What is the cause of bankruptcy? Debt!

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1 Bankruptcy

2 What is the cause of bankruptcy? Debt!

3

4 Reasons for high bankruptcy rates: Sustained high levels of household debt. They are overextended and can t get out from under their debt. Major life-changing events, such as divorce, lay-offs and illness take people under. -Sam J. Gerdano-director of the American Bankruptcy Institute.

5 What have you learned in this class that can help you avoid bankruptcy?

6 Question for Thought! Which of the following do you think would best help prevent bankruptcy? a. Practice good money management like budgeting b. Keep debt levels low c. Have an emergency fund d. Have a high income

7 Bankruptcy Filing Process 1. Contact an attorney 2. Determine the chapter that fits your situation -- Chapter 7 -- Chapter Work out a repayment plan with creditors at court 4. Discharge or settle debts

8 Filing fees Chapter 7 $274 Chapter 11 $1,039 Chapter 12 $239 Chapter 13 $274 Attorney s fees Chapter 7=Minimum of $1,200 Chapter 13=Minimum of $1500 double what they were before the new law was passed

9 Issues to consider: PROS: Provides legal protection from creditors. Staves off financial ruin. Resolves most debt. May prevent loss of home. Provides a chance to start again. Protects property from IRS seizure for back taxes.

10 Issues to consider CONS: Loss of privacy. Serious harm to credit history. Some debts are not dischargeable and remain outstanding (taxes, fines, alimony, child support, and student loans). Involvement with courts. Loss of assets. Guilt.

11 Types of Bankruptcy Chapter 7-Liquidation: sell non-exempt assets, sales go to creditors Must pass a means test for eligibility -- Only once in 8 years, used to be 6 Chapter 13-Repayment plan: keep assets, must have income, start a payment plan.

12 Types of Debt Secured: Debts that are secured by collateral. --Houses, cars, boats, etc. Unsecured Priority: Debts that cannot be discharged. --Student loans, Taxes, fines, etc. Unsecured Non-Priority: Debts that can be discharged. --Medical bills, cell phone bills, credit cards.

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14 Sullivan, Warren and Westbrook Showed that all groups were involved: income, races, jobs, education, homeowners/renters. Women are the fastest growing group. Entrepreneurs: Why are they more at risk. Gaps in employment. Too many loans given to people who can t pay.

15 USU Study General Reasons for Filing for Bankruptcy - Low wages - High donations - Large families -Brand name conscious - More cars per -Bad luck household -Low insurance - Large homes - High divorce rate

16 USU Study - Reasons for Filing Stated by Filers Want a fresh start after divorce. Our business failed. Can t work as much anymore debts etc. Got a really bad car deal. I went to jail. Got swindled by someone on a dating website (African scheme) lost $30,000.

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18 Review! Which of the following bankruptcies will involve selling assets? a. Chapter 6 b. Chapter 7 c. Chapter 11 d. Chapter 13

19 Review! Which of the following bankruptcies will involve selling assets? a. Chapter 6 b. Chapter 7 c. Chapter 11 d. Chapter 13

20 Kevin R. Anderson Esq. Chapter 13 Bankruptcy Trustee for Utah!

21 What Causes Bankruptcy? Being insolvent is more a question of how much you spend than how much you earn. Anyone who spends more than they earn is bankrupt.

22 Bankruptcy Was Intended For Unforeseeable Financial Catastrophes Job loss Accidents (injury or loss of property) Failure of a business Divorce Health problems Death in the family

23 Bankruptcy is Now Used to Avoid Consequences of Foreseeable Financial Indiscretions Improvident use of E-Z credit or the I-am-worth-it syndrome. Failure to pay taxes. Failure to pay family support obligations Failure to make mortgage payments.

24 We re No. 5! Utah is number 5 in the nation in per household bankruptcy filings. We used to be #1!

25 Homes Problem: Families are buying more home than they can afford. Families fail to accurately budget for ancillary costs associated with a home. Furnishings Utilities Taxes Maintenance

26 Home Equity Loans Problem: Families are spending the equity in their homes Home equity loans are far and away the most risky loans a family can make. Home equity loans are the primary cause of chapter 13 bankruptcy filings in Utah.

27 Credit Cards The bank is smarter than me, so if they tell me I can handle this much credit, then it must be true.

28 Why Utah? Jobs with poor benefits No health insurance. No sick leave. No disability.

29 Larger Families Larger families means larger homes and more cars. Utah leads the country in home size and number of cars per household.

30 Solutions Families need to build a financial safety net. Learn financial discipline and start saving through the budget process. Learn how to avoid unwise financial decisions: Credit cards Automobile purchases & financing. Home equity loans.

31 Credit cards Solutions: Use only one card. Each month, pay the Entire balance in full!

32 Adopt This Credo: I am only one person. I cannot afford all things, but I can afford some things and those things that I can afford, I will pay for in cash.

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