1. Bankruptcy WHAT IS IT’S EFFECT?

2. Bankruptcy  A legal process that relieves debtors of the responsibility of paying their debts or protects them while they try to repay.  Article One, section Eight of the U.S. Constitution authorizes Congress to enact bankruptcy laws.

3. Purpose  To protect debtors by giving them a fresh start, free from creditors’ claims.  To give fair treatment to creditors competing for debtors’ assets.

4. Reasons for Bankruptcy  Medical Expenses  Job Loss  Business Losses  Natural Disaster  Credit Card Debt

5. Debt  The entire amount of money a person owes to lenders. Inflation:  An increase in the price of goods and services. A dollar in the future won’t buy as much as a dollar today.

6. Two General Classes of Debt  Secured loans – loans backed by specific assets that the debtor pledged as collateral to assure repayment.  Unsecured debt – a loan that is not backed by pledged assets.

7. Involuntary Bankruptcy  When creditors file a petition with the court, asking the court to declare you, the debtor, bankrupt. (If the court agrees, it takes your property to pay the debts.)

8. Voluntary Bankruptcy  A person files a petition with a federal court asking to be declared bankrupt. Notice is given to creditors. The court takes your assets to pay the debts.

9. About Bankruptcy  Bankruptcy is a court proceeding  Bankruptcy remains on your credit report for 10 years  Each debt that was discharged under the bankruptcy petition (such as credit card accounts) may remain on your report for seven years.  You should hire an attorney to file bankruptcy.

10. Discharged Debts  Debts erased by the court during bankruptcy proceedings.  Creditors can no longer try to collect.  Liquidation – Court collects your assets and sells them to pay some of the debts.  Reorganization – you keep your assets by submitting a plan to the court to repay the debts.

11. https://www.youtube.com/watch?v=R1zIe8nvPD4

12. Chapter 11  Reorganization form of bankruptcy for businesses that allow them to continue operating under court supervision as they repay their restructured debts.

13. Chapter 7  Straight bankruptcy  Liquidation form that wipes out most debts nor secured by collateral.  Collateral is property that guarantees a loan  Mortgage loans are guaranteed by real estate and car loans by the cars.  You are allowed to keep exempt assets. This is the property you are allowed to keep when you file bankruptcy  Cannot re-file for 8 years.

14. Means Test  All bankruptcy filers are subject to a “means test” to determine if they are eligible for Chapter 7 or if they must file a Chapter 13  Your income is compared to the median income in the state you live in, in addition to your financial ability to repay your debts.  Debtors who can pay at least $6,000 within a five year period ($100 per month) will be required to file a chapter 13.

15. “Means Test for Utah”  Median State Income for Utah  1 Member Household - $49,347.00 2 Member Household - $57,734.00 3 Member Household - $65,311.00 4 Member Household - $70,176.00 5 Member Household - $78,276.00 6 Member Household - $86,376.00 7 Member Household - $94,476.00 8 Member Household - $102,576.00 9 Member Household - $110,676.00 10 Member Household - $118,776.00 (updated 2014)

16. Credit Counseling  Pre-bankruptcy credit counseling and pre- discharge debtor education are bankruptcy requirements  People applying for bankruptcy must complete a federally approved credit counseling course within six months prior to filing.  A debtor education course must be completed after filing to have debts discharged.  Fees are normally charged for counseling and debtor education. If you cannot afford to pay, there is no charge.

17. To file bankruptcy you must also provide:  A copy of your latest tax return for a Chapter 7.  Past 4-years tax returns for a Chapter 13  A certificate of credit counseling  Evidence of earnings in the past 60 days  Monthly net income and any anticipated increase in income  A photo ID

18. The Court Appoints a Trustee  The trustee arranges for the sale of your non- exempt property and is responsible for paying as many of your debts as possible with the proceeds  Not all debts can be erased by bankruptcy

19. Chapter 13  Reorganization form that allows debtors to keep their property and use their income to pay a portion of their debts over 3-5 years.  There is a court enforced repayment plan.  You are allowed to keep all your property as long as you continue to make your chapter 13 payments on time.  Alimony and child support payments and long-term secured obligations such as your home mortgage cannot be discharged.

20. https://www.youtube.com/watch?v=DXv-na6y8nE

21. Key Points  You can only file bankruptcy under one category at a time.  Chapter 7 offers a financial fresh start and is a quicker process compared to a Chapter 13.  A means test will determine if you are eligible to file Chapter 7 or repay part of your debt under Chapter 13.  Chapter 7 can be filed only once every eight years.  You cannot file Chapter 13 If you obtained a bankruptcy discharge in the past 2-4 years.

22. Consequences of Bankruptcy  When you file bankruptcy all your property except exempt assets will be sold to pay your creditors.  Exempt assets are property you are allowed to keep during bankruptcy  If you file a Chapter 13 repayment plan, it will take 3 - 5 years to repay your debts and receive your discharge from the court.

23. Changes to Bankruptcy Law  New law in effect October 17, 2005.  New limits on personal bankruptcy.  Requires those filing to get counseling before they are allowed to file.  Bars filers with above-average income from filing Chapter 7 (liquidation).  New debt may not be discharged.  Quicker collections process

24. Bankruptcy Will NOT Remove:  Child support and alimony  Debts for personal injury or death that you caused while under the influence of alcohol or illegal drugs.  Student loans  Fines and penalties for law violations, such as traffic tickets, court-ordered payments or recent property tax assessments.  Income taxes from the past three years and other tax debts.  Credit purchases of $1,150 for luxury items within 60 days of filing.

25. Bankruptcy Will NOT Remove:  Loans or cash advances of $1,150 or more taken within 60 days of filing.  Debts owed to a single creditor of more than $600 for luxury goods purchased within 90 days of filing.  Cash advances of $750 made within 70 days of filing.  Debts or judgments based on fraud or other illegal activities.  Criminal restitution resulting from illegal activities  Debts you owe from a divorce decree or settlement.  Any debts you forgot to list in you bankruptcy filing.

26. Reaffirmation  Creditors ask debtors to agree to pay their debts even after bankruptcy has been charged.  You may decide to pay instead of giving up your property.

27. Causes of Bankruptcy  Job loss  Emotional spending  Failure to budget and plan  Catastrophic injury or illness

28. Advantages of Bankruptcy  Debts are erased  Exempted assets are retained  Certain incomes are unaffected  The cost is small

29. Disadvantages of Bankruptcy  Credit is damaged  On record for 10 years  Any credit given will be high interest  Property is lost  Some obligations remain  Child support, alimony, student loans, taxes  Co-signers must pay

30. Alternatives to Bankruptcy  Out of court settlement  Reduction of payments  Attaining help from consumer credit counseling  Payment of debts by selling or borrowing on property.

31. Things to Consider Before Filing  A bankruptcy filing could determine whether or not you get a job.  Your insurance rates could rise.  You may find it difficult to rent an apartment or qualify for a home loan.  Bankruptcies stay on your credit report for 10 years.  Bankruptcy can lower your credit score.