Personal Bankruptcy

1. Personal Bankruptcy MoneyWi$e A joint financial education project of Consumer Action and Capital One MoneyWi$e: Personal Bankruptcy Seminar

2. Welcome • Why we are here • To learn about personal bankruptcy. • Bankruptcy is allowed under the law to give people a financial fresh start. MoneyWi$e: Personal Bankruptcy Seminar

3. Key points • Bankruptcy is an important tool for people facing severe financial problems. • Bankruptcy laws can help you get a fresh financial start. • Bankruptcy can affect your credit, insurance coverage, job prospects and your ability to get rental housing. MoneyWi$e: Personal Bankruptcy Seminar

4. Topics we will cover: • It is the legal right of all U.S. residents to file bankruptcy. • The differences between Chapter 7 and Chapter 13 bankruptcy. • Actions you can take to try to avoid bankruptcy. • Bankruptcy’s effect on your life. • What possessions the law allows you to keep during a bankruptcy. (continued) MoneyWi$e: Personal Bankruptcy Seminar

5. Topics (continued): • How to get and check your credit report. • What credit counseling is and how to find a reputable credit counseling agency. • Avoiding high-cost of debt consolidation loans and services. • Rebuilding your credit after bankruptcy. MoneyWi$e: Personal Bankruptcy Seminar

6. About Personal Bankruptcy • Bankruptcy is a court proceeding. • Bankruptcy remains on your credit report for 10 years. • Each debt that was discharged under the bankruptcy petition (such as credit card accounts) may remain on your report for seven years. • You should hire an attorney to file bankruptcy. MoneyWi$e: Personal Bankruptcy Seminar

7. By Federal Law • Article One, Section Eight of the U.S. Constitution authorizes Congress to enact bankruptcy laws. MoneyWi$e: Personal Bankruptcy Seminar

8. Two Kinds of Bankruptcy • Chapter 7 • Chapter 13 MoneyWi$e: Personal Bankruptcy Seminar

9. Chapter 7 • Bankruptcy removes your responsibility for paying most of your debts not secured by collateral. • Collateral is property that guarantees a loan. • Mortgage loans are guaranteed by real estate and car loans by the cars. • You are allowed to keep exempt assets. • This is the property you are allowed to keep when you file bankruptcy. MoneyWi$e: Personal Bankruptcy Seminar

10. Means Test • All bankruptcy filers are subject to a “means test” to determine if they are eligible for Chapter 7 or if they must file a Chapter 13. • Your income is compared to the median income in the state you live in, in addition to your financial ability to repay your debts. • Debtors who can pay at least $6000 within a five year period ($100 per month), will be required to file a Chapter 13. • To find the current median income in your state, go to the U.S. Trustee website at www.usdoj.gov/ust. MoneyWi$e: Personal Bankruptcy Seminar

11. Credit Counseling • Pre-bankruptcy credit counseling and pre-discharge debtor education are bankruptcy requirements. • People applying for bankruptcy must complete a federally approved credit counseling program within 6 months prior to filing. • A debtor education course must be completed after filing to have debts discharged. • Fees are normally charged for counseling and debtor education. If you cannot afford to pay, there is no charge • A list of U.S. Trustee-certified agencies are listed at www.usdoj.gov/ust. MoneyWi$e: Personal Bankruptcy Seminar

12. To file bankruptcy you must also provide: • a copy of your latest tax return for a Chapter 7. • past 4 years’ tax returns for a Chapter 13. • a certificate of credit counseling. • evidence of earnings in the past 60 days. • monthly net income and any anticipated increase in income. • A photo ID. MoneyWi$e: Personal Bankruptcy Seminar

13. The Court appoints a trustee • The trustee arranges for the sale of your non-exempt property and is responsible for paying as many of your debts as possible with the proceeds. • Not all debts can be erased by bankruptcy. MoneyWi$e: Personal Bankruptcy Seminar

14. Chapter 13 • Repayment bankruptcy is an option if you have income but can’t pay your debts. • Allows you to pay your debts in installments over a three-to-five-year period. • In general, you may keep all your property as long as you continue to make your Chapter 13 payments on time. • Alimony and child support payments and long-term secured obligations such as your mortgage cannot be discharged. MoneyWi$e: Personal Bankruptcy Seminar

15. Key points • You can only file bankruptcy under one category at a time. • Chapter 7 offers a financial fresh start and is a quicker process compared to a Chapter 13. • A means test will determine if you are eligible to file Chapter 7 or repay part of your debt under a Chapter 13. • Pre-bankruptcy credit counseling and pre-discharge debtor education are bankruptcy requirements. • Chapter 7 can be filed only once every eight years. • You cannot file Chapter 13 if you obtained a bankruptcy discharge in the past 2-4 years. MoneyWi$e: Personal Bankruptcy Seminar

