Chapter 11 Bankruptcy

Transcription

1 Understanding Bankruptcy

2 Understanding Bankruptcy Chapter 7 and 13 Chapter 11

3 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.

4 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.

5 Signs of Credit Problems 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.

6 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 or the National Foundation for Credit Counseling Services as

7 Credit Counseling Counseling services can help debtors in several ways. They help debtors with stable incomes work out financial programs to repay debts. They help debtors learn to manage their money to prevent future debt. 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.

8 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.

9 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.

10 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.

11 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.