1. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39 Slide 1 Debtors, Creditors, and Bankruptcy 39-1 39-1Legal Protection of Creditors 39-2 39-2Legal Protection of Debtors and Use of Credit Cards 39-3 39-3Bankruptcy CHAPTER 39 Lessons

2. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39 Slide 2 Legal Protection of Creditors Discuss four types of laws that protect creditors Explain how liens are created Explain how liens can protect creditor’s rights LESSON 39-1 GOALS

3. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 3 Hot Debate Norm drops his expensive watch off to be repaired Told to come back tomorrow Called on assignment to Russia Returns 4 months later to pick up watch

4. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 4 Legal reasons for Norm’s suit? The store owner knew of Norm’s job and the uncertainty of his being anywhere tomorrow. Such notice would prevent a sale under the normal timeframe of the law.

5. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 5 Store’s reasons for selling the watch? To cover their labor and parts expenditures

6. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 6 LAWS PROTECTING CREDITORS Laws allowing secured debts Pledges - Security for the payment of a debt PLEDGOR – debtor PLEDGEE – creditor

7. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 7 Pawn Shops Pawn shops How long must pawn shops hold your item(s)? Pawn shops can only take tangible items

8. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 8 Liens In the event of a default in payment, the creditor has the right to sell the item held to pay the debt. Two types of involuntary liens: Mechanic’s Lien rights to property for labor/materials homes, buildings, other real property

9. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 9 Artisan’s Lien right to possess property to ensure payment of the debt Repairing cars, hotel rentals i.e. Mechanic can keep you automobile until payment is received.

10. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 10 Laws involving third parties S U R E T Y S H I P Primarily Third party assumes liability if the debtor cannot pay. Primarily liable Principal debtor Creditor Surety – oral contract can be sufficient (not legally required), but should be in writing

11. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 11 Example of Right of Contribution

12. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 12 As a surety, what can you do if the debtor failed to pay and the money was collected entirely from you? Sue the principal debtor

13. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 13 Secondarily G U A R A N T Y – Secondarily liable Person who assumes liability if the debtor cannot pay. Creditor must first sue the debtor and get a judgment that proves the account is uncollectable (unlike a surety) Must be in writing (unlike a surety)

14. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 14 Laws concerning unsecured debts Creditor is in a weak position Must sue debtor for payment and obtain judgment Costly and time consuming Debtor may flee

15. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 15 Another way debt can be settled is by bankruptcy. Secured creditors may sell the collateral and satisfy their claim before unsecured creditors collect a dime.

16. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 16 Laws allowing garnishment of wages Limited to 25% of debtor’s take-home pay Under the Consumer Credit Protection Act arnishing

17. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39 Slide 17 Legal Protection of Debtors and Use of Credit Cards Discuss six types of laws that protect debtors Discuss the advantages and disadvantages of using credit cards LESSON 39-2 GOALS

18. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 18 LAWS PROTECTING DEBTORS Laws setting maximum interest rates Laws requiring disclosure of terms Laws challenging unconscionable contracts Laws prohibiting abuses in the credit system Laws requiring notice of debt payment to be recorded Laws allowing debtors to cancel debts and start over

19. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 19 Usury Laws States set interest limits (~ 30%) Limit only applies to “on time” charges

20. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 20 Personal, family, household, agricultural PERSONAL LOANS VS Business Loans Commercial Loans Consumer Borrowing

21. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 21 Federal Truth in Lending Act Consumer Credit Protection Act Requires creditors to clearly and completely disclose loan terms, i.e. interest and finance charges

22. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 22 Schumer Box - format

23. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 23 What is a Finance Charge? total added cost when one pays in installments for goods/services APR – A nnual P ercentage R ate Example: 1-1/2 month = 18% year Loan amount$30,000 Finance amount 5,400

24. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 24

25. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 25 Credit Sales Contract cash price down payment or trade-in allowance itemized list of all finance charges total amount to be financed

26. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 26 Home Mortgages Interest tends to be low debt secured by home – collateral Therefore  Truth in Lending Act does not protect mortgages

27. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 27 Truth in Lending Act ** F I N E D ** ** IMPRISONED ** OR BOTH! + pay the debtor twice the finance charges (no less than $100, not more than $1,000.) + court fees + attorney’s fees

28. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 28 LEASING Popular trend b/c no down payment Total price paid in leasing: higher than cash purchase higher than credit purchase especially true for +5 yr owners Consumer Leasing Act extends protection of Consumer Credit Protection Act to lessees (consumer who leases)

29. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 29

30. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 30 Unconscionable Contracts grossly unfair, oppressive, unethical Example: A motorist (who has no mechanical knowledge) breaks down. Car is towed to a mechanic.

31. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 31 Mechanics dictates the following terms: Labor ------------------- $2,000. ($900.) Parts -------------------- 1,000. ($500.) Emergency Service -- 800. ($50.) Judge may: -- refuse to enforce -- enforce without unconscionable clause -- limit the clause’s application so the contract is no long unfair

32. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 32 No relief for: overpriced items poor quality unneeded goods

33. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 33 LAWS PROHIBITING ABUSES IN THE CREDIT SYSTEM Federal Equal Credit Opportunity Act Federal Fair Debt Collection Practices Act Federal Fair Credit Billing Act Federal Fair Credit Reporting Act Credit Repair Organizations Act

34. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 34 Federal Equal Credit Opportunity Act Prohibits inquiries about: sex or marital status birth control practices childbearing intentions/capability opening an account in maiden name credit information reported in both names (women in the past were denied credit upon husband’s death)

35. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 35 Federal Fair Debt Collection Practices Act Debt Collection Abuses -- harassment of debtors -- abusive and profane language -- threats of violence -- contact with third parties (relatives, friends, co-workers) -- communication at work

36. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 36 Federal Fair Debt Collection Practices Act no protection for individual creditors who try to collect money in-house debt collection efforts employees of creditor sue for serious abuses defamation assault invasion of privacy intentional infliction of mental suffering

37. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 37 Fair Credit Billing Act mail bills at least 14 days before due consumer has 60 days to report errors respond to inquiries within 30 days settle complaints within 90 days FTC Regional Office – report complaints National creditors – Washington DC

38. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 38 Fair Credit Billing Act creditors may not send repeated, insistent letters demanding payment until disputes are settled Purchases more than $50 (products are defective) that were made in-state or within 100 miles of home – payment may be withheld

39. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 39 Allows discounts to customers who pay cash --

40. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 40 Credit Ratings http://www.cbsnews.com/video/watch/?i d=3993035n http://www.cbsnews.com/video/watch/?i d=3993035n

41. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 41 Federal Fair Credit Report Act Credit rating service companies

42. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 42

43. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 43 Credit rating Assessment of one’s ability to pay debts

44. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 44

45. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 45

46. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 46 Denied Credit Normally – one free credit report per year Freecreditreport.com

47. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 47 Credit Repair Organizations Act Consumer must sign  Consumer Credit File Rights Under State and Federal Law Make false claims about its services charge you until they complete the promised services perform any services until you have signed a written contract and completed a 3-day waiting period Must specify: payment terms + total costs detailed description of services they will perform time they will achieve the results guarantees they offer repair company’s name and business address

48. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 48 Credit Repair Suze Orman Credit Repair Scam

49. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 49 Notice of Debt Payment Debtor can require the creditor to record the fact that the debt has been paid in public records (when satisfied) Always get proof of payments – record payments properly

50. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 50 Last Resort Bankruptcy

51. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 51 CREDIT CARDS A credit card identifies the holder as a person entitled to obtain goods or services on credit. A credit card is usually issued in response to a consumer’s written application. The consumer who signs the card is bound in a contractual relation with the issuer and is liable for all purchases made with the card.

52. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 52 Store credit cards

53. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 53 Major credit cards

54. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 54 Credit card responsibilities If lost or stolen  $50 (charged before reporting) Cardholder asked for & received card Signed it Used it Issuer had informed liability for unauthorized use liability Issuer provided description of how to report Issuer provided positive means for ID on card Unauthorized use happened before cardholder reported it stolen/lost

55. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 55 Credit card responsibilities

56. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39 Slide 56 Bankruptcy Explain the purpose and importance of the bankruptcy procedure Identify the various types of bankruptcy Discuss the limitations of bankruptcy in discharging debts LESSON 39-3 GOALS

57. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 57 Article I, Section 8 US Constitutional Congress given power to establish: Uniform laws on the subject of bankruptcy throughout the United States

58. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 58 What does bankruptcy do? Creditors – provides fair treatment in their competition for the debtor’s assets Debtors – opportunity for a new economic start; free from most creditors’ claims

59. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 59 Bankruptcy Rates

60. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 60 Down Payment Down Payment Montana and Carolina could not wait to graduate from high school and get married. They were shocked to learn how much the other person owed. Montana had: A new truck Borrowed money on his credit card for the down payment, tag, and title Booked their honeymoon to Mexico on his credit card for $5,000. 60 © 2008. Oklahoma State Department of Education. All rights reserved.

61. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 61 Down Payment Down Payment Carolina: Drove an old car that constantly cost her money on repairs Charged those repairs on her credit card, along with her clothes, shoes, dinners with friends, and everything else she wanted or needed Her charges totaled $8,000. Is this a good start to a marriage? What do you recommend Montana and Carolina do to get control over their debt? 61 © 2008. Oklahoma State Department of Education. All rights reserved.

62. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 62 Managing Debt Refinancing debt Debt consolidation loan Combines all payments into one Tends to have high interest rate Must change your behavior or you will only have more debt! 62 © 2008. Oklahoma State Department of Education. All rights reserved.

63. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 63 Home Equity Loan Borrow money on your home to pay your monthly bills. If you miss one or more payments, you can lose your home. 63 © 2008. Oklahoma State Department of Education. All rights reserved.

64. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 64 Credit Counseling Restructure your debt Set up a new payment plan Monitor your progress Some are not reputable 64 © 2008. Oklahoma State Department of Education. All rights reserved.

65. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 65 Bankruptcy A legal process where you request help from the courts to help manage your debt. Bankruptcy petition Chapter 7 – Straight bankruptcy Chapter 13 – Reorganization of debt Financial counseling required 65 © 2008. Oklahoma State Department of Education. All rights reserved.

66. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 66Bankruptcy Chapter 7 Bankruptcy trustee takes your assets, converts them to cash, and uses the money to pay your creditors. 66 © 2008. Oklahoma State Department of Education. All rights reserved. Exempt and Non-exempt property Most people who file only have exempt property. Cannot re-file for 8 years No exceptions

67. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 67 Bankruptcy Chapter 13 Debt adjustment Allows you to keep your property. Repayment plan - You must have a job where you can make regular monthly payments to file. Lasts about three to five years. 67 © 2008. Oklahoma State Department of Education. All rights reserved.

68. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 68 Top Reasons for Bankruptcy Divorce Illness Gambling Unemployment Failing to pay taxes Excessive medical bills 68 © 2008. Oklahoma State Department of Education. All rights reserved. Why would these contribute to bankruptcy?

69. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 69 When to File? When you have no other choice: Financial or credit counseling? Call creditors? New payment plans? It is a drastic action, so be sure! Contact an attorney for pre- screening. 69 © 2008. Oklahoma State Department of Education. All rights reserved.

70. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 70 Costs and Benefits of Bankruptcy What are some of the “costs” of filing bankruptcy? What are some of the “benefits” of filing bankruptcy? 70 © 2008. Oklahoma State Department of Education. All rights reserved.

71. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 71 What Have You Learned? Rights Responsibilities Costs Benefits 71 © 2008. Oklahoma State Department of Education. All rights reserved.

72. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 72 Life After Bankruptcy? Remains on credit history for ten years Lower credit score Higher interest rates High risk Not all debt eliminated Fees Attorneys Counseling Others 72 © 2008. Oklahoma State Department of Education. All rights reserved.

73. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 73 Life After Bankruptcy? No more debt collectors calling Reduces stress Fresh start Lessons learned 73 © 2008. Oklahoma State Department of Education. All rights reserved.

74. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 74 Repairing Credit Pay bills on time. Establish budget. Avoid credit repair services! Continue these good habits, and your score will increase! 74 © 2008. Oklahoma State Department of Education. All rights reserved.

75. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 75 Earnings Earnings Good money management skills reduces the potential of filing bankruptcy or having excessive debt. High levels of debt is stressful. High levels of debt lead to personal and family problems. Know your options to make the best choices when dealing with debt. 75 © 2008. Oklahoma State Department of Education. All rights reserved.

76. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 76 Balance Sheet Balance Sheet What are the options to bankruptcy? Who files bankruptcy? Why do people file bankruptcy? What are the costs and benefits of bankruptcy? How can you avoid bankruptcy? 76 © 2008. Oklahoma State Department of Education. All rights reserved.

77. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 77 Paid in Full Paid in Full So, what do you think Montana and Carolina should do? If you said they need financial counseling, then you are correct. Managing debt is very stressful and is frequently a source of marital problems, suicide, and health-related issues. 77 © 2008. Oklahoma State Department of Education. All rights reserved.

78. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 78 Paid in Full Paid in Full Young people are among the fastest growing segment of the population filing bankruptcy because of high debt levels. With counseling and changes in behavior, this young couple might be able to avoid becoming a statistic. 78 © 2008. Oklahoma State Department of Education. All rights reserved.

79. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 79 You Be the Judge You have successfully filed bankruptcy and your debts have been forgiven. Does that ensure that you will have a successful financial future? © 2008. Oklahoma State Department of Education. All rights reserved.79

80. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 80 WHAT IS BANKRUPTCY? Chapter 7 liquidation, or “straight bankruptcy” Chapter 11 reorganization Chapter 13 extended time payment plan Chapter 12 plan

81. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 81 Chapter 7 – Straight Bankruptcy Non-exempt assets can be sold with proceeds going to pay off creditors Will eliminate most of debt

82. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 82 PROCEDURE FOR CHAPTER 7 BANKRUPTCY Voluntary bankruptcy Involuntary bankruptcy Exempt property Liquidation and distribution of proceeds

83. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 83 Which Property Is Exempt from Chapter 7 Liquidation? Chapter 7 bankruptcy exemptions vary from state to state but may include your: home home’s equity (a portion of it) Car (one car) land you own equipment and items needed for work insurance and pension payouts public benefits (like unemployment payments or workers compensation) jewelry, up to a certain value; and various personal property (like furniture, appliances and clothing).

84. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 84 Property That Can Be Subject to Chapter 7 Liquidation additional homes vacation homes a second vehicle family heirlooms valuable collector items multiple televisions cash, bank accounts, stocks, bonds and other investments.

85. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 85 Chapter 7 Bankruptcy

86. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 86 Chapter 11 - Reorganization Committee files a plan for reorganization for a business organization Committee will assess if plan is: Reasonable Created in good faith Must be in the best interests of the creditors A class of creditors must vote to accept the plan “Cramdown provision” – judge approves

87. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 87 Chapter 12 – Debt Relief for family farms (1986) Files a petition for relief from creditors Debtor cannot have: debts totalling more than $1,500,000 income of at least 50 % from farm sources 80% of all debts related to the farm

88. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 88 Chapter 13 Bankruptcy Must have regular income Avoids liquidation of assets Unsecured debts of less than $269,250 Secured debts of less than $871,550 Upon completion of payments – court grants discharge of debts 1976 – Educational Amendments (no relief unless you can prove hardship)

89. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 89 Bankruptcy Petition - Voluntary Filing a petition – beginning of voluntary bankruptcy Person does not have to be insolvent (unable to pay debts when they are due) to file the petition. Husbands and wives may file jointly

90. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 90 Bankruptcy Petition - Involuntary Person / business owing at least $11,625 to their petitioning unsecured creditors and unable to pay debts when due may be FORCEDinto involuntary bankruptcy. 12+ creditors – 3 must sign petition

91. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 91 Petition list of creditors and amouts owed list of all property owned (including exempt property) statement explaining the debtors financial affairs list of current income and expenses Concealing or transferring assets = crime

92. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 92 Trustee Bankruptcy trustee appointed Place secured creditors ahead of unsecured creditors

93. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 93 Non-dischargeable Debts certain taxes Alimony and child support Claims against the debtor for property obtained by fraud, embezzlement, or larceny Claims against debtor for willful and malicious injury

94. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 94 Non-dischargeable Debts student loans (gov’t. or nonprofit school) Unless loan became due more than 7 years before the bankruptcy Undue hardship Debts due to DWI Claims not listed by the debtor

95. LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 39Slide 95 Liquidation and Distribution Trustee distributes proceeds to prioritized list of creditors.  Secured creditors first / Unsecured second!