If you find yourself drowning in debt and struggling to make your monthly payments, it might feel like you have no options left. However, Chapter 13 bankruptcy can provide a way to regain control of your financial life.
Though Chapter 13 bankruptcy can give you some much-needed relief, you should understand how it can influence your interest rates. Understanding the effects of bankruptcy on your future can help you make the best possible repayment plan.
Interest during the repayment plan
Chapter 13 bankruptcy involves creating a repayment plan tailored to your financial situation. One significant advantage of this plan is that it can lower your interest rates on certain debts. For example, if you have high-interest credit card debt, your repayment plan can reduce those rates to a more manageable level.
Interest on secured vs. unsecured debts
Secured debts, like a mortgage or car loan, depend on collateral. In a Chapter 13 plan, you cannot typically lower the interest rates on secured debts directly. However, the plan can help you catch up on missed payments.
Unsecured debts such as credit cards or medical bills, on the other hand, are not backed by collateral. These debts are more likely to see interest rate reductions in your Chapter 13 repayment plan.
Interest on priority debts
Some debts are priority debts in Chapter 13 bankruptcy, meaning you must pay them in full during your repayment plan. These may include tax obligations, child support or alimony. Interest rates on priority debts will not typically go down, but the structured repayment plan helps ensure you meet these obligations without the threat of legal action.
The number of Chapter 13 bankruptcy filings increased to 157,087 in 2022, up from 120,002 in the previous year. Many people turn to bankruptcy as a viable debt relief solution, and there are resources available to help you and others like you who might need support in navigating interest rates and other challenges that might arise after filing.