1. A person or company to whom a debt is owed.
CREDIT DEFINITIONS
Credit
Trust given to another person for future payment of a loan, credit card balance, etc.
Creditor
A person or company to whom a debt is owed.
Write the terms “credit” and “creditor” on the board, flipchart, or blank
transparency, leaving enough space to add words or short phrases around them.
• Ask participants to define the two terms.
• Write down the responses using one-word descriptions, placing these
words around the appropriate term.
Use “Slide 1: Credit Definitions” to be sure all participants understand the vocabulary.
• Credit = Trust given to another person for future payment of a loan,
credit card balance, etc. This person is typically called the “borrower.”
• Creditor = A person or company to whom a debt is owed. This
person or company is typically called the “lender.”
Take each definition, and ask participants to identify the words they feel are
important in understanding and using credit. As the words are identified,
showcase them by underlining or some other method. The key to this
discussion is ensuring that participants recognize the impact of various words within the definitions to the successful use of credit. 1
Slide 1 – Credit Definitions Lesson Reference: Credit, Activity 1 – Handout 1

2. WHEN TO USE CREDIT
Can you describe a situation when it is a good time to use credit and when it is NOT a good time to use credit?
Ask for a show of hands of who uses credit.
Display “Slide 3: When to Use Credit.” Divide the group into teams of two to three. Ask half of the teams to think of when it is a good idea to use credit, and have the other half think about when it is not a good idea to use credit.
After a few minutes, call time. Ask for one example from each team. As reasons are shared, gather consensus by asking if the full group agrees. Continue until all reasons are shared. Encourage everyone to add the various reasons to their individual slides. Responses may vary but should include some of the following:
When to Use Credit
• Great to have in times of emergencies, family crisis, unexpected illness, etc.
• Could be a convenient way to manage income by keeping track of spending—provided bills are paid in full each month.
• Allows the benefit of having large items such as a home, car, and appliances while still paying for them.
When Not to Use Credit
• Can lead to spending beyond one’s means because it is so convenient and easy to use.
• If one is tempted to live on credit.
• When credit takes away the opportunity to use the income that pays off the credit, which is needed for other things.
• When there is concern that the credit cards and credit account numbers may be stolen and used by others. 2
Slide 3 – When to Use Credit Lesson Reference: Credit, Activity 1 – Handout 2

3. WHAT IS A CREDIT SCORE?
A credit score is a number that helps a lender predict how likely an individual is to repay a loan, or make credit payments on time.
A credit score is a number that changes as the elements in a credit report change.
A credit score has broad use and impact. Your credit past is your credit future.
FICO® scores, one of the most common credit scoring systems, vary between 350 and 850.
VantageScoreSM, a new credit scoring system developed by the three credit bureaus, ranges from
Write the term “credit score” on the board, flipchart, or blank transparency.
• Ask participants to define the term.
• Debrief participants by showing “Slide 1: What Is a Credit Score?”
Talking points for Slide 1:
A credit score is a number that tells a lender how likely an individual is to repay a loan, or make credit payments on time. When a lender requests a credit report and score from a credit reporting agency, the score is calculated by a scoring model — a statistical mathematical equation that evaluates many types of information from your credit report at that agency. By comparing this information to the patterns in thousands of past credit reports, scoring identifies your level of credit risk.
There are several different credit scoring models that are used today. Examples of different models include the FICO score, which was developed by Fair, Isaac and Company, Inc. and is used by many mortgage lenders; and the VantageScoreSM, which was developed jointly by the three national credit reporting companies.
FICO scores, which are one of the most common credit scoring systems used by lenders, range between 350 and 850. With these scores, a higher number credit scoring systems consider a variety of factors, such as number of credit accounts, total credit available, amount of outstanding debt and late payment record.
The VantageScoreSM was created in 2006 as a more consistent way for the agencies to develop credit scores. In the past, each credit reporting company used its own formula to create its credit scores. The new system allows each company to use the same formula and create a more consistent credit score. The VantageScoreSM ranges from 501 to 990 and includes a rating system similar to an academic grading system (A-F grades). The higher the score, the more creditworthy a consumer is considered to be.
• Ask participants how their credit score impacts their life.
• Write down responses on flipchart paper.
• Responses may include: to get a loan, to get a job, to get an apartment, to get a mortgage loan, to get homeowner’s insurance, and to get car insurance.
Discuss the broad use and impact of credit scores. In addition to banks and lenders, there are landlords, employers, merchants, and even insurance companies that are also using credit scores.
Discuss the following example of how credit scores can impact how much you pay for car insurance:
To most, it seems that credit histories and driving records have little in common. Insurers, on the other hand, have found that using credit scores to predict how likely someone is to pay premiums has helped them cut their losses. They don’t use the same score that banks and lenders use. Instead, they use an insurance score, which is generated based on a slightly different formula. According to the American Insurance Association, having a good insurance score does not necessarily mean you are a good driver or a more responsible homeowner. however, research has shown that consumers with better insurance scores generally file fewer claims and have lower insurance losses. Insurers’ use of credit histories to determine rates is under scrutiny nationwide. 3
Slide 1 – What Is a Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 1