16. Let’s take a break • Please be back in 15 minutes. MoneyWi$e: Personal Bankruptcy Seminar

17. Repercussions of Bankruptcy • When you file bankruptcy, all your property except exempt assets will be sold to pay your creditors. • An exempt asset is property you are allowed to keep during bankruptcy. • If you file a Chapter 13 repayment plan, it will take three to five years to repay your debts and receive your discharge from the court. MoneyWi$e: Personal Bankruptcy Seminar

18. Bankruptcy will not remove: • Child support and alimony • Debts for personal injury or death that you caused while under the influence of alcohol or illegal drugs • Student loans • Fines and penalties for law violations, such as traffic tickets, court-ordered payments or recent property tax assessments. • Income taxes from the past three years and other tax debts • Credit purchases of $1,150 or more for luxury items within 60 days of filing (continued) MoneyWi$e: Personal Bankruptcy Seminar

19. Bankruptcy will not remove: (continued) • Loans or cash advances of $1,150 or more taken within 60 days of filing • Debts owed to a single creditor of more than $500 for luxury goods purchased within 90 days of filing • Cash advances of $750 made within 70 days of filing • Debts or judgments based on fraud or other illegal activities • Criminal restitution resulting from illegal activities • Debts you owe from a divorce decree or settlement • Any debts you forgot to list in your bankruptcy filing MoneyWi$e: Personal Bankruptcy Seminar

20. Key Points • Bankruptcy remains on your credit report for up to 10 years • This can make it difficult to get new credit, find a place to rent, get insurance or qualify for some jobs • Unless you change your financial habits after you file bankruptcy, you might fall into debt again MoneyWi$e: Personal Bankruptcy Seminar

21. To Declare, or Not to Declare? • Bankruptcy is not a way to avoid debts you can afford to pay but just don’t want to pay. • Bankruptcy will not allow you to keep your house and cars if you have a mortgage or car loan unless you pay your creditors. • Bankruptcy will immediately stop most collection efforts against you. • Creditors can’t take further action against you unless they obtain permission from the bankruptcy court. MoneyWi$e: Personal Bankruptcy Seminar

22. Question • Should I call my creditors to let them know I am having trouble making payments? MoneyWi$e: Personal Bankruptcy Seminar

23. Talking to your creditors may help to resolve your problems if you have just a few debts and believe you can get back on your feet if given a little time. • Explain that you are willing to pay off your debts. • Ask to arrange a payment plan or negotiate a reduced settlement amount. MoneyWi$e: Personal Bankruptcy Seminar

24. Classroom Activity • Are Julee and Jimmy in Trouble? • The trainer will distribute this worksheet. • Read the financial information about Julee and Jimmy. • Decide if you think they are in danger of financial trouble. MoneyWi$e: Personal Bankruptcy Seminar

25. Take Home Worksheets • The trainer will give you some worksheets: • One will help you decide if you have too much debt. • One is a questionnaire to help you assess your own risk of financial trouble or bankruptcy. • These are for you to take home and fill out privately. MoneyWi$e: Personal Bankruptcy Seminar

26. Preview of Next Session • During the second MoneyWi$e session on Personal Bankruptcy we will learn about: • Credit and credit reports • Credit counseling • Hiring an attorney • Re-establishing credit MoneyWi$e: Personal Bankruptcy Seminar

27. See You Next Time • Thank you for your attention and participation. MoneyWi$e: Personal Bankruptcy Seminar

28. Personal Bankruptcy A MoneyWi$e Seminar Session Two

29. Credit Reports • A credit report is a record of your payment history for all credit accounts, such as credit cards, unsecured loans, car loans and mortgages. • Credit bureaus make credit reports available to companies that grant credit based upon payment histories. • Most lenders get credit reports from one of three national credit reporting bureaus: • Equifax, Experian and TransUnion MoneyWi$e: Personal Bankruptcy Seminar

30. Credit History • Not everyone has credit. If you have never had a credit card or a loan, you probably don’t have a credit history. • People with no credit history do not have a credit report. MoneyWi$e: Personal Bankruptcy Seminar

31. Your Free Credit Report • The Fair Credit Reporting Act (FCRA) requires each of the three nationwide credit reporting agencies to provide you with a free copy of your credit report, at your request, once every 12 months. • Your credit report gives you a breakdown of your debts. • Reviewing your report allows you to make sure the information listed on the report is accurate. MoneyWi$e: Personal Bankruptcy Seminar

32. Obtain a copy of your free credit report: Online: www.annualcreditreport.com By Phone: 1-877-322-8228 By mail: Annual Credit Report P.O. Box 105281 Atlanta, GA 30348-5281 MoneyWi$e: Personal Bankruptcy Seminar

33. Credit Counseling • If you are in financial trouble, you can seek the help of a credit counselor. • Credit counseling services are organizations that assist individuals with personal financial matters. • Credit counselors provide advice, budgeting services, financial guidance, credit counseling and debt management programs. MoneyWi$e: Personal Bankruptcy Seminar

