BANKRUPTCY
VOCAB
▫ Bankrupt – a person or company with
insufficient assets to cover their debt
▫ Bankruptcy – a state of being legally
released from the obligation to repay
some or all debt in exchange for the
forced loss of certain assets. A court’s
determination of personal bankruptcy
remains in a consumer’s credit record
for 10 years.
▫ Consumer credit counseling – services
offered by organizations that help
consumers find a way to repay debts
through careful budgeting and
management of funds
▫ Creditor – a person or company to
whom money is owed
▫ Debt consolidation loan – a single loan
that replaces the debt owed by multiple
loans, often with a lower monthly
payment and a longer repayment period
▫ Financial counseling – generally
the same as consumer credit
counseling
▫ Garnishment – a legal warning
concerning the attachment of
property to satisfy a debt
▫ Home equity loan – a loan secured
by a primary residence or second
home at the amount where the fair
market value exceeds the debt
owed on the property
▫ Repossession – to take possession
of property in which the owner is
behind in payments
Going
Broke?
• Poor money management and
overspending habits will quickly lead
to high levels of debt but there are
other reasons people face mountains of
bills:
▫ Divorce
▫ prolonged illness
▫ personal issues
▫ rapid inflation
These can all wreck your budget.
• Some solutions to these problems
may include:
• filing personal bankruptcy
• getting debt counseling
• refinancing personal debt.
• All of these options have costs
and benefits
Managing High
Levels of Debt
• Imagine not being able to pay your
bills, make your house payment, or
feed your family. While that may
seem like “someone else’s problem”,
there are many families dealing with
this scenario every month.
• What can you do to manage high
levels of debt? How can you
overcome financial problems and
build a better quality of life?
• 1. Go for credit counseling or financial
counseling
▫ Credit counseling is guidance on how to
budget money and come up with a plan to
pay as much debt as possible.
▫ An organization will help you restructure
your debt so you can pay it off.
▫ As part of their service, you get help in
knowing how to better manage your money
and they will help you set up a plan and
monitor your progress in paying off your
debt.
▫ BE CAREFUL! There are many
organizations that make promises
they cannot keep and charge you for
their help which will only leave you
with more bills!!
▫ Consumer Credit Counseling Services
of Central Oklahoma
(http://www.cccsok.org) or Consumer
Credit Counseling of Oklahoma
(http://cccsofok.org)
• 2. Refinance your debt
▫ Consider a debt consolidation loan that will put all
of your debt into one payment that is easier to
manage.
▫ You will still need to manage your money better
(change behavior)
• 3. Get a home equity loan
▫ This means that you borrow money on your house
to pay your bills; it is similar to a debt
consolidation loan except the loan is against your
home.
▫ This, however, is a high risk option because, if you
fail to make your payments, the lender may
repossess your home.
• 4. File for personal bankruptcy
▫ Bankruptcy is a legal process that allows
you to either make reduced payments on
your bills or erase them for your files.
▫ Bankruptcy stays on your credit report
for 10 years, will result on higher interest
rates when you begin borrowing again,
requires the loss of certain assets, and can
be difficult to obtain.
Bankrupt?
Bankruptcy?
• Being Bankrupt means
▫ that you cannot pay your bills
• Bankruptcy happens when
▫ you request legal action.
▫ Creditors (someone to whom you
owe money) have a right to collect
the money you owe.
• If you fail to pay,
creditors may
▫ call and demand
payment
▫ send letters
demanding payment
▫ take you to court
▫ take part of your
paycheck
▫ refuse to give you
credit
▫ or take back what you
purchased
Once you file for bankruptcy
*creditors must stop trying to
collect payments from you
with bankruptcy, you will repay the
creditor a fraction of what you owe.
• The process can take several months once you
hire an attorney to file a bankruptcy petition
on your behalf.
• Bankruptcy filings are public record – once
you file, you must appear before the
bankruptcy trustee.
• Your creditors are also part of the hearing and
they are allowed to question your situation.
• In addition to providing all of your personal
information, you must provide copies of your
income tax return for them to review.
Types of Personal
Bankruptcy
•Chapter 7
•Chapter 13
• Chapter 7 –
▫ The purpose of Chapter 7 is to totally
release you from all debt included in your
bankruptcy petition.
• Chapter 7 (Straight Bankruptcy)
▫ is designed to provide an orderly process
where a bankruptcy trustee collects your
assets, turns them into cash, and
distributes the money to the people you
owe.
• Some property (life insurance, alimony,
retirement savings accounts, and
pictures) is exempt; the remaining
property is called non-exempt and will
be seized by the bankruptcy trustee.
▫ If you are approved to file
Chapter 7, it means you have
little (or no) non-exempt
property.
 Once you file, you cannot file for 8
years from the date you started the
process –regardless of your debt
level so take this decision seriously.
• Chapter 13 – Chapter 13 (Debt
Adjustment)
▫ allows you to file a repayment plan
for your bills – allowing you to keep
your personal possessions.
▫ If a plan is approved by a trustee,
you have 3 to 5 years to make
reduced payments on your debt.
• It is only available if you have sufficient
income and all payments are made
directly to the bankruptcy trustee who
monitors your plan.
• You may only be required to pay a
percentage of what you owe to each
creditor and creditors cannot take
actions against you.
• However, failure to pay the payments
can result in serious consequences.
When?
• Bankruptcy is NOT a substitute for good
money management. It is a last resort –
consider all other options before filing.
• Calling your creditors is often the first step
in finding a solution; many creditors,
especially banks, would rather work with
you to set up a payment plan than see you
file for bankruptcy.
• It is YOUR responsibility to contact them
and explain your situation.
After Bankruptcy
• Bankruptcy provides immediate
relief from creditors who are calling
you asking for payments
• can reduce the stress of trying to
handle everything by yourself
• allows you to start fresh.
• However, there are serious costs
▫ on your credit report for 10 years
▫ lower credit score
▫ higher interest rates
▫ negative impact on perspective jobs
▫ some debt (student loan, taxes) are still
have to be paid
▫ must pay a filing fee to the court
▫ attorney fees
▫ required to attend debt counseling
classes, etc.
• Bankruptcy Fraud
▫ Making false statements or failing to
accurately report all information
during the bankruptcy process is a
crime!
• Societal Costs
▫ Tax dollars spent on bankruptcy
courts and the people who work
there cannot be spent on other
public goods and services.
▫ Creditors have to pay people to
represent them in court – adding to
their cost of doing business and
raising prices.
▫ Creditors pass the costs off to
customers.
• Repairing Your Credit
▫ Beware of Credit Repair
advertisements! Most of these
advertisements are scam! Spending
money to have your credit repaired
is money wasted!