4. Source: Fair Isaac and Consumer Federation of America, 2005
WHAT MAKES UP A TYPICAL
CREDIT SCORE?
Ask participants whether they know what factors make up a credit score. As participants name each of the five components listed below, write it on flipchart paper and then discuss it using the following talking points.
Show “Slide 2: What Makes Up a Typical Credit Score?”
Different credit scoring models may use slightly different formulas to determine what makes up a credit score. however, the following information from Fair, Isaac and Company offers a useful guide for understanding how credit scores are compiled.
Talking points:
• Payment History accounts for 35% of your credit score — Some of the factors included in this category are: account payment information; the presence of adverse public records such as bankruptcy, judgments, or lawsuits; how long payments are past due; and the amounts that are past due.
• Amounts Owed account for 30% of your credit score — Some of the factors included in this category are: how much you owe on your accounts, the number of accounts with balances, and the proportion of balances to total credit limits.
• Length of Credit history accounts for 15% of your credit score — Some of the factors included in this category are: the time since accounts were opened and the time since account activity.
• New Credit accounts for 10% of your score — Some of the factors included in this category are: the number of recently opened accounts and the number of recent credit inquiries.
• Types of Credit used account for 10% of your score – Some of the factors included in this category are: the number and types of accounts that you have open (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
Source: Fair Isaac and Consumer Federation of America, 2005 4
Slide 2 – What Makes Up a Typical Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 2

5. IMPROVING YOUR CREDIT SCORE
Pay bills on time.
Get current and stay current.
Don’t open a lot of new accounts too rapidly.
Correct mistakes.
Shop for loan rates within a focused period of time.
Keep balances low on revolving credit.
Pay off debt.
Check your credit report.
Divide the group into teams of two to three. Ask the teams to think about ways to improve their individual credit scores. Have them write down their suggestions.
After a few minutes, call time. Display ”Slide 3: Improving Your Credit Score.” Ask the teams whether they came up with any of the suggestions listed on the slide.
• Pay bills on time. The best thing you can do to improve your score is to pay your bills on time. You can begin to improve your credit history immediately by making at least the minimum payments on time. Delinquent payments and collections can have a significant negative impact on your score.
• If you have missed payments, get current and stay current. The longer history you have of paying your bills on time, the better your score will be.
• If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age or the length of time you have the account. People who have had accounts for longer periods of time and have paid them on time tend to have higher scores. Additionally,
if you open up several new accounts rapidly, it will appear that there is a risk of you utilizing all of this new credit. Thus, this additional credit could lower your score.
• Correct mistakes. Your credit score is a reflection of the information in your credit report. If your credit report contains negative information, it will negatively impact your credit score regardless of whether or not the information is accurate. Review your reports from all three credit bureaus for accuracy once a year, as well as several months before applying for a loan. If you discover inaccuracies in your report, follow the procedure to correct the information.
• Do your rate shopping for a loan within a focused period of time. Some scores, such as FICO scores, distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. For example, some scores count all rate inquiries for car loans or mortgage loans in a two-week period as one inquiry.
• Keep balances low on credit cards and other “revolving credit.” High outstanding debt can negatively affect a score.
• Pay off debt rather than moving it around. The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
• Remember, it’s okay to request and check your own credit report. When you request your own report, it is considered a consumer inquiry. This won’t affect your score, as long as you order your credit report directly from one of the credit-reporting agencies or through an organization authorized to provide credit reports to consumers.
Now that participants have a better understanding of how to improve their credit scores, ask them whether they learned anything new about strategies to improve their credit scores. 5
Slide 3 – Improving Your Credit Score Lesson Reference: Credit, Activity 2 – Handout 2

