Chapter 13 Bankruptcy: Understanding Interest Rates

When you take out a loan, remember that borrowed money must be paid back – with interest.

Being over-extended and facing large payments with high-interest rates may have you considering bankruptcy as an option. While filing bankruptcy won’t necessarily eliminate paying interest, it may reduce it.

Money woes are stressful and can impact every aspect of your life. Finding a solution is crucial, and attorney Adrienne Hines can help. She will listen to your specific concerns, ask the right questions, and guide you to a solution.

To schedule a free consultation with a skilled Ohio bankruptcy lawyer, call Kademenos, Wisehart, Hines, Dolyk & Wright Co., LPA today at (419) 625-7770, or reach out online.

The Basics of Bankruptcy

You may already know a little about bankruptcy, like the two common types for citizens: Chapter 7 and Chapter 13.

Under Chapter 7 bankruptcy, a trustee sells any nonexempt assets to pay creditors. Any remaining debts that aren’t reaffirmed are discharged at the end. Chapter 7 is typically used for those with no assets or the ability to repay their debts.

Chapter 13, on the other hand, requires debtors to follow a repayment plan. It is often called the “wage earner’s plan.” This is because it helps those with a regular income consolidate their debts and submit one monthly payment to over a term of three to five years. During this time, creditors are barred from contacting you about the debt.

Chapter 13 Bankruptcy Interest Rates

So what about the interest on your loans during a Chapter 13 bankruptcy?

Debts under Chapter 13 will still accrue interest. However, it will often be less than what was originally being paid. The U.S. Bankruptcy Court of Northern Ohio has set the presumptive Chapter 13 bankruptcy interest rates for personal property (such as a car) at the prime rate plus two percent. The current prime rate is 5.5 percent. As a result, the current Chapter 13 bankruptcy interest rate is 7.5 percent.

What does that mean for a repayment plan?

It could result in saving money if your interest rates were higher prior to filing bankruptcy. This is common with credit cards.

Unsecured debts with no assets tied to them, such as medical bills and utilities do not accrue interest. Therefore, under a Chapter 13 plan, you only pay a portion of the debt and your plan will establish the interest rate.

You may also pay less interest on secured claims if the debt is one that will be paid off during the life of the bankruptcy plan. In that case, the Chapter 13 bankruptcy interest rate will apply.

There are different rules for “ongoing debt” that you may reaffirm, and which will extend past the bankruptcy. Mortgages and car loans are examples. The interest on car loans is capped. For ongoing debt, the plan interest rate applies during the term of your agreement. But the rate charges after the plan terminates. This is something to negotiate with help from a skilled attorney.

Rebuild Your Financial Future Today

A bad investment, a lost job, a serious illness, or even reckless spending could result in needing to file bankruptcy. Face your financial issues and take advantage of the bankruptcy law. This can give you a fresh start.

Attorney Adrienne Hines has helped many people successfully move through bankruptcy, and she’s prepared to help you. Don’t wait any longer.

Contact Kademenos, Wisehart, Hines, Dolyk & Wright Co., LPA at (419) 625-7770 to schedule a free, initial evaluation.