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How filing for bankruptcy can affect your interest rates

On Behalf of | Jan 31, 2024 | Bankruptcy, Blog

Facing financial difficulties is certainly a daunting experience. However, filing for bankruptcy can be a valid step toward a fresh start for those struggling to overcome debt.

While filing for bankruptcy provides a way to address debts and financial obligations, it is not without drawbacks. You can make the best decision by understanding how this decision can affect your interest rates and future transactions.

Credit score conundrum

One of the immediate consequences of filing for bankruptcy is the impact on your credit score. A bankruptcy filing can significantly lower your credit score, making lenders perceive you as a higher risk. With a diminished credit score, you may find it challenging to secure loans or credit at favorable interest rates.

Higher interest rates on loans

Post-bankruptcy, obtaining a loan may still be possible, but the terms might not be particularly reasonable. Lenders may only offer loans with higher interest rates. This means that, over time, you could end up paying substantially more in interest compared to someone with a healthier credit history.

Credit cards and elevated rates

Credit card companies may also adjust your interest rates after a bankruptcy filing. If you manage to qualify for a credit card, the interest rates could be notably higher than what others with better credit pay. Keep yourself informed about credit card usage fees to avoid accumulating more debt.

Impact on mortgage rates

If purchasing a new home is in your future, filing for bankruptcy may affect your ability to secure a mortgage with a satisfactory interest rate. Lenders will likely adjust your interest rates based on your financial history and previous bankruptcy filing. This can result in increased monthly payments and overall higher costs over the life of the mortgage.

The United States Courts reported that there were 433,658 bankruptcy filings for the year ending September 2023. This is a notable increase from the 383,810 cases in the year prior, showing that bankruptcy remains not only common but also viable as a debt relief solution. However, it is important to keep in mind how this process will affect interest rates and your overall financial situation in the future.

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The Law Office of Kim Covington, is a woman owned debt relief agency, and I have helped families, individuals and small businesses, file for bankruptcy relief under the U.S. Bankruptcy Code, for over 24 years.