Jeffrey M. Rosenblum, P.C.
A Fresh Start

Interest rate increases could impact bankruptcy filings

As New York households recover from the financial challenges of the recent recession, bankruptcy filings have begun to decline. One factor that has helped the nation to regain its financial footing is low interest rates, which have been maintained at 0.25 percent since the end of 2008. Discussion about the Federal Reserve potentially raising these rates in the near future has some analysts concerned about the probable consequence of increased bankruptcy levels.

For 12 months ended June 30, 2015, , bankruptcy filings declined by approximately 12 percent from previous periods, a positive sign of improving financial conditions. Nearly 1.6 million consumers filed in 2010 as bankruptcies increased dramatically in the early years of the recession. Since 2010, the number dropped to just under 880,000 filing for bankruptcy, still significantly higher than pre-recession numbers.

Speculation varies as experts express their concerns over an interest rate increase. Some are concerned that rising debt levels will cause household budgets to be squeezed tighter. Others are concerned that there will be an increase in personal debt with credit cards and other loans as costs rise. The use of debt to extend a family or personal budget when income doesn't cover expenses is another risk. Rising interest on unsecured debt may create challenges as it becomes more difficult to keep up with payments or to pay off the accounts. Some suggest that bankruptcies will increase because rising interest rates will prompt banks to offer mortgages and loans to risky customers.

Legal counsel may be important for an individual who is considering bankruptcy as a way to eliminate unmanageable debt. Means testing is important to ensure that the person is eligible for the form of bankruptcy to be selected, and financial counseling is also required before an individual can file. A lawyer can verify that all relevant debts are brought into the action and that issues such as keeping one's house are properly handled.

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