Will Rising Interest Rates Affect Consumer Bankruptcy Filings?
For the last several years, experts have noted a decline in consumer bankruptcy filings in both the United States and the U.K. In many respects, the drop in personal bankruptcy has signaled that many Americans have begun to recover from the recession and the real estate crash of the mid-2000s. However, according to a recent report from CNBC, the stabilized economies in America and England could lead the U.S. Federal Reserve and the Bank of England to increase interest rates, and a rise in interest rates could result in more consumer bankruptcies on both sides of the Atlantic.
Interest Rates May Rise as Economies Recover
According to the article, the number of American bankruptcy filings decreased by 12 percent between June of 2014 and June of 2015. As Herman Poon, the director in Fitch Ratings, explained, “further improvements in both jobless claims and unemployment helped precipitate the better-than-expected decline in consumer bankruptcy filings.” Poon even went so far as to predict that, “if this momentum continues, personal bankruptcy filings will fall for a fifth straight year once 2015 comes to a close.” But if interest rates rise, Poon’s expectations might not come to fruition.
To be sure, the governor of the Bank of England and chair of the Federal Reserve suggested that, as economies in the U.S. and the U.K. continue to improve, it is possible that interest rates will rise. With rising interest rates could come an increase in consumer bankruptcy filings. According to Gillian Guy, a consumer rights advocate in the U.K., “A rise in rates will make things harder for those already struggling, and push those who are just about managing over the edge.” Guy emphasized that about 20 percent of homeowners in the U.K. are likely to “fall into arrears when interest rates rise.”
Chicago residents shouldn’t rest easy just because we are talking about people across the pond. It is possible that Illinois and the U.S. could be looking at similar rates if the Federal Reserve raises interest rates.
Gradual Versus Immediate Interest Rate Shifts
Would a rise in interest rates actually have such a drastic effect on Americans? Poon implied that “if the number of bankruptcy filings does begin to increase, it is more likely to be a gradual than immediate process.” Yet, as Poon explained, rising interest rates could change the ways U.S. consumers deal with their home, auto, and credit card loans. Ultimately, Illinoisans and others across the country could end up feeling “a strain on their household savings.”
In other words, the potential rise in personal bankruptcy filings likely won’t happen in a landslide. Instead, as debts become pricier due to increased interest rates, levels of delinquency likely would rise slowly. With gradually increasing levels of debt delinquencies, more Americans would begin filing for Chapter 7 or Chapter 13 bankruptcy.
Even if rising interest rates don’t have an immediate impact on the number of bankruptcy filings, they could have other noticeable effects. For instance, according to Thaddeus Best, an analyst from BMI Research, a hike in interest rates could mean “weaker discretionary spending.”
We’ll have to wait and see whether the Federal Reserve does in fact raise interest rates, and if so, whether rate increases will result in more personal bankruptcy filings. In the meantime, if you have questions or concerns about filing for consumer bankruptcy, don’t hesitate to contact an experienced Chicago bankruptcy attorney.
See Related Blog Posts:
Comments
Post a Comment