Welcome to
Personal
BANKRUPTCY
a
YOUR financial fresh start
© 2011
MoneyWI$E
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Personal Bankruptcy
MoneyWI$E
 A joint financial education project of
Consumer Action and Capital One.
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Welcome
Why we are here
 To learn about personal bankruptcy.
 Bankruptcy is allowed under the law
to give people a financial fresh start.
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Key points
 Bankruptcy is an important tool for
people facing severe financial problems.
 Bankruptcy laws can help you get a
fresh financial start.
 Bankruptcy can affect your credit,
insurance coverage, job prospects and
your ability to get rental housing.
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Topics we will cover:
 It is the legal right of all U.S. residents to
file bankruptcy.
 The differences between Chapter 7 and
Chapter 13 bankruptcy.
 Actions you can take to try to avoid
bankruptcy.
 Bankruptcy’s effect on your life.
 What possessions the law allows you to
keep during a bankruptcy.
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Topics (continued):
 How to get and check your credit report.
 What credit counseling is and how to
find a reputable credit counseling
agency.
 Avoiding high-cost of debt
consolidation loans and services.
 Rebuilding your credit after bankruptcy.
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About Personal Bankruptcy
 Bankruptcy is a court proceeding.
 Bankruptcy remains on your credit
report for 10 years.
 Each debt that was discharged under the
bankruptcy petition (such as credit card
accounts) may remain on your report for
seven years.
 You should hire an attorney to file
bankruptcy.
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By Federal Law
 Article One, Section Eight of the
U.S. Constitution authorizes
Congress to enact bankruptcy
laws.
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Two Kinds of Bankruptcy
 Chapter 7
 Chapter 13
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Chapter 7
 Bankruptcy removes your responsibility for
paying most of your debts not secured by
collateral.
•
Collateral is property that guarantees a loan.
-
•
Mortgage loans are guaranteed by real estate
and car loans by the cars.
You are allowed to keep exempt assets.
-
This is the property you are allowed to keep
when you file bankruptcy.
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Means Test
 All bankruptcy filers are subject to a “means test”
to determine if they are eligible for Chapter 7 or if
they must file a Chapter 13.
•
•
Your income is compared to the median income in
the state you live in, in addition to your financial
ability to repay your debts.
You still might be able to file Chapter 7 if your
income is not sufficient to pay your current living
expenses and to meet the repayment requirements
of Chapter 13.
 To find the current median income in your state, go
to the U.S. Trustee website at www.usdoj.gov/ust.
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Credit Counseling
 Pre-bankruptcy credit counseling and pre-discharge
debtor education are bankruptcy requirements.
•
•
•
People applying for bankruptcy must complete a
federally approved credit counseling program within 6
months prior to filing.
A debtor education course must be completed after
filing to have debts discharged.
Fees are normally charged for counseling and debtor
education. If you cannot afford to pay, there is no
charge
 A list of U.S. Trustee-certified agencies are listed at
www.usdoj.gov/ust.
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To file bankruptcy you must also
provide:
 a copy of your latest tax return for a
Chapter 7.
 past 4 years’ tax returns for a Chapter 13.
 a certificate of credit counseling.
 evidence of earnings in the past 60 days.
 monthly net income and any anticipated
increase in income.
 a photo ID.
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The Court appoints a trustee
 The trustee arranges for the sale
of your non-exempt property and
is responsible for paying as many
of your debts as possible with the
proceeds.
• Not all debts can be erased by
bankruptcy.
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Chapter 13
 Repayment bankruptcy is an option if
you have income but can’t pay your
debts.
•
Allows you to pay your debts in
installments over a three-to-five-year period.
•
In general, you may keep all your property
as long as you continue to make your
Chapter 13 payments on time.
•
Alimony and child support payments and
long-term secured obligations such as your
mortgage cannot be discharged.
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Key points
 You can only file bankruptcy under one category at a
time.
 Chapter 7 offers a financial fresh start and is a
quicker process compared to a Chapter 13.
 A means test will determine if you are eligible to file
Chapter 7 or repay part of your debt under a Chapter
13.
 Pre-bankruptcy credit counseling and pre-discharge
debtor education are bankruptcy requirements.
 Chapter 7 can be filed only once every eight years.
 You cannot file Chapter 13 if you obtained a
bankruptcy discharge in the past 2-4 years.
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Let’s take a break
Please be back in 15 minutes.
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Repercussions of Bankruptcy
 When you file Chapter 7 bankruptcy, all
your property except exempt assets will
be sold to pay your creditors.
•
An exempt asset is property you are
allowed to keep during bankruptcy.
 If you file a Chapter 13 repayment plan, it
will take three to five years to repay your
debts and receive your discharge from
the court.
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Bankruptcy will not remove:
 Child support and alimony
 Debts for personal injury or death that you caused
while under the influence of alcohol or illegal drugs
 Student loans
 Fines and penalties for law violations, such as traffic
tickets, court-ordered payments or recent property
tax assessments.
 Income taxes from the past three years and other tax
debts
 Credit purchases of $1,150 or more for luxury items
within 60 days of filing
(continued)
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Bankruptcy will not remove:
(continued)
 Loans or cash advances of $1,150 or more taken
within 60 days of filing

