End of the Year Agenda 32.1 Secured Debt, Unsecured Debt 32.1 Review 32.1 Quiz 32.2 Secured Debt, Unsecured Debt 32.2 Review 32.2 Quiz 32.3 Secured Debt, Unsecured Debt 32.3 Review 32.3 Quiz Debt Protection Chap 32 Credit, Debt, Bankruptcy Project Chapter 32 Test Real World Project Pt. 1 Real World Project Pt. 2 Real World Project Pt. 3 Real World Pt. 4/5 (Budget & Reflection) Real World Project Final Final Exam

CHAPTER 32 Creditors, Debtors, and Bankruptcy 11/8/2018 CHAPTER 32 Creditors, Debtors, and Bankruptcy 32-1 Legal Protection of Creditors 32-2 Legal Protection of Debtors and Credit Card Users 32-3 Bankruptcy

32-1 Legal Protection of Creditors GOALS Recognize the value of a security interest Contrast a secured loan with an unsecured loan Chapter 32

FOCUS Do creditors need the protection of the law? Why or why not? Chapter 32

Question 1: Volunteer Please Read Norm was a foreign news correspondent for a national TV network. One afternoon he took his expensive watch to a jewelry store to be repaired. The jeweler recognized Norm and told him he watched his network. The jeweler said the watch would be ready the next day. Norm left the store. He then received a call telling him to immediately pack and head for Eastern Russia. When he went to get his watch upon his return almost 4 months later, the jeweler told him he had sold it after sending Norm 10 reminder. Norm responded that there was no mail service where he had been. The jeweler shrugged and said he was just following the state’s artisan’s lien laws. Norm’s attorney ultimately brought suit against the jewelry store for damages. What are the jewelry store’s reasons for selling the watch? What legal reasons support Norm’s suit?

Question 2: Volunteer Please Read To finance her divorce, Larry pawned her engagement ring for $300. Three months later, when she and her husband made up, she went back to redeem the ring and was told that she now owed almost $350. Shocked, she realized that the interest rate she was being charged was nearly 72% a year. Is this high interest rate legal?

32-1 Legal Protection of Creditors GOALS Recognize the value of a security interest Contrast a secured loan with an unsecured loan Chapter 32

FOCUS What is a creditor? Party that is owed a debt. Do creditors need the protection of the law? Why or why not? Creditors will lose money It affects everybody Chapter 32

LAWS THAT PROTECT CREDITORS Four Types of Laws that Protect Creditors: Laws allowing secured debts Laws involving third parties Laws concerning unsecured debts Laws allowing garnishment of wages Chapter 32

LAWS THAT PROTECT CREDITORS What is secured debt? Taking security interest in personal property or fixtures Or mortgage on real property Default = Creditor can sell property in order to repay loan Chapter 32

LAWS THAT PROTECT CREDITORS Some secured debts arrangements allow the creditor to have voluntary possession of property until debt is paid Pledges Pledgee Pawn Pledgee (creditor) Pledgor (debtor) Pledgor Chapter 32

LAWS THAT PROTECT CREDITORS Pawn Shops are legally regulated Tangible Goods High Risks = High Reward (60 – 72%) Broker must be licensed Keep accurate records Allow police inspection Goods must be held for specific amount of time before being sold Chapter 32

Review Secured Debt Creditor Pawn Pledge Pledgor Pledgee Chapter 32

LAWS THAT PROTECT CREDITORS What is a lien? Legal right in another’s property as security for the performance of an obligation (loan repayment) Chapter 32

LAWS THAT PROTECT CREDITORS Two types of Involuntary liens: Mechanics Lien -Real Property Artisan Lien Services associated with personal property Lien holder retains possession of property Chapter 32

LAWS THAT PROTECT CREDITORS Laws involving third parties Suretyship: contractual relationship where third party takes responsibility for unpaid debts Three parties involved Principal Debtor Creditor/Obligee Surety Cosurety Chapter 32

LAWS THAT PROTECT CREDITORS Guaranty Similar to a surety Guarantor is only secondarily liable Creditor must sue debtor first and prove debt is uncollectible No suit necessary in a surety Chapter 32

LAWS THAT PROTECT CREDITORS Laws concerning unsecured debts Small debts Based off of credit Oral or written promise Riskier for creditors Debtors can file bankruptcy Chapter 32

LAWS THAT PROTECT CREDITORS Laws allowing garnishment of wages Up to 25% Taxes Child Support Chapter 32

Page 574 #1-8 Frayer Model Chapter 32

32-2 Legal Protection of Debtors and Credit Card Users GOALS Discuss the various areas of debtor protection available under the law Relate the protections afforded credit card users under the law Chapter 32

FOCUS How does the Truth in Lending Act protect debtors? Chapter 32

DEBTOR PROTECTION 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 Chapter 32

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 Chapter 32

Laws Setting Maximum Interest Rates Usury Laws: set maximum interest rates Loans of Money Chapter 32

Laws Requiring Disclosure of Terms Consumer Loan: Person borrows money primarily for personal, family, etc. Aka: Personal Loan Truth in Lending Act Protector debtors from creditors Full Disclosure- interest and finance charges Chapter 32

Laws Requiring Disclosure of Terms Finance Charge: is the total added cost when a person pays in installments Creditor must state interest rate (APR) Cash price Down payment/trade-in allowance List of finance charges Total amt financed Chapter 32

Truth in Lending Act (cont.) Consumer Leasing Act Protects Lessee Chapter 32

Laws Challenging Unconscionable Contract Contracts that offends an honest person’s conscience/sense of justice Grossly fair and oppressive Judge can: Refuse to enforce the contract Remove the unconscionable clause Limit the clause’s application Chapter 32

How credit works Chapter 32

Assignment Go to the internet and find 10 credit card interest rates. Chapter 32

Name at least four of the six approaches the law takes to protect debtors. Chapter 32

PROTECTIONS FOR CREDIT CARD USERS Issuer of card specifies the limit of available credit Cardholder is liable for all purchases Liability limited under certain conditions Chapter 32

What is the liability limit for unauthorized credit card charges? Chapter 32

32-3 Bankruptcy GOALS Differentiate between the various types of bankruptcy filings List the stages of the Chapter 7 bankruptcy procedure Chapter 32

FOCUS Is bankruptcy fair? Chapter 32

THE BANKRUPTCY ACT Chapter 7 Liquidation, or “straight bankruptcy” Reorganization Chapter 12 Debt relief for family farms Chapter 13 Extended time payment plan Chapter 32

Of the various bankruptcy plans, which one involves total liquidation of the debtor’s nonexempt assets? Chapter 32

BANKRUPTCY PROCEDURE UNDER CHAPTER 7 The bankruptcy petition Voluntary bankruptcy Involuntary bankruptcy Required informational filing Selection of the trustee in bankruptcy Non-dischargeable debts Exempt property Liquidation and distribution of proceeds Chapter 32

What are the two types of bankruptcy under Chapter 7?