Chapter 19 Problems with Credit
Solving Credit Problems Credit problems usually arise after months and years of poor planning. Easier to start off using credit wisely than to get out of trouble later. Exercise good credit management –
20/10 Rule A guideline to credit planning. 20/10 Rule – total borrowing should not exceed _____ of ______ take-home pay, and _______ payments should not be more than _____ of your monthly take-home pay. Does not apply to mortgages.
Danger Signs You pay for everything with credit You often pay late or skip payments You shift credit card balances from one card to another You worry about how you will pay bills You don’t have funds for emergencies Your credit cards are near their limits Your credit score is falling
Steps to Get Help Credit Counseling Debt Adjustment
Steps to Get Help Credit Repair Legal Recourse debtor - bankruptcy –
Bankruptcy Laws 2 Goals of Bankruptcy Laws 1) 2) Bankruptcy Act of 1898 Bankruptcy Reform Act of 1994 – tightened rules but allowed insolvent debtors to keep more of their assets Bankruptcy Abuse and Prevention Consumer Act of 2005 – Made the declaration of bankruptcy more difficult for individuals – mandatory counseling, courses, etc.
Classes of Debt Secured loans – Unsecured debt –
Bankruptcy Vocab Involuntary bankruptcy – Voluntary bankruptcy –
Credit Vocab Discharged debt – Liquidation – Reorganization –
Bankruptcy Vocab Chapter 11 – Chapter 7 – Chapter 13 –
Bankruptcy Vocab Exempted property $21,625 equity in a home $3,450 interest in motor vehicles Items worth up to $500 for a single item for household goods and furnishings, appliances, clothing, personal items, for up to $11,525
Debts that cannot be discharged
Reaffirmation of Debts May choose reaffirmation if you had a __________. May choose if you don’t want to lose _________.
Causes of Bankruptcy
Advantages of Bankruptcy (social security, veteran’s pay, unemployment comp., alimony, child support, disability, pensions)
Disadvantages of Bankruptcy