1. Why You Don’t Want to Go into Bankruptcy
CARE PROGRAM

2. This presentation will cover the following topics
How we got to today’s bankruptcy system
Chapter 7 or Chapter 13?
Exemptions
Why there is no privacy in bankruptcy
Non-dischargeable debts
Bankruptcy hits your family and friends

3. Bankruptcy in history
Before bankruptcy, there was debtor’s prison (read Charles Dickens)
Bankruptcy laws started in early 1840s
Modern bankruptcy law started in 1898, revised since then
Credit card companies successfully lobbied for bankruptcy law changes in 2005 to make bankruptcy tougher for consumers

4. Two main types of consumer bankruptcy
Chapter 7 and chapter 13
Things that chapter 7 and chapter 13 have in common:
You have to go through the court process. You have to appear before a judge and report to a bankruptcy trustee
For all practical purposes, you have to hire a lawyer. That costs even more money
You have to go through approved credit counseling before filing.
It’s a black mark on your credit report: 10 years

5. Key features of Chapter 7
You turn over all your assets except “exempt assets” to a bankruptcy trustee.
Bankruptcy trustee sells all your assets to pay creditors.
You get a fresh start by “discharging” old debts, but . . .

6. Key features of Chapter 7
There are some debts you don’t discharge (more on that in a minute)
“Discharge” means you are legally excused from paying those debts--but credit reporting agencies can still report this information
After 2005 Bankruptcy Code changes, not available for everyone. If your discretionary income is too high, you are not allowed to file chapter 7.

7. Look at the forms you have to complete to show income calculation

9. Key features of Chapter 13
You retain control of your assets.
You must write a “plan” to repay your debts over 3 to 5 years.
The plan must channel all your income other than necessary living expenses to debt repayment.
You get a broader discharge than in chapter 7, but only if you complete your plan.

10. Exemptions: in Illinois they are limited
Technically, creditors and the trustee cannot collect on exempt assets.
But they can sell assets whose value exceeds the exempt amount and give you just the cash amount of the exemption.

11. Illinois Exemptions Home: $15,000 1 motor vehicle: $2400
Life insurance, 401(k), social security, certain other retiree benefits
School books, family pictures, Bible, clothes
Professional books and tools of the trade: $1500
Catch-all: $4,000
Not much else

12. Remember, bankruptcy can happen to anyone!
Toni Braxton
Teresa Giudice
50 Cent
Tia Carrere
Larry King
Abraham Lincoln
Michael Vick
Terri Polo

13. Why There is No Privacy in Bankruptcy
Bankruptcy debtors have to reveal vast amounts of detailed, intimate, sometimes embarrassing information
You sign under penalty of perjury
It’s all public record

14. For example, look at some of the personal information Michael Vick had to reveal in his bankruptcy

18. Trustee makes the debtor answer questions in front of creditors
Trustees can take away jewelry, car keys on the spot
Creditors can make you answer questions about your life for the last several years

19. You cannot discharge out of some debts
For example:
Student loans (see next slide)
Luxury consumer debts over $500 within 90 days of bankruptcy
Cash advances over $750 within 70 days of bankruptcy
Debts as a result of fraud

20. Student Loans Not dischargeable unless “UNDUE HARDSHIP”
Undue hardship is the present and future inability to repay the debt and maintain a minimal standard of living
Only one percent of student loan debt gets discharged based upon a showing of undue hardship

21. And remember . . .
A private employer is legally entitled to turn you down for a job simply because you filed for bankruptcy!

22. It can drag in your family and friends
The bankruptcy trustee can sue these people to give the trustee money
Gifts within 2 years of bankruptcy, e.g., to family and friends
Paying off family debts within 1 year of bankruptcy.

23. Conclusion Bankruptcy takes away your privacy
Bankruptcy touches your family, friends, and job
Bankruptcy doesn’t protect you from all your creditors
Bankruptcy is expensive – financially and emotionally
Bankruptcy destroys your credit

24. Presentation of Chicago CARE Program
Graphic Design:
Bonnie McDuffie