There were more than 700,000 personal bankruptcies filed in 2017 according to a study done by LendingTree. Medical and credit card debt were among the most common reasons why Louisiana residents filed for protection from creditors. Although bankruptcy can help a person overcome a debt, it can also cause credit problems in the short-term. For instance, someone who is a year removed from bankruptcy will be charged an interest rate of 10.8 percent.
A borrower who has no bankruptcy on his or her credit report would be charged a rate of just 7.8 percent. This translates to an extra $2,171 in interest on a $15,000 loan paid over 60 months. Those who take out a personal loan within a year of filing for bankruptcy will pay $1,427 more in interest on a $10,000 balance paid off over three years.
Mortgages will cost $8,887 more in interest charges for those who apply for them within three years of a bankruptcy. This is based on a 30-year loan with a starting balance of $240,995. However, borrowers could save money by waiting an extra two years before applying for a home loan. Borrowers could also save by waiting an extra year to apply for a car loan and an extra two years before asking for a personal loan.
Filing for Chapter 7 bankruptcy could be an effective way of reducing or eliminating debt balances. It can also be an effective way to get creditors to stop calling or sending debt collection letters. Furthermore, creditors are generally barred from taking action such as filing a lawsuit or repossessing property after a case has begun. An attorney may be able to tell a debtor more about the benefits of filing and how to do so in a timely manner.