Arrears Interest on Back Child Support Lowered: New Tennessee Law in 2017
Arrears interest on back child support lowered with new interest rate on judgments.
The General Assembly amended Tennessee family law to change what interest may accrue on child support arrears and under what circumstances. This significant departure from prior law will benefit many. Parents dealing with situations involving delinquent child support need to be cognizant of these changes.
The effective date of Public Chapter 145 is April 17, 2017. That is a very important date because everything changed regarding the rate of interest that can accrue on a judgment for unpaid child support, if any interest is ordered at all.
Delinquent Child Support
Child support arrears accumulate when the Alternate Residential Parent (ARP) misses payments or pays less than the child support order requires. When the ARP is delinquent in his or her child support obligation, the Primary Residential Parent (PRP) can go to court to enforce the order, ask the court to hold the ARP in contempt for violating its order, and get a judgment for the amount of arrears plus interest. Interest on arrearages is also considered to be child support.
Under previous law, the mandatory interest rate was 12% per year on the back child support amount with interest accruing from the date of the arrearage. That is, the interest could relate back as many years as the court determined appropriate under the circumstances. This added up quickly for many ARPs, hurting well-intentioned caring parents right alongside deadbeats.
As amended, the pertinent Tennessee statute has eliminated the possibility of any judgment for child support arrears accruing above a 4% rate of interest from the date of the arrearage. (See T.C.A. § 36-5-101(f)(1) below.) Furthermore, any interest ordered on arrears is discretionary with the court and optional. Not automatic. Not mandatory.
Under the amended statute, the judge should make a written finding for any interest that is to continue on a pre-existing judgment for past due child support. The court has substantial discretion in deciding whether interest should or should not continue to accrue. In making its finding, the court may apply whatever factors it deems relevant under the circumstances. If the judge does find that interest should continue beyond April 17, 2017, then the judge must set the rate of interest at or below 4%. But under no circumstances can interest on child support arrears exceed 4% per annum.
This should be good news for those ARPs struggling to meet current child support obligations while also paying off retroactive support. Paying 12% interest likely interfered with many ARPs ability to stay current. With the new legislation, they will no longer be paying high rates of interest on the arrears.
Interest Accruing on Judgments Arising After April 17
Although the amended statute does not specify new actions for arrears, presumably with future judgments after April 17, 2017, the court must make a finding that interest will accrue, or not, based upon whatever factors the court believes are relevant. If the court orders interest, then the rate cannot exceed 4% per year.
Relief for Noncustodial Parents, More Money for Kids
Does new arrears interest law offer relief for noncustodial parents with more money flowing to TN kids?
At a time when the typical savings account yields little if any interest, a 12% rate on child support arrearages is just plain steep. The old 12% interest rate seemed out-of-step and overly burdensome. Could it be that 12% was actually interfering with the steady flow of money to children? The General Assembly took note of the situation and passed PC 145.
Helping Struggling Parents
Public Chapter 145 provides significant financial relief to parents already struggling to pay child support. When unpaid amounts become a judgment, with the new law ARPs are less likely to be over-burdened with unmanageable interest. Even today, most ARPs are fathers.
Deadbeats do exist and always will, but not all parents fall into that category. In passing PC 145, it seems the Assembly was convinced that lifting the high interest rate would result in more money flowing directly to custodial parents and kids.
Pros and Cons of PC 145 Interest on Child Support Arrears Law
The 12% rate before the amendment was simple interest, not compounding, and was automatic. The court had no discretion or flexibility to reduce the rate, even when special circumstances might offer evidence of good cause why interest should be less. This mandate worked as a strong financial incentive for all parents to make child support payments on time and not get caught-up in a pattern of skipped months, partial payments, and accumulated arrearages.
Some argue that with the cap at 4% and any interest being left to the judge’s finding and discretion, more parents might become lackadaisical with support due dates. That too many ARPs will have little to lose by failing to make prompt and full payments. That removing the motivation (12% interest) to keep current on support only encourages noncustodial parents to de-emphasize their support obligations, using income to pay for other expenses or lifestyle spending.
There does seem to be an incongruity with the new law. The current 4% interest rate cap on arrearages is well below the mandatory rate on other Tennessee judgments. But family law proceedings are actions in equity, not loan defaults.
Pros and cons of PC 145 arrears law lowering child support arrears law in TN.
Still other attorneys argue that when ARPs miss payments, they too often find themselves back before the judge and paying costs associated with being held in contempt of court. That is on top of the judgment for child support arrears with interest. These additional expenses only interfere with the ARP’s ability to pay current child support. After all, any number of life events could derail a well-meaning parent’s ability to pay. And adding 12% interest onto an ARP’s already compromised ability to pay does not produce more income. Of course, if unemployment, injury, disability, or other circumstances created a significant variance warranting a reduction in support, then seeking modified child support orders would be smart.
Life seldom lines everything up in perfect sequence. There is nothing rare about the ARP who lost a job one year ago, was out of work for six months, fell behind on child support, but then found employment elsewhere. Making-up arrearages plus interest, plus paying any associated legal costs, can quickly become an insurmountable task. In some instances, the result was arrears paid to the custodial parent years after the child graduated from high school or turned 18!
Does removing or reducing interest on arrears actually translate to regularly scheduled child support payments? We will have to see.
Interest on Child Support Arrears: Current Statute as Amended
Public Chapter 145 amended T.C.A. § 36-5-101(f)(1) as follows:
Any order for child support shall be a judgment entitled to be enforced as any other judgment of a court of this state, and shall be entitled to full faith and credit in this state and in any other state. Except as provided in subdivision (f)(6), such judgment shall not be subject to modification as to any time period or any amounts due prior to the date that an action for modification is filed and notice of the action has been mailed to the last known address of the opposing parties. If the full amount of child support is not paid by the date when the ordered support is due, the unpaid amount is in arrears, shall become a judgment for the unpaid amounts, and shall accrue interest from the date of the arrearage at the rate of twelve percent (12%) per year; provided, that interest shall no longer accrue on or after April 17, 2017 unless the court makes a written finding that interest shall continue to accrue. In making such finding, the court shall set the rate at which interest shall accrue after consideration of any factors the court deems relevant; provided, that the interest rate shall be no more than four percent (4%) per year. All interest that accumulates on arrearages shall be considered child support. Computation of interest shall not be the responsibility of the clerk.
Some parents violate child support orders deliberately with intentional disregard for both the law and the needs of children. With PC 145, Tennessee’s focus shifted relief to those parents delinquent on support obligations because of circumstances beyond their control. Arguably, the new law has made things better for both groups.
