Bankruptcy

What is Bankruptcy? A federal court process that can help eliminate legal responsibility for debts or repay them over time under the protection of the Bankruptcy Court Law that offers people in serious debt a way to make a financial fresh start

Reasons for Bankruptcy Large medical expenses Lack of adequate medical, automobile, or property insurance Job loss Natural disasters such as flood and fire Extreme debt Divorce

Debt The entire amount of money a person owes to lenders/creditors

Inflation An increase in the price of goods and services A dollar in the future won’t buy as much as a dollar today Did you know… Inflation usually averages between 3% and 4% each year Inflation has influenced our economy for decades ranging from.5% to 18% In 1971 a first class stamp cost 8 cents

Bankruptcy Basics Chapter 7 LIQUIDATION Court removes responsibility for paying most debt that is not secured by collateral or real property Must attend Credit Counseling 6 months prior to filing bankruptcy forms Complete Debtor Education after filing and before the bankruptcy can be discharged Must provide tax returns, evidence of income and a photo identification to the Court

Bankruptcy Basics Can keep “exempt assets” such as home, car, household furnishings, tools of trade, but must make payments if owe money on them State determines what assets are exempt Court appointed trustee takes possession of non-exempt property, arranges for its sale and is responsible for paying as many debts as possible with the proceeds of the sale Can file Chapter 7 once every 8 years

Bankruptcy Basics Chapter 13 REORGANIZATON (REPAYMENT) Allows payment of debts in monthly installments over a 3 to 5 year period Court must approve plan to repay all or part of money owed Can keep all property as long as payments are made on time Cannot file Chapter 13 if obtained bankruptcy in the past 2-4 years

Bankruptcy Basics Chapter 11 Involves a corporation or partnership Company proposes a plan of reorganization to keep business alive and pay creditors over time General Motors Texaco (Merged with Chevron) United and Delta Air Lines Blockbuster Video K-Mart (Merged with Sears) Pittsburgh Penguins Hockey Team

Bankruptcy Basics Debts that CANNOT be wiped out by bankruptcy Child support, alimony or debts owed from a divorce decree or settlement Debts incurred while driving under the influence of alcohol or illegal drugs Student loans Fines and penalties imposed for law violations Income taxes Credit purchases of $1,150 or more for luxury items or services made within 60 days of bankruptcy filing Cash advances made within 70 days of filing

Bankruptcy Basics Consumer Credit Counseling Services Offer credit education, financial guidance and budgeting workshops Contact your creditors and negotiate a payment plan Some creditors will waive interest charges and late fees if enrolled in debt management plan Some credit counseling companies are not reputable May be for high-profit company Investigate with Better Business Bureau before signing contract and paying any money

Consequences of Bankruptcy Influences future financial freedom Shows up on credit rating agency report for 10+ years and may lower your score Hard to get new credit card or rent a place to live if landlord checks credit report Pay higher interest on credit cards, loans May affect getting hired for new job while bankruptcy is listed on credit report

13 Things to do BEFORE filing: Reduce your spending Sell property and other assets Talk with your creditors about reduced Talk with a non-profit counseling agency Talk with an attorney and understand the consequences of declaring bankruptcy Consider consolidating debt carefully to make sure doesn’t push deeper in debt with high fees and interest rates

14 Tips to Remember Keep track of your daily expenses Save money on a regular basis Make changes right away if you see yourself starting to get into financial trouble Pay attention to your household finances, especially if you are married