6. SAMPLE CREDIT APPLICATION
Consider providing copies of this application handout, which can be found in the Citigroup Financial Education Curriculum:
“Credit”, pp. 43.
Review slide. 6
Slide 5 – Sample Credit Application Lesson Reference: Credit, Activity 3 – Handout 3

7. QUESTIONS TO ASK WHEN APPLYING FOR CREDIT
What is the annual fee?
What is the annual percentage rate (APR)?
When are payments due?
What is the minimum payment required each month?
Is there a grace period?
Are there other fees associated with the credit, such as minimum finance charges?
What is the credit limit?
What are the penalties for late or missed payments?
What are the terms and conditions of the credit? What else is included in the fine print?
Stress that although all creditors are required to provide the applicant with
information about the loan, it is also the applicant’s responsibility to ask
questions before making any commitment.
• Use “Slide 6: Questions to Ask When Applying for Credit” to
emphasize those types of questions.
• Ask participants whether additional questions should be asked. Add
those questions to the list. 7
Slide 6 – Questions to Ask Lesson Reference: Credit, Activity 3 – Handout 5

8. DEBT-TO-INCOME THERMOMETER
Explain that it is not difficult for anyone to become overwhelmed by debts,
especially with the rising costs of groceries, housing, gasoline, and clothing.
All of these are very basic costs but don’t include providing for emergencies
or even the opportunity for a special dinner, a trip to the movies, etc.
Display “Slide 1: Debt-to-Income Thermometer.” Walk participants through each stage of the debt-to-income thermometer, explaining how to determine whether or not you may have too much debt. Refer to the following example of a family with an annual income of $40,000. Explain that this is an example only and actual effects vary depending on a variety of circumstances. These scenarios should include housing payments.
Annual household income: $40,000
Debt Percent Comment
If their annual debt is: $24, % Danger
$16, % High
$12, % Fair
$8, % Good
$6, % Great 8
Slide 1 – Debt-to-Income Thermometer Lesson Reference: Credit, Activity 4 – Overhead 1

9. SAMPLE CREDIT REPORT
Consider providing copies of the credit report handout, which can be found in the Citigroup Financial Education Curriculum: “Credit”, pp. 53.
Display “Slide 3: Sample Credit Report.” Move through the sample report, discussing the purpose of the following areas on the report:
• Individual personal information (name, address, birth date, Social Security Number, etc.)
• List of creditors
• Date credit opened with each creditor
• Most recent reporting date
• Type of credit received from each creditor
• Credit limit
• High balance
• Current balance
• Status of payment (never late, missed payments, etc.) Stress that errors do happen; therefore, participants should maintain oversight of their credit reports. If they find an error, which is not uncommon, they should have it corrected as soon as possible. 9
Slide 3 – Sample Credit Report Lesson Reference: Credit, Activity 4 – Handout 2

10. COSTS OF CREDIT
How much can credit cost? If you make only the minimum payment for an item, here are some examples of what you might actually pay and how long it will take you to pay it.
While participants are thinking about getting a credit card, it’s important that they also think about how they will pay for the items they purchase with a credit card. Display “Slide 4: Costs of Credit” to show participants how much an item could cost if they make only the minimum payments. Point out that “true cost” and time can be less than indicated in the chart if they make larger payments or pay the full balance; or the “true cost” and time can be greater if they miss payments.
*Assumptions:
1. No additional sales 2. Customer is paying minimum due only (assuming 2.5% of payment rate for interest calculation). 3. Payment is made on time. 4. Minimum is the positive amortization scenario, maximum of financial charge + late fee + 1% and $20, with a floor of 1.5%.
Discuss default pricing as another cost of credit. Most credit card companies
have what is called “default pricing”, the terms of which are disclosed in all
credit card agreements. Default pricing goes into effect when a customer
defaults on the agreement, for example, by failing to pay the minimum
amount due by its due date. It can result in the credit card company raising
the interest rate (or APR) on that customer’s account. Failing to make at
least minimum due payments on time can reflect negatively on one’s credit
score and can ultimately cost the customer more when using credit.
Encourage the students to always read credit agreements before signing
them. If they have any questions, they should either ask the credit card
company to clarify or ask someone they trust. And, as always, emphasize the importance of making timely payments. 10
Slide 4 – Costs of Credit Lesson Reference: Credit, Activity 5 – Handout 2

