Historically, the prime rate was something that changed several times per year. That was true until the market crash and recession in 2008 when – in December 2008, the prime rate was adjusted to 3.25% and remained unchanged for over 7 years. Then, the day after the 7 year anniversary of its last change (on December 17, 2015), prime rate finally budged off its historic low by a quarter percentage point to 3.50%. Almost one year later, it has risen another quarter percentage point, now standing at 3.75%.
But the more interesting item is that the federal reserve anticipates raising the rate three more times (presumably by similar gradual increases) in 2017. So by the end of the year next year, we’re likely going to see a prime rate of 4.5% interest. This still isn’t terrible. Rates were at 8.25% in 2006, and if you go back to 1984, they were as high as 13%.
What does that mean for you? Well, generally, it means that it will become more expensive to borrow money in the future. Specifically in bankruptcy, it means that the “Till interest” rate (the rate used to pay certain secured debts – mostly vehicle loans and other loans secured by personal property in Chapter 13) will go up slightly, since the “Till” rate is based on the prime rate.
Again, a quarter point interest rate hike isn’t a huge amount. For a thousand dollar loan over 5 years, the added amount paid in interest is only about $7. But that number obviously compounds for larger balances (say a vehicle with an outstanding balance of $20,000), and the difference between prime rate last week and prime rate a year from now will likely be a full percentage point. So that same $20k auto loan could be more than $550 more expensive if your bankruptcy case is filed a year from now.
So with that in mind – a little extra incentive – if you need to file Chapter 13 Bankruptcy for any reason – to get your case filed sooner rather than later. The applicable Till rate is based on the prime rate at the time the case is filed.