Bankruptcy

What is Bankruptcy?  A federal court process that can eliminate your legal responsibility for many debts or let you replay them over time

Common Reasons People File  Medical expenses  Lack of adequate insurance  Over-extended credit  Divorce

Chapter 7 Bankruptcy? “Liquidation” Bankruptcy: removes debts that are not secured by collateral or property/gets rid of most debt The means test: compares your income to the state median Requirements  Pre-bankruptcy counseling and education  Copies of tax returns  Certification of credit counseling win in last 6 months  Evidence of earning within the past 60 days  Net income/photo ID

What debts cannot be discharged?  Child support  Alimony  Student loans  Legal fines and penalties  Income tax from last 3 years  Luxury items purchased 60 days before filing  Cash advances made 70 days before filing

Types of Bankruptcy Chapters 13 (11 similar businesses)  “Reorganization”  Debt payments over 3 to 5 years  Keep property if making payments on time  Some creditors will be paid back in full with interest, others in full and the remainder will be repaid a percentage of the debt. *Bankruptcy panel decides on debts, not person filing *Missing a payments can result in liquidation

Consequences of Declaring Bankruptcy  Difficulty getting credit, finding a job, getting insurance and renting  Rate 6.25% to 6.50 above prevailing rate  Annual fee credit cards…  Chapter 7 Bankruptcy remains on credit report for 10 years; Chapter 13 remains for 7 years

Bankruptcy Facts  Average age: 38  Education Level: slightly better than the population at large  Filing status: 44% files as a married couple