11. WARNING SIGNS OF DEBT PROBLEMS
Delinquent Payments
Default Notices
Repossessions
Collection Agencies
Judgment Lien
Garnishment
Explain that since everyone has some familiarity with credit problem trouble signs, it would be important to discuss each so that such signs are recognizable.
Display “Slide 2: Warning Signs of Debt Problems.”
• Move through the categories, and provide a brief explanation.
• Encourage discussion.
1. Delinquent Payments
Written notices that credit payments are overdue.
2. Default Notices
If delinquent payments are not acknowledged, written notices are sent from the creditor warning that more serious steps will be taken if credit is not paid.
3. Repossessions
When the creditor takes back an item that has been purchased, because of nonpayment.
4. Collection Agencies
When a creditor has not received any response to written notices of nonpayment, the account can be turned over to a business that specializes in collecting unpaid debts.
5. Judgment Lien
When a creditor has received no response from previous attempts to collect a debt, the creditor may be able to obtain a court order placing a claim on property or other types of security owned by the individual to recover the costs of the debt.
6. Garnishment
If the borrower does not pay the credit bills, the creditor may be able to obtain a court order requesting that an employer deduct a percentage of the employee’s paycheck and send it to the creditor before the paycheck is given to the employee.
Ask the participants to raise their hands if they believe that the minimum payment due is the only amount due on their credit card balance. Respond by letting them know that this is FALSE.
You actually owe the full balance and you’ll owe interest on any portion of the balance that you don’t pay.
Paying only the minimum payments on your credit card may seem appealing, but if only minimum payments are made, it can take years, and sometimes decades, to achieve full repayment. While paying the minimum amount due keeps your credit history clean, it also costs you more.
Many national banks and credit card issuers are increasing their monthly payment requirements. This industry-wide change comes at the recommendation of industry regulators and is intended to help customers pay down their balances more quickly. Credit card issuers work with regulators on a regular basis to ensure that their practices are in the best interest of consumers. This change in the minimum payment due is an example of that. Minimum due requirements vary from 2% to 4%.
If you only pay the minimum amount due each month, you will not only pay more in finance charges but it will take you longer to pay off the debt. 11
Slide 2 – Warning Signs Lesson Reference: Credit, Activity 6 – Handout 2

12. CREDIT CARD REDUCTIONS
Paying only the minimum payments on your credit card may seem appealing, but if only minimum payments are made, it can take years, and sometimes decades, to achieve full repayment.
Paying the minimum amount due keeps your credit history clean, but it also costs you more.
Display “Slide 3: Credit Card Reductions” and walk participants
through the example. Note that the example shows how much money you
can save by increasing the amount of the fixed monthly payments you make.
In the example, if you make fixed monthly payments of $105, it would take
you a little over three years to be rid of your debt. However, if you pay only the minimum each month, your first payment would be $55, but your subsequent payments would decrease slightly each month and thus delay the payoff of the debt. In that instance, it would take you more than 13 years to be rid of your debt.
Explain that it is important to take charge of your credit by paying more than the minimum payment and by regularly monitoring your credit report. Errors do occur in credit reports, so it is important to review your report at least once a year. 12
Slide 3 – Credit Card Reductions Lesson Reference: Credit, Activity 6 – Handout 3

13. IDENTITY THEFT
Identity theft occurs when someone uses your personal identifying information to either establish credit under your name or to take over an existing account that you established without your authorization.
This information may include:
Debrief by showing “Slide 1: Identity Theft,” and discussing the following talking points:
• The crime of identity theft is on the rise. Identity theft occurs when someone uses your personal identifying information (e.g., name, Social Security Number, date of birth) to either establish credit under your name or to take over an existing account that you established, without your authorization.
• Discuss the points on slide 1.
• Point out that anyone can have his or her identity stolen. Some individuals, such as those with common surnames and the elderly, may have an added risk.
• Fraudulent charges on your credit card, or having your card lost or stolen are equally frustrating to the consumer, but this does not mean that you are a victim of identity theft.
Separate participants into teams of two.
Read the two examples of How Identity Theft Occurs, below.
Have one participant take example A and the other, example B. Have them each discuss ways personal information could have been protected in each example.
Examples of How Identity Theft Occurs
A. While checking your , you notice a message from what appears to be your Internet Service Provider (ISP). The message requests personal information so that your account can be updated. The message requests your name, Social Security Number, and mother’s maiden name. In reality, the message is not from your provider. It belongs to someone who wants to get your information to steal your identity.
B. As you are paying your monthly bills, you write the checks, toss the statements in the trash, and put the container out on the curb for the morning’s trash pick-up. While you sleep, “dumpster divers” go through your trash looking for the papers you’ve thrown away. They find your name, address, phone number, utility service account numbers, credit card numbers, and your Social Security Number. Identity thieves can now use this information for fraudulent purposes.
Social Security Numbers
Name
Address
Date of birth
Mother’s maiden name
Passwords
PINs 13
Slide 1 – Identity Theft Lesson Reference: Credit, Activity 7 – Overhead 1

