Understanding
Bankruptcy
Understanding Bankruptcy
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Chapter 7 and 13
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https://www.youtube.com/watch?v=RWkjk3r8yas
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Chapter 11
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https://www.youtube.com/watch?v=mxVWyzzMOXM
Fair Debt Collection Practices Act
This law, passed in 1978, protects consumers from abusive, unfair, or
deceptive conduct by collection agencies. These agencies are hired by
the creditor to collect the debts owed.
Under this law, collection agencies may not reveal or publicize a debtor’s
debt to other people. The agencies are not allowed to make threats or
use abusive language to collect debts. For example, they cannot tell the
debtor that he or she has committed a crime and can be arrested for
failure to pay. Also, collection agencies cannot contact debtors at
inconvenient times or make repeated and annoying phone calls to them.
Signs of Credit Problems
Spending increasing amounts of income to pay debts.
 Using credit for purchases that could easily be paid with cash.
 Making only the minimum payments on your accounts.
 Borrowing money, taking out new loans, or using savings to pay debts.
 Getting new credit cards to pay off old ones.
 Owing so much on credit that the amount owed from month to month
never goes down.
 Taking longer to pay off your account balances.
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Signs of Credit Problems
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Making payments late as a usual practice.
Delaying payment to one creditor to pay another.
Skipping some payments.
Knowing you would have immediate financial problems if you lost your
job.
Running out of money before payday.
Purchasing non-essential items on credit.
Credit Counseling
Consumer Credit Counseling Service (CCCS) us a nonprofit organization with
offices across the country. Creditors refer consumers with serious credit
problems to seek help through the CCCS. Depending on your income, the
credit counseling service provided by this organization are either free or
low cost. You can learn more about the Consumer Credit Counseling
Service at www.moneymanagement.org or the National Foundation for
Credit Counseling Services as www.nfcc.org.
Credit Counseling
Counseling services can help debtors in several ways.
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They help debtors with stable incomes work out financial programs to
repay debts.
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They help debtors learn to manage their money to prevent future debt.
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For those with more serious debts, the service tries to work out a repayment
schedule with a creditor. The debtor then gives the service a set amount
from each paycheck, and the service pays the creditor.
Bankruptcy
Debtors with serious financial problems who are unable to pay their debts
may be forced to consider filing for bankruptcy. Bankruptcy is a legal
proceeding for the purpose of stating a person’s inability to pay his or her
debts. Under the US Bankruptcy Act, debtors can declare bankruptcy by
filing Chapter 7 bankruptcy, Chapter 11, or Chapter 13 protection.
When considering bankruptcy, remember that it is costly. It includes lawyer
fees and court costs—and once you file for bankruptcy, your credit rating
will be affected for years. After your debts have been paid off, you can
start to rebuild you credit rating.
Chapter 7 Bankruptcy
Individuals are legally declared unable to pay their debts
under Chapter 7 Bankruptcy. Their assets (property and
possessions), except for some personal items, are sold by the
court. They can lose their car, house, and furniture. The
money collected from the sale is divided among the
creditors. The bankruptcy petition also becomes part of their
credit record for 10 years. As a result, obtaining credit in the
future becomes difficult.
Chapter 11 Bankruptcy
Individuals, partnerships, and corporations can file bankruptcy under Chapter 11.
To file Chapter 11, the debtor files a petition with the local bankruptcy court. The debtor must
provide the court with financial and tax information, as well as a list of creditors and outstanding
debts. Filing Chapter 11 petition usually stops most collection actions against the debtor, including
lawsuits, garnishments, and phone calls.
Usually Chapter 11 is for businesses not individuals, however, it is another option for individuals along
with Chapter 7 or Chapter 13.
Chapter 11 is a financial rehabilitation process under which companies and individuals can
attempt to restructure their debts in order to repay them.
Chapter 13 Protection
Under this plan, debtors with regular incomes pay back some or
most of their debts over a three-to five-year period. While
doing so, they are under the supervision and protection of the
court. They are also protected from legal action by creditors.
The court sets the payment amounts for the debtor. A courtappointed trustee then distributes the payments to the
creditors according to the plan. Filing under Chapter 13 offers
debtors two advantages over straight bankruptcy. Debtors
usually keep all their possessions and their credit rating suffers
less.