34. Debt Management Programs • Credit counseling organizations work with lenders and creditors to offer debt management programs. • If you enroll in a debt management program, the credit counseling agency will negotiate with creditors on your behalf and help you consolidate your bills into one monthly payment. • You make one payment to the credit counselors and they then disburse it to your creditors. MoneyWi$e: Personal Bankruptcy Seminar

35. For-Profit Credit Counselors • Some credit counseling companies try to profit off of people in debt. • These companies claim to be not-for-profit but they are really profit-making enterprises hiding behind non-profit status. • You might get deeper in debt if you deal with the wrong company. • Seek out non-profit counselors affiliated with the National Foundation for Credit Counseling. MoneyWi$e: Personal Bankruptcy Seminar

36. Resource • Find a reputable non-profit credit counselor affiliated with the National Foundation for Credit Counseling: • Web site is www.nfcc.org • Call 800-388-2227 MoneyWi$e: Personal Bankruptcy Seminar

37. The True Cost of Credit: A Guessing Game • Classroom activity • The activity is designed to see what you know about the cost of buying things on credit. • Check the box that you think gives the true cost of buying these goods on credit. MoneyWi$e: Personal Bankruptcy Seminar

38. Questions About the Activity • Did your responses agree with the answers? • What surprised you most? • Can you suggest ways to keep finance charges at a minimum? MoneyWi$e: Personal Bankruptcy Seminar

39. Hiring an Attorney • It is important to retain an attorney when you file bankruptcy. • Hiring an attorney protects your rights in bankruptcy court. • Make sure the attorney you retain is an expert in bankruptcy. • The cheapest attorney is not necessarily the best one. (continued) MoneyWi$e: Personal Bankruptcy Seminar

40. Hiring an Attorney • Don’t just pick up the Yellow Pages to look for an attorney. • Ask people you know if they have a lawyer to recommend. • Call your state bankruptcy bar association for recommendations. MoneyWi$e: Personal Bankruptcy Seminar

41. Find a Lawyer Online • Go to the National Association of Consumer Bankruptcy Attorneys (www.nacba.org), click on “Find a Bankruptcy Attorney near you”. • Visit the Legal Services Corporation web site at www.lsc.gov and go to “Find Legal Services” . • Your public library probably has Internet access that you can use. MoneyWi$e: Personal Bankruptcy Seminar

42. Let’s take a break • Please be back in 15 minutes. MoneyWi$e: Personal Bankruptcy Seminar

43. After Bankruptcy • Filing bankruptcy may change your life in a positive way. • It can remove your worries about your debts and gives you a financial fresh start. • Some negative things might happen after you file bankruptcy. • It may be hard to get a new credit card or to rent a place to live if the landlord checks applicants’ credit reports. • If you apply for a new job, the employer might want to check your credit report. MoneyWi$e: Personal Bankruptcy Seminar

44. Credit Cards • Will I be able to get a new credit card? • You might have trouble getting a regular credit card, but you will probably qualify for a secured credit card if you put money in a savings account to guarantee the card. MoneyWi$e: Personal Bankruptcy Seminar

45. Banking • Can I open a bank account? • Unless you have abandoned a bank account while owing money, bounced checks you never paid back or had a bank account closed on suspicion of fraud, you should have no trouble opening a new bank account subsequent to filing bankruptcy. MoneyWi$e: Personal Bankruptcy Seminar

46. Current Employment • Will bankruptcy affect my job? • The Bankruptcy Code specifically prohibits employers from discriminating against current employees who file bankruptcy. • The law applies to private and government employers. MoneyWi$e: Personal Bankruptcy Seminar

47. Looking for work • If you look for a new job while the bankruptcy is still listed on your credit report, potential employers may choose to reject you. • There is no law to prevent this from happening. MoneyWi$e: Personal Bankruptcy Seminar

48. Re-establishing Credit • A Chapter 7 bankruptcy will stay on your credit report for 10 years. • Home and auto loan and credit card applications may ask if you’ve declared bankruptcy, and your answer may be a factor in the lender’s decision. • You may be able to qualify for a mortgage or car loan at a higher-than-average interest rate. • You should be able to qualify for a secured credit card if you deposit money in a bank account to guarantee the card. MoneyWi$e: Personal Bankruptcy Seminar

49. Secured Credit Cards • Even people with damaged credit or a bankruptcy may be able to get a secured credit card. • Your line of credit on a secured card usually is the same as the amount of money you deposit. • Some banks require as little as $300 for the deposit on a secured credit card. • Generally, after six months to one year of on-time payments and careful use of your secured credit card, you may begin to get offers from unsecured credit card issuers. MoneyWi$e: Personal Bankruptcy Seminar

50. Find a Secured Credit Card • Ask local banks and credit unions if they offer secured credit cards. • Visit Bankrate.com on the Internet and search for secured credit cards. • This web site has listings of national companies that offer secured cards. • Shop carefully and compare the terms on at least three cards — more if possible — before applying for one. MoneyWi$e: Personal Bankruptcy Seminar