14. HOW TO AVOID IDENTITY THEFT
Monitor your credit report.
Don’t give out personal information to unknown persons or companies.
Protect your credit and debit cards.
Protect your mailbox.
Protect your wallet.
Use passwords and PINs that can’t be easily guessed.
Use anti-virus software on your computer.
Notify your bank when you change your address or phone number.
Other suggestions?
Have participants share a few ideas about protecting personal data and then display “Slide 2: How to Avoid Identity Theft.”
1. Monitor your credit report. It contains your SSN, present and prior employers, a listing of all account numbers — including those that have been closed — and your overall credit score. If you become a victim of identity theft, you will catch the theft early by checking your credit report at least once per year. Order a free copy of your credit report by visiting
2. Don’t give out personal information on the phone, through the mail, or on the Internet unless you initiate the contact or know the individual who initiated the contact. Thieves will pose as bank representatives, Internet service providers, government agents, and even ex-boyfriends or -girlfriends to get you to reveal personal information.
3. Protect your credit and debit cards. Whenever you receive a new card, sign it immediately. Don’t loan it to anyone. Do not carry extra credit cards or other important identity documents except when needed.
4. Protect your mailbox. Remove your mail as soon after delivery as possible, and deposit outgoing mail in post office collection boxes.
5. Protect your wallet. Keep items with personal information in a safe place at home and do not share this information with friends or acquaintances. Don’t carry your Social Security card in your wallet. Instead, memorize the number.
6. When creating passwords and PINs (personal identification numbers), do not use any numbers or codes that could easily be guessed by thieves.
7. Ensure your computer has appropriate anti-virus software that will detect and prevent keylogging viruses.
8. Notify your bank when you change your address or phone number.
9. Other suggestions
Discuss the following points:
• Ask participants for suggestions of additional ways to safeguard your personal information.
• Record this information on flipcharts.
• Some additional strategies might include not using your Social Security Number (SSN) as an identification number; never giving out your SSN, credit card number or other personal information over the phone, by mail, or on the Internet unless it is requested by a trusted source; memorize all your passwords and don’t record them on anything in your wallet; and install a firewall and virus protection on your home computer.
• Ask participants to list some things they can do to protect their personal information. 14
Slide 2 – How to Avoid Identity Theft Lesson Reference: Credit, Activity 7 – Handout 2

15. WHAT TO DO IF YOUR IDENTITY
HAS BEEN STOLEN
If you think your identity has been stolen, take the following steps:
Contact the three major credit bureaus (Equifax, Experian, and Trans Union).
Close accounts.
Contact all creditors involved.
File a police report.
Keep a record of your contacts.
Display “Slide 3: What to Do if your Identity Has Been Stolen” and discuss the following:
• Contact the fraud departments of the three major credit bureaus to place a fraud alert on your credit file. The fraud alert requests creditors to contact you before opening any new accounts or making any changes to your existing accounts.
• Close the accounts that you know or believe have been tampered with or opened fraudulently.
• Contact all the creditors involved — Let them know that your accounts may have been used without your permission, or that new accounts have been opened in your name. If your accounts have been used fraudulently, ask that new cards and account numbers be issued to you. Check your billing statements carefully and report any fraudulent activity immediately.
• File a police report — Get a copy of the report to submit to your creditors and others that may require proof of the crime.
• File a complaint with the Federal Trade Commission (FTC) — The FTC maintains a database of identity theft cases used by law enforcement agencies for investigations. Call the FTC’s Identity Theft hotline: IDTHEFT ( ). (Write this number on the flipchart paper.)
• Keep a record of your contacts — Start a file with copies of your credit reports, the police report, any correspondence, and copies of disputed bills. It is also useful to keep a log of your conversations with creditors, law enforcement officials, and other relevant parties. Follow up on all phone calls in writing and send all correspondence via certified mail, with a return receipt requested. Keep all of your records in a safe place. 15
Slide 3 – What to Do Lesson Reference: Credit, Activity 7 – Overhead 2

