Legal Question in Credit and Debt Law in Massachusetts
I am the creditor on an unsecured promissory note that has since been defaulted on by the debtor. I filed a claim in small claims court (<$500) for only the $500 plus $30 in court fees, thereby disregarding the interest because I thought it would be considered usury. I didn't know of this legal term prior to signing the contract.
On the contract I set up a one time interest fee of 25% on the $500 bringing the grand total to $625 to have been paid in full two months from signing of the contract. Obviously, the debtor never paid.
Now the debtor has contacted me and wants to pay half of the $540 before court. If I agree to settle before court and setup a payment plan, can I enforce the state prejudgement interest rate? If he agrees to that would I be all set?
Basically I don't want to void the current contract or potential agreement to pay by trying to enforce the state rate.
1 Answer from Attorneys
If you will agree to settle your claim for 1/2 of what you allege he owes you, the defendant should demand that you agree to dismiss your case in exchange for the agreed-upon settlement sum. If you dismiss your claim, you may no longer seek money from the defendant arising from this transaction.
In terms of the amount of the settlement, and whether it will include interest or other charges or alleged damages, that is entirely between you and the defendant.
Your claim for statutory prejudgment contract interest strikes me as inappropriate. If you read the statute, it is pretty clear that you are entitled to interest from the date of demand at the rate specified in the contract. Since your rate of interest risks to void the entire contract or cause other potential problems, you would be well advised to leave interest out of it.
It really is best to get an attorney involved to avoid situations like this. If you ever want to schedule a consultation to talk, please do not hesitate to contact my office.
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