Filing for Bankruptcy Mr. Stasa – WE City Schools © 1

Questions you will be able to answer by the end of class today  What are the different types of bankruptcies and what do they do?  What are the pros and cons of bankruptcy?  Does bankruptcy erase all debt?  Can you ever recover from bankruptcy?  How can you avoid filing for bankruptcy? 2

What are the top 4 largest consumer debts in the US? 1. Home mortgages (15 trillion dollars) 2. Student loans (865 billion dollars) 3. Credit cards (694 billion dollars) 4. Medical bills (are the cause of more than 60% of bankruptcies filed in the US) 3

What are the common types of bankruptcy?  Chapter 7  Chapter 13 4

What is Chapter 7 bankruptcy?  Allows you to erase most (but not all) of your debt without repayment  Unsecured loans will be discharged  Secured loans must be paid or they will be surrendered  Property may be liquidated (sold for cash) to repay creditors  You must be currently employed or have very low income to qualify  Must undergo financial counseling  Is much harder to file for than Chapter 13 5

Are there any benefits to Chapter 7 bankruptcy?  Chapter 7 bankruptcy provides a “fresh “start” by erasing most debts  Items cannot be reported as delinquent on credit report  Common debts that can be erased are:  Credit cards  Medical bills  Utility bills  Overdue rent  Repossession debt 6

What is Chapter 13 bankruptcy?  Chapter 13 bankruptcy allows you to repay most of your debt over an extended period of time with installments (for no more than 5 years)  Courts approve a repayment plan  Must attend financial education courses 7

True or false? Filing for bankruptcy will erase all of my debts. FALSE ! 8

Does bankruptcy erase all debts?  The following debts cannot be erased when filing for bankruptcy:  Student loans  Child support  Alimony  Fines for crimes committed 9

What are consequences of filing for bankruptcy?  Makes it harder to obtain / or may be denied a:  Car loan  House loan  Student loans  Personal loan  Harder to obtain a new credit card  Employers may not hire  Landlords may not rent  Current credit cards may be closed  Interest and fees WILL be higher  Your credit score is severely lowered (usually points)  Remains on credit report for 10 years 10

How can I fix my credit after filing for bankruptcy?  Contact a debt counseling service  Be extremely careful to only seek help from an accredited counselor  Some counselors are there to profit from your debt and can hurt the situation more  The National Foundation for Credit Counseling  The NFCC is a non-profit accredited agency 11

How does a credit counselor attempt to fix my debt?  They will sign you up for a debt repayment plan  Only if your debt can be repaid in 5 years  The agency will negotiate with your creditors to lower your interest rates and have some debt forgiven  All debts will be gathered together  You will make one single payment per month to the agency  Some may charge a monthly fee, but most are free  This fee should be less than $30 12

How can I avoid bankruptcy?  Don’t use a credit card unless you have the cash to repay it  Always try to pay credit cards in full  At least make the minimum payment  Make a budget and stick to it  Don’t buy a car or house if the payments are more than you can afford  Avoid co-signing on loans for others who have questionable habits 13

Always remember…  Bankruptcy is never an easy way out  Bankruptcy is 100% avoidable  Never spend more than you can afford  Always have at least 6 months of an emergency savings fund  Bankruptcy will make it harder to borrow money, get a job, and rent an apartment 14

Red Ticket Time!  What are the main differences between chapter 7 and chapter 13 bankruptcies?  What debts can never be erased when bankruptcy is filed?  How many years does bankruptcy remain on your credit report? 15