16. COMMON SCAMS Advance fee schemes The prize that will cost you
Online auctions
Fraud jobs
Moneymaking schemes
Bogus charities
Scam schools
Display “Slide 4: Common Scams.” Review the slide’s top scams and top strategies for avoiding scams.
• Advance fee schemes — These schemes require you to pay a fee in advance to receive a credit card, loan, or scholarship. In return, you get something that is worthless, or worse yet, you get nothing at all.
• The prize that will cost you — This is a scheme that alerts you that you have won a prize, but in order to claim the prize, you must first pay taxes or a handling fee. An example is a scheme that claims you have won a free resort stay, but are required to purchase an airline ticket. In this case, the airline ticket price is inflated to cover the cost of the resort stay.
• Online auctions — Beware of auction items that are priced far too low. There’s a good chance that it could be a scam. The item may be fake or in bad condition. The item might even be stolen. Be sure to avoid buying anything online from someone who contacts you through or through an instant message.
• Fraud jobs — There are a number of employment scams. Many fraudulent job opportunities are promoted as work-at-home opportunities. Often someone who claims to work in the “human resources department” requests your personal information and then uses it to steal your identity. Another common employment scam involves an individual who promises you a job, but only if you pay an employment fee.
• Moneymaking schemes — There are a variety of scams that claim you will make a lot of money in a very short time, such as pyramid schemes and counterfeit check schemes. Pyramid schemes seem like a fast way to make a lot of money, but usually, the only person to make money is the one at the top. Counterfeit check schemes usually come in the form of a letter or message from overseas seeking your help in obtaining payment on a check. If you cash the check, the perpetrator claims that you will keep a portion of it for your trouble and requests that you mail a cashier’s check for the remainder. The original check turns out to be counterfeit, leaving you without your “bonus” and possibly with a bank judgment against you.
• Bogus charities — Unfortunately, you have to be on your guard even when giving to charities. Some scam artists will use high-pressure techniques to convince you to donate money to a bogus charity. Avoid bogus charities by never giving payment information to anyone calling or ing you, claiming to be with a charity. Any reputable charity will be happy to send you paperwork on their organization. You can also research the organization online and with the Better Business Bureau to ensure that it is a legitimate organization.
• Scam schools — Fraudulent career and trade schools lure potential students in
with the promise of a lucrative job upon graduation. By the time the students graduate, they’ve amassed a sizeable debt but are left with only substandard training and little more than an outdated classified ad in their hands. 16
Slide 4 – Common Scams Lesson Reference: Credit, Activity 9 – Handout 2

17. BANKRUPTCY
Chapter 7 wipes out all allowable debts and allows certain personal property exemptions.
Chapter 13 is a court-approved repayment plan.
Chapter 11 is typically used for business bankruptcies.
Debrief participants by showing “Slide 1: Bankruptcy.”
Define the different types of bankruptcy and explain that this activity focuses on personal bankruptcies (Chapter 7 and 13). 17
Slide 1 – Bankruptcy Lesson Reference: Credit, Activity 10 – Overhead 1

