Bankruptcy bar foresees more work as interest rates rise.

 
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Byline: Pat Murphy

Though bankruptcy attorneys say they aren't expecting a flood of new filings as interest rates continue to climb, most do see the rising cost of money creating financial pressure that inevitably will have more consumer and commercial debtors coming to their doors for help.

Westborough attorney Joseph H. Baldiga forecasts a gradual increase in bankruptcy filings triggered by rising interest rates. The "canary in the coal mine," he says, is default rates on credit cards and car loans.

"Default rates are starting to tick up," Baldiga says. "There's your canary."

Other attorneys report a recent hike in debtors asking for advice on their bankruptcy options but for reasons that can't be pinned to climbing interest rates.

Jack D. Pitts, a consumer-side bankruptcy attorney in Johnston, Rhode Island, says he started to see an increase in business two years ago. Lately, his office has been "overwhelmed" by seniors seeking relief from spiraling health care costs and maxed-out credit cards.

"We've seen older individuals who are using credit cards to make up for shortfalls from their pensions and Social Security," Pitts says. "We're not talking about $7,000 [in unsecured debt]; it's on the average of $30,000 or $40,000."

Springfield bankruptcy attorney Steven Weiss says he, too, has seen an uptick in client traffic.

"My phone seems to be ringing a little more than it did last year," he says.

And though he's fielding calls for help from clients of retirement age, he's been surprised by the number of debtors who are in their 20s.

"I have a number of clients who tell me, 'I can pay my student loans and I know I can't get a discharge of those but it's everything else I can't pay,'" Weiss says.

Rising cost of money

The Federal Reserve raised its short-term rate the benchmark for many consumer and business loans from 2.0 to 2.25 percent on Sept. 26. The move marked the third time the Fed raised interest rates in 2018.

In an effort to revive a struggling economy, in 2008 the Fed lowered the benchmark rate to a record low near zero .25 percent. The rate stayed there until December 2015, when the Fed raised the rate to .5 percent. Since 2015, the Fed has raised rates seven times.

Analysts expect the Fed to announce another rate increase in December and at least three rate hikes in 2019. One more increase expected in 2020 is scheduled to bring the benchmark rate to 3.5 percent.

That doesn't bode well for debtors, according to Edward M. Flynn, a...

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