Problems with Credit

1. Problems with Credit Unit 3

2. 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.

3. 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

4. Credit Score

5. 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!

6. 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

7. 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

8. Why do people declare bankruptcy? Job loss Emotional spending Failure to budget and plan Catastrophic injury or illness

9. Types of Bankruptcy Chapter 7 Chapter 13 Chapter 11

10. 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

11. 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

12. 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

13. 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