Laws Protecting Debtors/Creditors and Bankruptcy

1. Laws Protecting Debtors/Creditors and Bankruptcy Unit C Basic Business Law Objective 6.02

2. Laws Protecting Debtors • Setting maximum interest rates • Usually apply to loans of money • Some states govern charges imposed on credit purchases of goods/services “on time”

3. Laws Protecting Debtors • Disclosure of Terms • Full disclosure of interest and finance charges • Does not limit percentage amount • True annual percentage rate (APR) • Does not apply to first mortgages

4. Laws Protecting Debtors • Challenging Unconscionable Contracts • Unfair and oppressive • Judge decides if conscionable • Refuse to enforce contract • Remove unfair clause and enforce contract • Limit clause’s application so no longer unfair

5. Laws Protecting Debtors • Prohibiting Abuse in the Credit System • Federal Equal Credit Opportunity Act • May not refuse due to sex or marital status • May not ask marital status if applying for unsecured separate account • May not prohibit a married female from opening/maintaining account in maiden name • May not request information about birth control practices or intentions • Married persons with joint accounts have right to have credit information reported in both names

6. Laws Protecting Debtors • Federal Fair Debt Collection Practices Act • Prohibits: • Harassment of debtors • Abusive and profane language • Threats of violence • Contract with 3rd parties • Communication with the debtor at work

7. Laws Protecting Debtors • Federal Fair Credit Billing Act • Creditors must mail bills at least 14 days before due date • Creditors must acknowledge billing inquiries within 30 days • Creditors must settle complaints within 90 days • Creditors may not send repeated letters demanding payment until disputes over billing are settled • Credit cardholders may withhold payment for items defective without being liable for entire amount owed (purchases of $50 or more and 100 miles from home)

8. Laws Protecting Debtors • Federal Fair Credit Reporting Act • Deals with unfavorable credit reports • Have right to correct report • Credit Repair Organization Act • Governs companies that help consumers correct credit reports

9. Laws Protecting Debtors • Notice of debt payment to be recorded • Request receipt • Canceled checks • Types of Bankruptcy • Chapter 7 • Chapter 11 • Chapter 13 • Chapter 12

10. Bankruptcy • Chapter 7 – Liquidation • Sale of nonexempt property for cash • Nonexempt property • Bank Accounts • Stocks • Bonds

11. Chapter 7 Bankruptcy Procedure • File the following with the court: • List of all creditors and amounts owed • List of all property owned • Statement about financial affairs • List of current income and expenses • Trustee is selected • Assets liquidated • Proceeds used to pay creditors • Money left over returned to debtor

12. Bankruptcy • Chapter 11 Reorganization • Business can keep operating • Files plan of reorganization • Court approves plan

13. Bankruptcy • Chapter 12 • Used for Family Farmers wishing to make a debt adjustment to save the business • Debt Ceiling $1.5 million • Debt plan is for 3 years with a possibility of a 2 year extension

14. Bankruptcy • Chapter 13 Extended Time Payment Plan • Applies to individuals with regular income • Unsecured debts less than $250,000 and/or secured debts of less than $750,000 • Submit plan for repayment of debts within three years • May be extended to five years • Creditors cannot file suit