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 ID: 251821
Download Presentation The PPT/PDF document "Chapter 12.2: Bankruptcy" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Chapter 12.2: BankruptcySlide2
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 jobSlide3
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 peopleSlide4
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 debtSlide5
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.Slide6
Filing for Bankruptcy
File a petition Automatic stay is in effect
Postponement of collection proceedings against the debtor
Creditor must stop contact with debtor
Creditors cannot sue at this point
Bankruptcy law is
FEDERAL
statutory Slide7
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 $11,625Slide8
Chapter 7
Liquidation
Allows debtors to discharge all their debts
Debtor must sell most of their property and pay their creditors from the proceeds.
Debtors must do the following:
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 keptSlide9
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 closeSlide10
Chapter 12
Bankruptcy that lets
family farmers
, and
fishing businesses
create a plan for repayment that allows them to keep their operations running.Slide11
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 carSlide12
CANNOT BE DISCHARGED
Debt due to fraud
Back taxes
Student loansSlide13
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 listSlide14
Restoring Credit
Remains on credit report for 10 years
Reduces 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