Banking and Financial Services

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 A loan that is in default – when a borrower does not meet the loan obligations, such as:  Regularly making late payments, that is, not on or before the due date  Not making payments on a loan Copyright © Texas Education Agency, All rights reserved. 3

CollectionGarnishmentRepossession Loan modification ForeclosureBankruptcy Copyright © Texas Education Agency, All rights reserved. 4

 Collection- when payments are not made on a loan and efforts must be made to collect the debt owed.  A loan can be transferred to another department within the lending institution or, to an outside source who will attempt to collect as much of the loan funds as possible. Copyright © Texas Education Agency, All rights reserved. 5

 Portion of a borrower’s salary is automatically withdrawn to help to repay debts  Requires a court order  According to Title III of the Consumer Credit Protection Act, garnishment may not exceed:  25% of the week’s disposable income, or  “the amount by which his disposable earnings for that week exceed the Federal minimum hourly wage... whichever is less”  Stops if the borrower files bankruptcy Copyright © Texas Education Agency, All rights reserved. 6

 When a lender takes possession of an asset that has a loan attached to it  Lender can sell asset and use funds to repay the loan Copyright © Texas Education Agency, All rights reserved. 7

Possible reduction of an interest rate on a loan Possible extension of the loan term Designed to help make a loan more affordable for a borrower and is less costly than legal processes such as foreclosure or bankruptcy Copyright © Texas Education Agency, All rights reserved. 8

 Occurs as a result of non-payment of a loan  Legal proceeding that removes the property rights of an owner  Usually refers to real estate such as homes, buildings or land  Short sale– can preclude a foreclosure by selling property for less than what is owed, but reduces costs of a potential foreclosure  Real-estate owned– when a bank cannot sell a property at a foreclosure sale and has to try to sell it itself Copyright © Texas Education Agency, All rights reserved. 9

 Legal proceeding designed to reduce or eliminate a borrower’s debt  Sometimes referred to as a second financial chance by allowing a borrower to have a “clean slate”  “Stays,” or stops, foreclosure proceedings temporarily Copyright © Texas Education Agency, All rights reserved. 10

On the BorrowerOn the Lender Remains on borrower’s credit report for 10 years Second chance for lender to receive money toward loan, depending upon the chapter filed Allows borrower to, somewhat, “start over” financially Copyright © Texas Education Agency, All rights reserved. 11

Chapter 7 Liquation: assets can be sold and cash is used to repay debt More popular for individuals Chapter 11 Reorganization: businesses can change their structure Make agreements for repayments of debt Chapter 13 A form of reorganization for individuals Borrower must have an income Copyright © Texas Education Agency, All rights reserved. 12

 Credit counseling  Budgeting workshops  Counselors contacting creditors  May renegotiate credit terms  May charge fees for their services  Debt consolidation  Can be high-interest loans  Combine all of your debt into one loan  May charge fees for their services Copyright © Texas Education Agency, All rights reserved. 13

 Case Study Assignment #1 – Provide students with scenarios of different problem loan situations. In pairs, have them decide upon the most favorable resolution of their situation as it relates to the details presented in each case. They will create a presentation using visuals as appropriate.  Famous Bankruptcies Assignment #2 – Students will conduct research to locate famous people in the news who have filed bankruptcy. They will select one and write a one-page report including the following information: when the bankruptcy was filed, what chapter (7, 11, 13), what happened in the bankruptcy (for example, was property sold? did creditors get the money they were owed), and any other information they feel is important. Proper writing conventions should be followed.  Financial Crisis Brochure Assignment #3 – Students will research causes of the financial crisis of 2008 that were related to real estate lending and prepare an informative brochure detailing their findings. They should include concepts such as subprime lending and bailouts of major financial institutions, as well as what has been done since then to prevent another crisis. Proper mechanics should be used as well as graphics where appropriate. Copyright © Texas Education Agency, All rights reserved. 14