment debts (debts from lawsuits that are not settled out of court) are subject to a 9% APR.

 

However, here's the kicker: In every state (not just this one), Interest on judgment debts is NOT compounding! What this means is that Interest does not accrue on previously-accrued interest. The outstanding balance, as a whole, does not gain interest, like in any ordinary debt. Instead, interest accrues only on the remaining principal. So, if he has a starting balance of $10,000, if the company pays nothing on it for one whole year, he will have a balance of $10,900. However, if he pays nothing on it for two whole years, in a compounding-interest debt, he would have $11,881, but, since the interest is not compounding, he only has $11,800. See?

 

Well, that's easy enough. If, however, he DOES make payments, it's exponentially more complicated, and this is coming from a man who's extremely good at math!

 

If the company is sued for P dollars, with I in non-compounding interest per annum, and he makes payments of D amount each month, what equation is used to determine the following?

 

1. How many months it will take to pay off the debt.

2. How much he will end up paying in total.

 

Can someone help me out?

[Double K]

I'd set this up in an excel spreadsheet, but it seems odd.

 

If this is the case, lets say his outstanding debt is reduced to 5000 (from an original debt of 10,000)

Does he continue to accru interest on the 10,000 or is it only on the outstanding remaining debt?

or is he continually being charged the % of 10K?

[dstebbins]

I'd set this up in an excel spreadsheet, but it seems odd.

 

If this is the case, lets say his outstanding debt is reduced to 5000 (from an original debt of 10,000)

Does he continue to accru interest on the 10,000 or is it only on the outstanding remaining debt?

or is he continually being charged the % of 10K?

 

He accrues interest only on the OUTSTANDING principal, but not the outstanding BALANCE!

 

For example, if he starts out with $10,000, pays $1,000, and then, disappears for two years, he will have $9,900 one year after his only payment, and $10,800 after his second payment.

 

But, what if he CONSISTENTLY makes payments?

 

I hope I'm making sense. Remember, this isn't some hypothetical math class problem; this is REAL law.

[Bignose]

when a payment is made, does it go to paying off the accrued interest first, or does it go to paying off the principal first? Or some split thereof? I think that that is what you are a really asking for -- and the answer may very well be in the same law that states interest only accrues on the principal.

[Double K]

when a payment is made, does it go to paying off the accrued interest first, or does it go to paying off the principal first? Or some split thereof? I think that that is what you are a really asking for -- and the answer may very well be in the same law that states interest only accrues on the principal.

 

In which case you would have to assume;

regular equal payments

interest only accrues on the principal

interest rate doesnt vary

 

Should simplify the calculation a bit.