Problems with Credit Unit 3

Did You Know?  Most lottery winners spend all of their winnings and are broke within 5 years.  40% of all personal bankruptcies are due to medical bills.

 Paying only minimum payments  Your total credit card balance increases every month  You miss loan payments or often pay late  You use savings for necessaries (food, utilities)  You borrow money to pay off old debts  You exceed credit limits on your credit cards  You have been denied credit because of your bad credit report Warning Signs of Debt Problems How do you know when you are getting into financial trouble?

Credit Score

 Creditors often turn their “bad debts” over to debt collection agencies  These agencies have one goal—get you to pay what you owe!  Harassing phone calls  Constant attempts to contact you  May call the people you listed as references  If you are in a joint account or had a co-signor, that person(s) will be affected too! Debt Collection Practices

 Financial Counseling Services  Consumer Credit Counseling Service  Other counseling services – provided by your  Credit Union  Military bases  State and Federal Housing Authorities What are your options??

 Bankruptcy – is a legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts  It is a court proceeding  The bankruptcy process is a LAST RESORT  Designed to help debtors begin the process of repairing their credit Last Resort!

 Job loss  Emotional spending  Failure to budget and plan  Catastrophic injury or illness Why do people declare bankruptcy?

 Chapter 7  Chapter 13  Chapter 11 Types of Bankruptcy

 An individual is required to draw up a petition listing his or her assets and liabilities  Assets – represent value of ownership that can be converted into cash  Liabilities – financial obligations by the debtor; money owe  AKA “straight bankruptcy”  Many, but not all, debts are forgiven  Assets are SOLD to pay creditors Chapter 7

 A debtor with a regular income proposes a plan to the court for using future earnings or assets to eliminate his or her debts over a specific period of time  Normally keeps all or most of property  Pay back period can be as long as 5 years  Debtor makes regular payments to a Chapter 13 trustee, appointed by the court, who distributes the money to the creditors Chapter 13

 Involuntary Bankruptcy  Occurs when creditor file a petition with the court asking the court to declare you bankrupt  It takes over your property and other assets to pay your debt  Does not occur vey often  Chapter 11  Reorganization for businesses that allows them to continue operating under court supervision as they repay their restructured debt Involuntary & Chapter 11

 Experiences vary for each situation  May not be able to get credit at all for a while  If credit is granted, the consumer will most likely pay a very high interest rate compared to others with good/excellent credit  Kept on your credit report for up to 10 years Credit after bankruptcy??