Debts owed to a single creditor of more than $500 for
luxury goods purchased within 90 days of filing

Cash advances of $750 made within 70 days of filing

Debts or judgments based on fraud or other illegal
activities

Criminal restitution resulting from illegal activities

Debts you owe from a divorce decree or settlement

Any debts you forgot to list in your bankruptcy filing
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Key Points
 Bankruptcy remains on your credit
report for up to 10 years
• This can make it difficult to get new
credit, find a place to rent, get
insurance or qualify for some jobs
 Unless you change your financial
habits after you file bankruptcy, you
might fall into debt again
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To Declare, or Not to Declare?
 Bankruptcy is not a way to avoid debts you
can afford to pay but just don’t want to pay.
 Bankruptcy will not allow you to keep your
house and cars if you have a mortgage or car
loan unless you pay your creditors.
 Bankruptcy will immediately stop most
collection efforts against you.
 Creditors can’t take further action against
you unless they obtain permission from the
bankruptcy court.
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Question
 Should I call my creditors to let them
know I am having trouble making
payments?
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 Talking to your creditors may help to
resolve your problems if you have just
a few debts and believe you can get
back on your feet if given a little time.
 Explain that you are willing to pay off
your debts.
 Ask to arrange a payment plan or
negotiate a reduced settlement
amount.
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Classroom Activity
 Are Julee and Jimmy in Trouble?
 The trainer will distribute this
worksheet.
• Read the financial information about
Julee and Jimmy.
• Decide if you think they are in danger
of financial trouble.
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Take Home Worksheets
 The trainer will give you some
worksheets:
• One will help you decide if you have
too much debt.
• One is a questionnaire to help you
assess your own risk of financial
trouble or bankruptcy.
 These are for you to take home and
fill out privately.
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Preview of Next Session
 During the second MoneyWI$E
session on Personal Bankruptcy we
will learn about:
• Credit and credit reports
• Credit counseling
• Hiring an attorney
• Re-establishing credit
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See You Next Time
 Thank you for your attention and
participation.
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Personal Bankruptcy
Session Two
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Credit Reports
 A credit report is a record of your payment
history for all credit accounts, such as credit
cards, unsecured loans, car loans and
mortgages.
•
Credit bureaus make credit reports available
to companies that grant credit based upon
payment histories.
 Most lenders get credit reports from one of
three national credit reporting bureaus:
•
Equifax, Experian and TransUnion
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Credit History
 Not everyone has credit. If you
have never had a credit card or a
loan, you probably don’t have a
credit history.
 People with no credit history do
not have a credit report.
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Your Free Credit Report
 The Fair Credit Reporting Act (FCRA)
requires each of the three nationwide
credit reporting agencies to provide you
with a free copy of your credit report, at
your request, once every 12 months.
•
Your credit report gives you a breakdown
of your debts.
-
Reviewing your report allows you to make
sure the information listed on the report is
accurate.
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Obtain a copy of your free credit
report:
 Online:
•
www.annualcreditreport.com
 By Phone:
•
1-877-322-8228
 By mail:
• Annual Credit Report
P.O. Box 105281
Atlanta, GA 30348-5281
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Credit Counseling
 If you are in financial trouble, you can
seek the help of a credit counselor.
•
Credit counseling services are
organizations that assist individuals with
personal financial matters.
 Credit counselors provide advice,
budgeting services, financial guidance,
credit counseling anddebt management
programs.
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Debt Management Programs
 Credit counseling organizations work with
lenders and creditors to offer debt
management programs.
•
If you enroll in a debt management program,
the credit counseling agency will negotiate
with creditors on your behalf and help you
consolidate your bills into one monthly
payment.
•
You make one payment to the credit
counselors and they then disburse it to your
creditors.
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For-Profit Credit Counselors
 Some credit counseling companies try to
profit off of people in debt.
•
These companies claim to be not-for-profit
but they are really profit-making enterprises
hiding behind non-profit status.
 You might get deeper in debt if you deal
with the wrong company.
 Seek out non-profit counselors affiliated with
the National Foundation for Credit
Counseling
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Resource
 Find a reputable non-profit credit
counselor affiliated with the
