1. Chapter 12.2: Bankruptcy

2. Bankruptcy
Sometimes people and businesses through no fault of their own accumulate so much debt, they can no longer afford to repay it.
Businesses: suffer from bad economy
Individual: credit debt, illness, loss of job

3. Old English law
Debtors who couldn’t repay their debt would be put in debtor’s prison
The drafters of the US Constitution opposed this treatment and gave congress authority to help people

4. Bankruptcy
Legal process by which a debtor can make a fresh start through the sale of assets to pay off creditors.
Certain bankruptcies allow debtor to stay in business and use the revenue collected to pay his or her debt.
Another purpose is to become free from debt
Stays on credit report for up to 10 years!

5. Avoiding Bankruptcy
Having trouble paying bills? STOP USING CREDIT CARD!
You can contact your creditor and work out an adjusted repayment plan.
You can also get a consolidated loan
Combines all your debt into one loan with lower payments
Credit cards, car payments, student loans etc.

6. Filing for Bankruptcy File a petition Automatic stay is in effect
Postponement of collection proceedings against the debtor
Creditor must stop contact with debtor
Creditors cannot sue at this point
Debit/credit cards can no longer be used once a petition has been filed.
Bankruptcy law is FEDERAL statutory
Consumer Credit Counseling Service
Offers confidential debt-counseling services.

7. Types of Bankruptcy Voluntary Involuntary Debtor chooses to file
Creditors begin proceedings instead of debtor
3 creditors must file if debtor has 12 or more creditors
Debt owed must exceed $11,625
Single creditor can file if owed more than $11,625

8. Chapter 7 Liquidation Debtors must do the following:
Allows debtors to discharge all their debts
Debtor must sell most of their property and pay their creditors from the proceeds.
Debtors must do the following:
Get credit counseling
Family income must be below the state’s average family income
If income is large than state average– they would file chapter 13
Provide tax return from most recent year
Complete course in financial management
Fresh start policy= some assets can be kept

9. Chapter 11 Reorganization
Allows businesses to reorganize their financial affairs and still remain in business
Business needs to file a petition and then a reorganization plan is made
If plan is approved, then it will go into operation
If plan is successful, the business will continue. If not, it will be forced to close

10. Chapter 12
Bankruptcy that lets family farmers, and fishing businesses create a plan for repayment that allows them to keep their operations running.

11. Chapter 13
Bankruptcy that permits individual debtors to reorganize their debts and develop repayment plan
3-5 year repayment plan
Debtors wishing to keep their cars must pay full loan amount for their car
These items are called exemptions

12. CANNOT BE DISCHARGED
Debt due to fraud
Back taxes
Student loans

13. Debtor’s Estate
Trustee is appointed to sell the debtor property, or estate to obtain cash.
The trustee distributes cash among the debtor’s creditors according to a priority list

14. Restoring Credit Remains on credit report for 10 years
Reduces line of credit
Bankruptcy gives people a chance to start fresh
Debt becomes discharged which actually reduces debt to income ratio
Time allows credit to be restored