Will My Interest Rates Change After I File Chapter 7?

  As you have probably know, the minute you file your Chapter 7 case, an automatic stay comes into existence.  The automatic stay protects you from all adverse creditor action.  Obviously, the automatic stay limits your creditors' rights.  But does the automatic stay protect you from interest rate hikes.  After all, credit card companies and other creditors routinely boost interest rates if you have been late of if they have any suspicion that your ability to pay has been compromised.  You probably would not be surprised to learn that most consumer credit installment agreements have fine print that provides specifically that bankruptcy triggers a default clause and increased interest rates.

  Fortunately for you, however, the automatic stay in bankruptcy does serve to prevent creditors from arbitrarily increasing your interest rates.  The automatic stay protects you from any contact from creditors at all, meaning that it would be improper for a creditor to contact you to discuss anything, much less interest rate increases.

  In most situations, one of the purposes of Chapter 7 is to get rid of credit card debt.  If you are discharging credit card debt, interest rates on outstanding balances are irrelevant to you.  If you do choose to keep a debt - either an unsecured debt or a secured debt - you would need to enter into a reaffirmation agreement with the creditor.  As a practical matter, creditors would prefer to have your payments than collateral to dispose of so the terms of most reaffirmation agreements are equal to or, in some cases, more favorable to you than the original terms.

  In general, your bankruptcy filing will not result in higher interest rates.  Chapter 7 bankruptcy serves as your leverage to cancel contracts and eliminate debt.  If you choose to reaffirm or keep a debt, you have the bargaining power.  If a creditor seeks to impose unreasonable terms on you, you can say "no" and walk away.

  Of course, every situation is different and you should discuss any possible reaffirmation agreement with your lawyer.