National Foundation for Credit
Counseling:
•
Web site is www.nfcc.org
•
Call 800-388-2227
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The True Cost of Credit:
A Guessing Game
 Classroom activity
• The activity is designed to see what
you know about the cost of buying
things on credit.
• Check the box that you think gives
the true cost of buying these goods
on credit.
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Questions About the Activity
 Did your responses agree with
the answers?
 What surprised you most?
 Can you suggest ways to keep
finance charges at a minimum?
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Hiring an Attorney
 It is important to retain an attorney
when you file bankruptcy.
 Hiring an attorney protects your
rights in bankruptcy court.
 Make sure the attorney you retain is
an expert in bankruptcy.
(continued)
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Hiring an Attorney
 The cheapest attorney is not
necessarily the best one.
 Don’t just pick up the Yellow Pages
to look for an attorney.
• Ask people you know if they have a
lawyer to recommend.
 Call your state bankruptcy bar
association for recommendations.
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Find a Lawyer Online
 Go to the National Association of
Consumer Bankruptcy Attorneys
(www.nacba.org), click on “Find a
Bankruptcy Attorney near you”.
 Visit the Legal Services Corporation
web site at www.lsc.gov and go to “Find
Legal Services” .
 Your public library probably has Internet
access that you can use.
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Let’s take a break
Please be back in 15 minutes.
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After Bankruptcy
 Filing bankruptcy may change your life in a
positive way.
•
It can remove your worries about your
debts and gives you a financial fresh start.
 Some negative things might happen after
you file bankruptcy.
•
It may be hard to get a new credit card or to
rent a place to live if the landlord checks
applicants’ credit reports.
•
If you apply for a new job, the employer
might want to check your credit report.
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Credit Cards
 Will I be able to get a new credit
card?
• You might have trouble getting a
regular credit card, but you will
probably qualify for a secured credit
card if you put money in a savings
account to guarantee the card.
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Banking
 Can I open a bank account?
• Unless you have abandoned a bank
account while owing money, bounced
checks you never paid back or had a
bank account closed on suspicion of
fraud, you should have no trouble
opening a new bank account
subsequent to filing bankruptcy.
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Current Employment
 Will bankruptcy affect my job?
• The Bankruptcy Code specifically
prohibits employers from
discriminating against current
employees who file bankruptcy.
• The law applies to private and
government employers.
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Looking for work
 If you look for a new job while the
bankruptcy is still listed on your
credit report, potential employers
may choose to reject you.
 There is no law to prevent this from
happening.
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Re-establishing Credit
 A Chapter 7 bankruptcy will stay on your
credit report for 10 years.
•
Home and auto loan and credit card
applications may ask if you’ve declared
bankruptcy, and your answer may be a factor
in the lender’s decision.
•
You may be able to qualify for a mortgage or
car loan at a higher-than-average interest rate.
 You should be able to qualify for a secured
credit card if you deposit money in a bank
account to guarantee the card.
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Secured Credit Cards
 Even people with damaged credit or a
bankruptcy may be able to get a secured credit
card.
 Your line of credit on a secured card usually is
the same as the amount of money you deposit.
 Some banks require as little as $300 for the
deposit on a secured credit card.
 Generally, after six months to one year of ontime payments and careful use of your secured
credit card, you may begin to get offers from
unsecured credit card issuers.
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Find a Secured Credit Card
 Ask local banks and credit unions if they
offer secured credit cards.
 Visit Bankrate.com on the Internet and
search for secured credit cards.
•
This web site has listings of national
companies that offer secured cards.
 Shop carefully and compare the terms on
at least three cards — more if possible —
before applying for one.
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Questions & Answers
 Now’s your chance to ask questions
about personal bankruptcy.
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For More Information
 Consumer Action created the
MoneyWI$E trainings.
• www.consumer-action.org
• (415) 777-9635
• Info@consumer-action.org
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Class Evaluation
 Please fill out the MoneyWI$E
evaluation form and leave it on
your way out.
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Congratulations!
 You’ve completed the MoneyWI$E
training on Personal Bankruptcy.
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Visit money-wise.org
for additional information and to access
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