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

Popular posts from this blog

Payday Lending and Predatory Lenders in Illinois

If you are in substantial debt in the Chicago area and are living in a paycheck-to-paycheck cycle, you may have taken out a payday loan to make ends meet. While payday lending is illegal in a number of states due to the predatory nature of these loans, it remains legal in Illinois. As a result, many debtors in the state have used payday lenders, and far too many of those borrowers cannot repay what they owe. According to a recent article from Progress Illinois , consumers have filed complaints about payday lenders in the state, illuminating a need for federal rules that address harmful lending practices . Predatory Payday Lenders and Protections for Consumers Due to the perceived predatory nature of payday loans, twelve states in the country have banned these lenders from operating completely, according to a fact sheet from loans.org . The states that currently have laws prohibiting payday lenders from operating include Arkansas, Arizona, Connecticut, Georgia, Mary...
Read more

Phantom Debt Collection Scams on the Rise in Illinois

Have you been contacted by a person claiming to be a debt collector who is seeking to recover a debt you allegedly owe? If so, you are not alone. According to a recent report from CBS Chicago , such parties claiming to be debt collectors are on the rise, and they are scamming Chicago-area residents. These alleged debt collectors are part of schemes known as “phantom debt collection scams,” since they involve the attempt to collect on a debt that the consumer does not actually owe. How can you avoid becoming a victim in a debt-collection scam ? What should you do if you have been targeted by a fake debt collector? How Do Phantom Debt Collection Scams Work? Now, you might be thinking to yourself: I would never agree to make payment on a debt that I did not owe. But the scam is not always that simple. Parties at the center of debt-collection scams often target consumers who do actually owe debts (to someone or to some entity), and they prey on the fact that these c...
Read more

New Information on Debts That Bankruptcy Cannot Discharge

If you are thinking about filing for bankruptcy in the Oak Park area, it is important to know that certain kinds of debts cannot be discharged in a bankruptcy case. Under U.S. bankruptcy law, these are known as non-dischargeable debts, or exceptions to discharge. There are certain types of debts that have long been identified clearly as non-dischargeable debts, while there are misconceptions about other types of debts that may or may not be dischargeable. As an article in CNBC discusses, the U.S. Supreme Court recently issued a ruling in the case of Bartenwerfer v. Buckley , which clarifies that debts incurred due to another party’s fraud cannot be discharged in an individual’s bankruptcy case. Our Oak Park bankruptcy attorneys can explain the Court’s recent ruling and provide you with additional information on dischargeable and non-dischargeable debts. Supreme Court Says Debt Incurred Due to Another’s Fraud is Non-Dischargeable The recent Bartenwerfer case involved a debtor attempti...
Read more