Laws Protecting Debtors/Creditors and Bankruptcy Unit C Basic Business Law Objective 6.02

2 Laws Protecting Debtors Setting maximum interest rates Usually apply to loans of money Some states govern charges imposed on credit purchases of goods/services “on time”

3 Disclosure of Terms Full disclosure of interest and finance charges Does not limit percentage amount True annual percentage rate (APR) Does not apply to first mortgages Laws Protecting Debtors

4 Challenging Unconscionable Contracts Unfair and oppressive Judge decides if conscionable Refuse to enforce contract Remove unfair clause and enforce contract Limit clause’s application so no longer unfair Laws Protecting Debtors

5 Prohibiting Abuse in the Credit System Federal Equal Credit Opportunity Act May not refuse due to sex or marital status May not ask marital status if applying for unsecured separate account May not prohibit a married female from opening/maintaining account in maiden name May not request information about birth control practices or intentions Married persons with joint accounts have right to have credit information reported in both names Laws Protecting Debtors

6 Federal Fair Debt Collection Practices Act Prohibits: Harassment of debtors Abusive and profane language Threats of violence Contract with 3 rd parties Communication with the debtor at work Laws Protecting Debtors

7 Federal Fair Credit Billing Act Creditors must mail bills at least 14 days before due date Creditors must acknowledge billing inquiries within 30 days Creditors must settle complaints within 90 days Creditors may not send repeated letters demanding payment until disputes over billing are settled Credit cardholders may withhold payment for items defective without being liable for entire amount owed (purchases of $50 or more and 100 miles from home) Laws Protecting Debtors

8 Federal Fair Credit Reporting Act Deals with unfavorable credit reports Have right to correct report Credit Repair Organization Act Governs companies that help consumers correct credit reports Laws Protecting Debtors

9 Notice of debt payment to be recorded Request receipt Canceled checks Bankruptcy Chapter 7 Chapter 11 Chapter 13 Chapter 12 Laws Protecting Debtors

10 Bankruptcy Chapter 7 – Liquidation Sale of nonexempt property for cash Nonexempt property Bank Accounts Stocks Bonds

11 1. File the following with the court: a. List of all creditors and amounts owed b. List of all property owned c. Statement about financial affairs d. List of current income and expenses 2. Trustee is selected 3. Assets liquidated 4. Proceeds used to pay creditors 5. Money left over returned to debtor Chapter 7 Bankruptcy Procedure

12 Chapter 11 Reorganization Business can keep operating Files plan of reorganization Court approves plan Bankruptcy

13 Bankruptcy Chapter 12 Used for Family Farmers wishing to make a debt adjustment to save the business Debt Ceiling $1.5 million Debt plan is for 3 years with a possibility of a 2 year extension

14 Chapter 13 Extended Time Payment Plan Applies to individuals with regular income Unsecured debts less than $250,000 and/or secured debts of less than $750,000 Submit plan for repayment of debts within three years May be extended to five years Creditors cannot file suit Bankruptcy