18. NEW PROVISIONS OF THE BANKRUPTCY LAW
A test to determine eligibility to file bankruptcy
Determining what you can afford to pay
Tougher homestead exemptions
Lawyer liability
Credit counseling and money management
New debt may not be discharged.
Quicker collections process
Display “Slide 2: New Provisions of the Bankruptcy Law” and discuss the following points:
• In April 2005, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act, which took effect in October This is the most significant change in U.S. bankruptcy laws since the late 1970s.
• In general, the new law makes it harder to file for Chapter 7 bankruptcy and steers more people toward repaying a portion of their debts through Chapter 13.
• Instead of wiping out debts under Chapter 7, many debtors will have to establish up to five-year repayment plans under Chapter 13.
A test to determine eligibility to file bankruptcy
Under the new law, your income will be subject to a two-part means test. You won’t be allowed to file for Chapter 7 if your income is above your state’s median income, and you can afford to pay 25 percent of your unsecured debt.
Determining what you can afford to pay
Under the new law, the court will apply living standards set by the IRS to determine what is reasonable to pay for rent, food, and other expenses. These standards help the consumer figure out how much he or she has available to pay debts.
Tougher homestead exemptions
Currently, if you declare bankruptcy, the state where you file may allow you to protect some or all of your home equity from creditors. In Florida, for instance, your home may be entirely exempt, even if you bought it shortly before filing. In Nevada, you may be exempt up to $200,000. The new law, however, places more stringent restrictions on the homestead exemption. Filers may only be exempt up to $125,000, regardless of a state’s exemption allowance, if their home was acquired less than 40 months before filing or if the filer has violated securities laws or been found guilty of certain criminal conduct.
Lawyer liability
Under the new law, the bankruptcy attorney may be subject to various fees and fines if information about a client’s case is found to be inaccurate. Consumers considering bankruptcy therefore may find it more challenging to find an attorney who is willing to file and take on that risk. Nevertheless, it is crucial for anyone considering bankruptcy to consult with an attorney before making that decision.
Credit counseling and money management
Under provisions of the new law, you must meet with a credit counselor in the six months prior to applying for bankruptcy. Before debts are discharged, you must attend money management classes at your own expense.
New debt may not be discharged.
Credit card debt, cash advances, and other forms of consumer debt borrowed within 70 days of a bankruptcy filing may not be discharged under the new law.
Quicker collections process
The automatic stay — which buys debtors time from the collections process — is less generous. The stay will terminate 60 days after the request is filed, or 30 days if the debtor filed another case in the past year. 18
Slide 2 – Provisions of the Bankruptcy Law Lesson Reference: Credit, Activity 10 – Handout 1

19. THINGS TO CONSIDER BEFORE FILING FOR BANKRUPTCY
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.
Stimulate group discussion by asking the following questions:
• Why would someone declare bankruptcy?
• Are there legitimate reasons to declare bankruptcy?
Listen to the responses. Do not pass judgment on responses. This exercise
is simply to get participants thinking about situations in which an individual
might declare bankruptcy.
Stress that while there are legitimate reasons to declare bankruptcy, it should always be a last resort.
Debrief participants by showing “Slide 3: Things to Consider before
Filing for Bankruptcy” and reviewing each point on the slide. 19
Slide 3 – Things to Consider Lesson Reference: Credit, Activity 10 – Overhead 2

20. THINGS TO DO BEFORE DECIDING TO FILE BANKRUPTCY, CONT.
Reduce your spending
Talk with your creditors.
Talk with a nonprofit counseling agency.
Talk with an attorney and understand the consequences of declaring bankruptcy.
Consider consolidation carefully.
Display “Slide 4: Things to Do Before Deciding to File Bankruptcy, Cont.”
Explain that declaring bankruptcy will have long-term effects and stress that declaring bankruptcy should always be the consumer’s last alternative.
• Reduce your spending. Consider a smaller home or vehicle. Slash your
spending, and you may be surprised to find enough money left over to repay the debt you’ve accumulated.
• Talk with your creditors. Despite what you may have heard, your creditors are often willing to work out a payment plan to help you pay off what you owe.
• Talk with a nonprofit counseling agency. These agencies can help you create a plan that will handle all of your debts.
• Talk with an attorney and understand the consequences of declaring
bankruptcy.
• Consider consolidation carefully. You may be able to borrow against a
workplace retirement plan, stocks, or other securities you own, or the cash value of a life insurance policy in order to pay off your debt. however, all of
those options have serious implications. make sure you analyze the potential risks and consequences thoroughly. 20
Slide 4 – Things to Do Lesson Reference: Credit, Activity 10 – Handout 2

21. 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.
• Keep track of your daily expenses. Even the little expenses, such as a cup of coffee, can add up. Once you know exactly where the money is going, you can figure out where to cut back.
• No matter how well you are doing financially, don’t forget to save money on a regular basis.
• If you see yourself starting to get into financial trouble, make changes right away. Debt can get out of control quickly.
• Pay attention to your household finances, especially if you are married. Many people get into trouble after a divorce or death of a partner when they have no idea where their money is and are inexperienced with keeping financial records.
Thank everyone for their participation, and encourage them to return for
additional sessions. If such sessions are scheduled, you might provide a
“sneak preview” of any activity to come. 21
Slide 5 – Tips to Remember Lesson Reference: Credit, Activity 10 – Handout 2