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

The impact of interest rates on bankruptcies

Many New York residents have felt the effects of the upturn in the national economy since the 2008 recession. The unemployment rate has fallen in many parts of the country, and one result of that has been that the number of people filing for bankruptcy has fallen as well. U.S. Bankruptcy Court data reveals that there was a 12-percent decline in consumer bankruptcy filings for the 12-month period ended June 30, 2015, compared to the same period of a year earlier. The United Kingdom has seen the bankruptcy rate steadily decline as well. However, many analysts fear that this may soon be changing.

The heads of both the Federal Reserve and the Bank of England have given many indications that the interest rates in their respective countries may soon be raised from their current low levels. Some observers feel that this could gradually increase the number of consumers who become financially strapped, for a variety of reasons.

A hike in interest rates would make car and home loans more expensive, and credit card holders who do not pay their balances in full each month would incur higher interest charges. This gradual strain on their finances would make many consumers unable to meet their obligations in a timely manner, with late payment fees further adding to the burden. Another factor is that banks would have an incentive to make more loans due to higher interest rates, with more consumers increasing their level of credit. The overall effect could be a gradual increase in the number of consumers who feel financially burdened, leading to a rise in the rate of bankruptcy filings.

Even with rates at historically low levels, many people are simply unable to get out from under their financial obligations. One solution that could be available is filing for Chapter 7 bankruptcy. An attorney can explain the various eligibility and other requirements of Chapter 7 while discussing with a client the forms of debt relief that might be available.

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