With inflation and interest rates on the rise, it is a better time than usual to file Chapter 13. Chapter 13 is good to file when interest rates are on the rise. It will lock your rates at a low, set amount. Many times, you will not be forced to pay all your debt back. Sometimes you do not have to pay any interest rate at all.
Especially with vehicles, Chapter 13 can lock in your interest rate. This can protect you from inflation by locking down your interest rate to 5% or even less on vehicles. The common equation is to take the “prime rate” and add somewhere between 1% to 2%. This many times equates to a locked-in 4.5 to 5.5 % interest rate or less on your vehicles. The listed “prime rate” determines what you will be required to pay on your 3–5-year plan on your vehicles. You can just ignore your original interest rate even if it is high like 17%- 25% rates sometimes seen on vehicles.
In a time where inflation causes you to pay more, you can pay less through Chapter 13. Frequently, you can pay as little as 10-20% of your debts back or less through Chapter 13. This is a huge savings. A few primary factors influence how much debt you are required to pay back in Chapter 13. These are factors such are income level, asset values, and what items you are requesting to pay through your case.
You can protect and keep your house through Chapter 13. This can protect you from inflation in different ways. First, you can still file Chapter 13 to protect your house even when you cannot file Chapter 7. Chapter 13 will let you keep your house as long as you can make the payments. It does not matter how much equity you have gained from inflation; you can keep your house during Chapter 13.
In addition, it may be wiser to pay your debts back through Chapter 13 instead of getting a higher-interest home loan. If you are behind on your house, Chapter 13 can serve as a “mini-refinance” to some degree that will allow you to bring the home up to date in 3-5 years. This can protect you from higher interest rates found in either a refinance or 2nd mortgage such as a home equity loan.
Read more of our Indianapolis Bankruptcy Blog here.