1. Chapter 19
Problems with Credit

2. Solving Credit Problems
The 20/10 Rule –
Total borrowing should not be more than 20% of your yearly take-home pay
Monthly payments should not exceed 10% of your monthly take-home pay

3. Credit Counseling Private and government-sponsored counseling service
Small service fee may be charged
Help set up a realistic budget
Give advice how to stay within the budget
National Foundation for Consumer Credit (NFCC)
A consumer credit counseling service (CCCS)

4. Debt Adjustment Finance companies Service plan (4 steps)
Take your paycheck and checkbook and make debt payments for you. You are given an allowance until all bills have been paid off. (3-5 years possible)
Counsel you so that you understand how you got so far into debt and how to avoid doing so again in the future

5. Debt Adjustment Steps Continued
Work with you to create a reasonable budget that you can live with. Cards taken away and given back slowly.
Supervise your budget and help you make any needed changes or adjustment

6. Credit Repair If your rating is already poor – You can
Obtain copies of your credit report
Challenge incorrect information
Respond to disputes
Or, for a fee, a credit-repair company will do the above

7. Credit Repair Begin to use credit responsibly
Start by paying off debts through credit counseling or debt adjustment
Then make small purchases on your card and paying off the balance in full each month
Repair is a slow process, it may take several years

8. Credit Scams Beware of offers that do the following
Require you to pay a fee before performing any service
Do not tell you your legal rights
Suggest that you start a “new” credit report by applying for a new social security number or employer identification number (EIN)
Recommend that you not contact the credit bureau yourself

9. Credit Scams
By law, finance companies may not charge you until they have performed the promised services
They must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract.
Contract – Name, address, payments, total cost and services to be performed. Look for non-profit

10. Bankruptcy – What is it?
Legal process that relieves debtors of the responsibility of paying their debts or protects them while they try to repay
A second chance, but has serious consequences

11. Bankruptcy – Who’s Involved
Debtors – the persons who owe money to others (insolvent)
Courts – preside over the proceedings
Lawyers – complicated system to navigate
Creditors – the persons/businesses to whom the debt is owed

12. Types of Bankruptcy
Voluntary - most common, debtor asks court to be declared bankrupt
Involuntary – doesn’t happen very often, creditors must ask the court for this option

13. Types of Bankruptcy
Chapter 11 – Reorganization form for businesses with intent to reorganize
Chapter 7 – sometimes called straight bankruptcy- liquidation for individuals
Chapter 13 – the wage-earners plan with intent to repay all creditor proportionally and retain as many assets as possible

14. Legal Advice
Since Bankruptcy can be complicated it is best to consult an attorney to decide what your best course of action is and how it will impact you

15. Reaffirmation of Debts
Creditors may ask debtors to repay debts even after they have been discharged
Reasons
May not want to saddle co-signer with the debt
May not want items repossess, such as a car which you may need to get to work

16. Other Information
Once you file for bankruptcy, you are not allowed to file again for 6 years
Once filed, the judgment stays on your credit record for 10 years