Download Chapter 12.1: Bankruptcy

CHAPTER 12.2: BANKRUPTCY
BANKRUPTCY
 Sometimes
people and businesses
through no fault of their own
accumulate so much debt, they can
no longer afford to repay it.


Businesses: suffer from bad economy
Individual: credit debt, illness, loss of
job
OLD ENGLISH LAW
Debtors
who couldn’t repay their
debt would be put in debtor’s
prison
The
drafters of the US
Constitution opposed this
treatment and gave congress
authority to help people
BANKRUPTCY


Legal process by which a debtor can make a fresh
start through the sale of assets to pay off
creditors.
Certain bankruptcies allow debtor to stay in
business and use the revenue collected to pay his
or her debt.

Another purpose is to become free from debt

Stays on credit report for up to 10 years!
AVOIDING BANKRUPTCY



Having trouble paying bills? STOP USING
CREDIT CARD!
You can contact your creditor and work out an
adjusted repayment plan.
You can also get a consolidated loan
Combines all your debt into one loan with lower
payments
 Credit cards, car payments, student loans etc.

FILING FOR BANKRUPTCY
 File
a petition
in effect




Automatic stay is
Postponement of collection proceedings
against the debtor
Creditor must stop contact with debtor
Creditors cannot sue at this point
Debit/credit cards can no longer be used
once a petition has been filed.

Bankruptcy law is FEDERAL statutory

Consumer Credit Counseling Service

Offers confidential debt-counseling services.
TYPES OF BANKRUPTCY
 Voluntary

Debtor chooses to file
 Involuntary
Creditors begin proceedings instead of
debtor
 3 creditors must file if debtor has 12 or
more creditors



Debt owed must exceed $11,625
Single creditor can file if owed more
than $11,625
CHAPTER 7

Liquidation



Debtors must do the following:






Allows debtors to discharge all their debts
Debtor must sell most of their property and pay their
creditors from the proceeds.
Get credit counseling
Family income must be below the state’s average family
income
If income is large than state average– they would file
chapter 13
Provide tax return from most recent year
Complete course in financial management
Fresh start policy= some assets can be kept
CHAPTER 11
 Reorganization

Allows businesses to reorganize their
financial affairs and still remain in
business
 Business
needs to file a petition and
then a reorganization plan is made
 If plan is approved, then it will go into
operation
 If plan is successful, the business will
continue. If not, it will be forced to close
CHAPTER 12
Bankruptcy
that lets family
farmers, and fishing
businesses create a plan for
repayment that allows them
to keep their operations
running.
CHAPTER 13
 Bankruptcy
that permits individual
debtors to reorganize their debts
and develop repayment plan

3-5 year repayment plan

Debtors wishing to keep their cars must
pay full loan amount for their car

These items are called exemptions
CANNOT BE DISCHARGED
Debt
due to fraud
Back taxes
Student loans
DEBTOR’S ESTATE
 Trustee
is appointed to sell the
debtor property, or estate to
obtain cash.
 The
trustee distributes cash
among the debtor’s creditors
according to a priority list
RESTORING CREDIT
 Remains
 Reduces
on credit report for 10 years
line of credit
 Bankruptcy
gives people a chance to start
fresh
 Debt
becomes discharged which actually
reduces debt to income ratio
 Time
allows credit to be restored