Problems with credit
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Problems with Credit. Unit 3. Did You Know?. Most lottery winners spend all of their winnings and are broke within 5 years. 40% of all personal bankruptcies are due to medical bills. Warning Signs of Debt Problems How do you know when you are getting into financial trouble?.

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Did you know
Did You Know?

  • Most lottery winners spend all of their winnings and are broke within 5 years.

  • 40% of all personal bankruptcies are due to medical bills.

Warning signs of debt problems how do you know when you are getting into financial trouble
Warning Signs of Debt ProblemsHow do you know when you are getting into financial trouble?

Paying only minimum payments

Your total credit card balance increases every month

You miss loan payments or often pay late

You use savings for necessaries (food, utilities)

You borrow money to pay off old debts

You exceed credit limits on your credit cards

You have been denied credit because of your bad credit report

Debt collection practices
Debt Collection Practices

Creditors often turn their “bad debts” over to debt collection agencies

These agencies have one goal—get you to pay what you owe!

Harassing phone calls

Constant attempts to contact you

May call the people you listed as references

If you are in a joint account or had a co-signor, that person(s) will be affected too!

What are your options
What are your options??

  • Financial Counseling Services

  • Consumer Credit Counseling Service

  • Other counseling services – provided by your

    • Credit Union

    • Military bases

    • State and Federal Housing Authorities

Last resort
Last Resort!

Bankruptcy – is a legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts

It is a court proceeding

The bankruptcy process is a LAST RESORT

Designed to help debtors begin the process of repairing their credit

Why do people declare bankruptcy
Why do people declare bankruptcy?

Job loss

Emotional spending

Failure to budget and plan

Catastrophic injury or illness

Types of bankruptcy
Types of Bankruptcy

Chapter 7

Chapter 13

Chapter 11

Chapter 7
Chapter 7

  • An individual is required to draw up a petition listing his or her assets and liabilities

  • Assets – represent value of ownership that can be converted into cash

  • Liabilities – financial obligations by the debtor; money owe

  • AKA “straight bankruptcy”

  • Many, but not all, debts are forgiven

    • Assets are SOLD to pay creditors

Chapter 13
Chapter 13

A debtor with a regular income proposes a plan to the court for using future earnings or assets to eliminate his or her debts over a specific period of time

Normally keeps all or most of property

Pay back period can be as long as 5 years

Debtor makes regular payments to a Chapter 13 trustee, appointed by the court, who distributes the money to the creditors

Involuntary chapter 11
Involuntary & Chapter 11

  • Involuntary Bankruptcy

    • Occurs when creditor file a petition with the court asking the court to declare you bankrupt

    • It takes over your property and other assets to pay your debt

    • Does not occur vey often

  • Chapter 11

    • Reorganization for businesses that allows them to continue operating under court supervision as they repay their restructured debt

Credit after bankruptcy
Credit after bankruptcy??

Experiences vary for each situation

May not be able to get credit at all for a while

If credit is granted, the consumer will most likely pay a very high interest rate compared to others with good/excellent credit

Kept on your credit report for up to 10 years