Problems with CreditUnit 3

Did You Know?

Most lottery winners spend all of their winnings and are broke within 5 years.

40% of all personal bankruptcies are due to medical bills.

Paying only minimum payments Your total credit card balance increases every

month You miss loan payments or often pay late You use savings for necessaries (food, utilities) You borrow money to pay off old debts You exceed credit limits on your credit cards You have been denied credit because of your bad

credit report

Warning Signs of Debt ProblemsHow do you know when you are getting into financial

trouble?

Credit Score

Creditors often turn their “bad debts” over to debt collection agencies

These agencies have one goal—get you to pay what you owe!

Harassing phone calls Constant attempts to contact you May call the people you listed as references If you are in a joint account or had a co-signor,

that person(s) will be affected too!

Debt Collection Practices

Financial Counseling Services Consumer Credit Counseling Service Other counseling services – provided by your

Credit Union Military bases State and Federal Housing Authorities

What are your options??

Bankruptcy – is a legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts

It is a court proceeding The bankruptcy process is a LAST RESORT Designed to help debtors begin the process

of repairing their credit

Last Resort!

Job loss Emotional spending Failure to budget and plan Catastrophic injury or illness

Why do people declare bankruptcy?

Chapter 7 Chapter 13 Chapter 11

Types of Bankruptcy

An individual is required to draw up a petition listing his or her assets and liabilities

Assets – represent value of ownership that can be converted into cash

Liabilities – financial obligations by the debtor; money owe

AKA “straight bankruptcy” Many, but not all, debts are forgiven

Assets are SOLD to pay creditors

Chapter 7

A debtor with a regular income proposes a plan to the court for using future earnings or assets to eliminate his or her debts over a specific period of time

Normally keeps all or most of property Pay back period can be as long as 5 years Debtor makes regular payments to a Chapter

13 trustee, appointed by the court, who distributes the money to the creditors

Chapter 13

Involuntary Bankruptcy Occurs when creditor file a petition with the court

asking the court to declare you bankrupt It takes over your property and other assets to pay

your debt Does not occur vey often

Chapter 11 Reorganization for businesses that allows them to

continue operating under court supervision as they repay their restructured debt

Involuntary & Chapter 11

Experiences vary for each situation May not be able to get credit at all for a

while If credit is granted, the consumer will most

likely pay a very high interest rate compared to others with good/excellent credit

Kept on your credit report for up to 10 years

Credit after bankruptcy??