Regardless of whether you’re keeping up with economic news and rising inflation rates, you’ve likely noticed that the cost of goods is going up while your purchasing power is going down. The Consumer Price Index notes that the inflation rate is up 7.1%, which is the highest rate of inflation since 1982.
Unfortunately, rising inflation impacts almost everything we purchase, such as cars, homes, clothes, food, and utilities. Increased inflation makes it all the more challenging to overcome existing debts, and the rising prices increase the likelihood of more Americans going into debt.
In response to these historic inflation rates, the Fed has raised the Prime Interest Rate to 7.75%. Raising interest rates typically slows down the economy as well as the rate of inflation, but these rates have a direct impact on people’s ability to obtain new loans.
Here’s what you need to know about getting a new loan and interest rate after bankruptcy.
The rising interest rates and inflation will severely impact those who have loans with variable interest rates. A variable interest rate means that the rate of interest is subject to market changes, such as inflated interest rates. When the Federal Reserve raises interest rates, financial institutions increase their rates accordingly, so those with variable interest rate loans may need to pay more interest than when they initially borrowed the money.
For example, if you have a variable interest rate on your home’s mortgage, that interest rate may increase to reflect market conditions.
When you have a fixed interest rate, your interest remains the same over the duration of the loan.
In current market conditions, you can expect new loans to feature higher interest rates. Sadly, numerous people struggle to obtain reasonable loans when interest rates are this high. Higher interest rates also mean that it’ll take longer to pay off a loan’s principal amount, and those needing a car loan, mortgage, or personal loan may find themselves paying an exorbitant amount of money in interest alone.
If you’re struggling with overwhelming debts made worse by increased interest rates, you may want to consider filing for Chapter 13 bankruptcy. Chapter 13 bankruptcy organizes your debts into a repayment plan that lasts three to five years. This simplifies your debts and structures them into a monthly plan with a fixed interest rate.
In a Chapter 13 Plan you may also be able to obtain an in-plan fixed rate that’s lower than your loan’s original rate. For example, you could start a repayment plan with a 9% interest rate on a car loan while your vehicle’s original loan had an 18% interest rate. Other types of debts, like credit cards and medical bills are forces to take what the law says you are required to pay under an income-based test and an asset based test. Usually, this is cents on the dollar.
Filing for Chapter 13 bankruptcy is also critically important if you’re at risk of home foreclosure. As long as you keep up with your repayment plan, you will be able to keep your home. Chapter 13 bankruptcy can even stop a home foreclosure up until the sheriff’s sale. Once you file Chapter 13, part of your repayment plan will go toward catching up on your housing payments.
People also frequently use Chapter 13 bankruptcy to overcome second and third mortgages, which may have cumbersome interest rates.
Although Chapter 13 bankruptcy is a great option for those struggling with debts and high-interest rates, filing will negatively impact your credit, and this can make it more difficult to find desirable loans. For example, a new auto interest rate after bankruptcy may be higher than if you hadn’t filed, and your bankruptcy will also make it more challenging for you to qualify for a mortgage with a reasonable interest rate.
That said, Chapter 13 will only remain on your credit report for seven years, and there are ways in which you can increase your likelihood of finding favorable interest rates. You can improve your credit and ability to qualify for better loans by:
- Avoiding further debt: It’s critical to avoid accumulating more debts after going through Chapter 13 bankruptcy. Your debt-to-income rate directly impacts your ability to obtain favorable loans, so incurring more debt will prevent you from qualifying for loans with reasonable interest rates.
- Check Your Credit Score After Discharging Debt: Your Chapter 13 filing will discharge certain types of debt. You need to ensure that these debts are no longer listed on your credit score. If they’re still listed, the items will continue negatively impacting your credit.
- Make On-Time Monthly Payments: You need good financial health to obtain lower interest rates. Making consistent, on-time payments shows lenders that you’re a reliable borrower. Eventually, you’ll have an easier time obtaining better interest rates.
- Rebuild Your Credit Score: Rebuilding your credit takes time and consistency, and once you have a better score, you’ll have an easier time finding reasonable interest rates. You can build your credit back up by using a secured credit card, or you can become an authorized user on another person’s credit card. You can also build credit through on-time rent and utility payments.
If you need assistance in filing for bankruptcy and becoming debt-free, contact a bankruptcy attorney today! A seasoned bankruptcy lawyer can help you navigate the complexities of filing so that you make the best financial decisions moving forward. They can also help you against creditor harassment.
For experienced Chapter 13 lawyers in Indianapolis, contact the Sawin & Shea legal team. Schedule a FREE case consultation today by contacting us online here or by calling 317-759-1483.