How High Interest Rates Can Lead to Bankruptcy

As a bankruptcy lawyer in Memphis, TN, I’ve seen the way bankruptcy and interest rates go hand-in-hand. Based on our clients’ experiences, as the rates continue to climb, so will bankruptcies.

Why does that happen? Are there any ways to avoid it? And with high interest, should you choose bankruptcy or loan modification?

How Inflation Causes High Interest Rates

Inflation just means things become more expensive over time. As that happens, the value of money decreases. At a time like right now, when inflation is up, your dollar just doesn’t go as far as it did a year ago.

To stop inflation, the banks might raise interest rates. This makes it more expensive to borrow money and slows the economy down.

So when inflation goes up, interest rates go up. And that can make a big difference for people facing foreclosure.

Interest Rates Affect Home Prices

When interest rates are low, it’s easier and more affordable for people to borrow money to buy a home. This increased demand for homes drives up prices, as more people compete to buy the limited number of homes available for sale.

But when interest rates are high, it becomes more difficult and expensive to get a mortgage. This decreases the demand for homes and lowers home prices, because fewer people are able or willing to purchase homes.

So let’s say you can’t make your mortgage payments anymore. Maybe inflation has raised your bills, gas costs, etc. and your house is suddenly too expensive. What do high interest rates mean for you?

Unfortunately, higher interest rates will make it harder to sell your house. People are less willing to shop for new homes when inflation is high.

You also may have to sell it for less than you would like. That’s because people have to borrow more to cover the interest rate—and that’s money that won’t make it in your pocket. 

Bankruptcy vs. Loan Modification

If you’re at that point—where you’re struggling to cover your mortgage—you may want to look into bankruptcy or loan modification.

Bankruptcy is a legal process where you get protection from creditors in court. With loan modification, you renegotiate your loan terms with the lender to make payments more manageable.

Bankruptcy usually keeps your assets at their initial interest rate. Loan modification typically sets the loan at the current interest rate. So when interest rates are high, like they are now, you might actually save more money by filing bankruptcy than by doing a loan modification. 

In addition, loan modification isn’t always backed by law. And it can be hard to get, especially in a difficult economy.

darrell-castleFinding a Lawyer to Help with Bankruptcy and Interest Rates

Bankruptcy is designed to help you, not hurt you. Especially at a time of high inflation, bankruptcy can make the difference between financial freedom and losing everything. 

As you’re trying to figure out whether it’s right for you and if you qualify, we can help. Our Memphis bankruptcy lawyers offer a free appointment where we sit down with you and discuss your situation. You get a better chance to know us, and we answer all your questions about how bankruptcy works and what to expect if you qualify. 

What’s more, we offer free resources like our report on life after bankruptcy to help you enjoy all the benefits of bankruptcy after you file. Our clients have gone on to live fulfilling lives totally free of debt—and so can you.

To get started, just fill out the form below or give us a call at 901-327-2100. We look forward to speaking with you!

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