What You

1
Section 22.3
2
What Youll Learn

• How to recognize warning signs of debt problems
  (p. 496)
• How to identify financial counseling services (p.
  496)

3
What Youll Learn

• How to distinguish among the chapters of the
  federal bankruptcy law (p. 496)

4
Why Its Important
Most people have financial problems of some kind.
Recognizing them and knowing what to do will
improve your life.
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Legal Terms

• bankruptcy (p. 496)
• family farmer (p. 497)
• homestead exemption (p. 499)

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Section Outline
Warning Signs of Debt Problems   Financial
Counseling Services
Consumer Credit Counseling Service
Declaring Bankruptcy
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Pre-Learning Question
What do you think are some warning signs of debt
problems?
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Warning Signs of Debt Problems

1. You make only the minimum monthly payment on
   credit cards.
2. You have trouble paying the minimum amount.
3. The total balance on your credit cards increases
   every month.

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Warning Signs of Debt Problems

1. You miss loan payments or often pay late.
2. You use savings to pay for necessities such as
   food and utilities.
3. You receive second or third payment due notices
   from creditors.

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Warning Signs of Debt Problems

1. You borrow money to pay off old debts.
2. You exceed the credit limits on your credit
   cards.
3. Youve been denied credit because of a bad credit
   report.

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Pre-Learning Question
What does a financial counseling service do?
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Financial Counseling Services
If youre having trouble paying your bills and
need help, you can contact

• your creditors to work out an adjusted repayment
  plan
• a nonprofit financial counseling program

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Consumer Credit Counseling Service
The Consumer Credit Counseling Service is a
nonprofit organization affiliated with the
National Foundation for Consumer Credit.
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Consumer Credit Counseling Service
Local branches of the CCCS provide
debt-counseling services and can be located
through

• white pages of telephone directory
• the Internet
• 1-800-388-2227

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Who is the Consumer Credit Counseling Service?
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ANSWER
A nonprofit organization that provides
debt-counseling services.
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Do you have to be bankrupt to access this service?
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ANSWER
No.
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How can you locate this service?
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ANSWER
In the phone directory, on the Internet, or by
calling their toll-free telephone number.
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Pre-Learning Question
What is bankruptcy?
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Declaring Bankruptcy
Bankruptcy is the legal process by which a debtor
can make a fresh start through the sale of assets
to pay off creditors.
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Declaring Bankruptcy
Bankruptcy laws are named after the chapters
where they may be found in the federal bankruptcy
code.
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22.3
Types of Bankruptcy Procedures
Chapter 7
Chapter 11
Chapter 12
Chapter 13
Ordinary Bankruptcy
Reorganization
Family Farmer Debt Adjustment
Individual Debt Adjustment
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Chapter 7

• used when the debtor wants to discharge most
  debts and begin with a clean slate
• may be brought either voluntarily by the debtor
  or involuntarily by creditors

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Chapter 7

• three creditors must file the petition for
  bankruptcy if the debtor has 12 or more creditors
  
• the combined debt owed to the three must exceed
  10,000

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Chapter 11

• offers businesses a way to reorganize their
  financial affairs and still remain in business
• requires a petition for reorganization and a
  reorganization plan

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Chapter 11

• plan must be approved by a certain number of
  creditors and the court
• if the plan is successful, the business will
  continue

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Chapter 12
Helps family farmers create a plan for debt
repayment that allows them to keep their farms
running.
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Chapter 12
A family farmer is defined as one who receives
more than one-half of his or her total income
from the farm.
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Chapter 12
To file for Chapter 12 bankruptcy, 80 percent of
the debt must result from farm expenses.
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Chapter 13

• permits an individual debtor to develop a
  repayment plan
• during the period of repayment, creditors may not
  continue collection activities

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Chapter 13

• used when an individual debtor with a steady
  income voluntarily decides to adopt a debt
  adjustment plan
• for individuals onlyno corporations or
  partnerships

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Exemptions
Some assets can be kept by the debtor. These
are called exemptions and can be doubled for
married couples filing jointly.
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Exemptions
Debtors can keep a maximum of 16,150 in equity
in a personal residence. This is called the
homestead exemption.
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Exceptions to Discharge
Some debts cannot be discharged.

• debts caused by the debtors fraud
• back taxes
• student loans that do not impose a hardship on
  debtor

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Section 22.3 Assessment
Reviewing What You Learned

1. What are the nine warning signs that you might be
   in financial trouble?

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Section 22.3 Assessment
Reviewing What You Learned
Answer
Make only minimum payments have trouble making
the minimums total balance on credit cards
increases each month miss loan payments or pay
late use savings to pay for necessities
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Section 22.3 Assessment
Reviewing What You Learned
Answer
Receive second or third payment due notices
borrow money to pay off old debts exceed the
credit limits denied credit because of a bad
credit report.
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Section 22.3 Assessment
Reviewing What You Learned

1. What service is provided by the Consumer Credit
   Counseling Service?

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Section 22.3 Assessment
Reviewing What You Learned
Answer
Debt-counseling services.
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Section 22.3 Assessment
Reviewing What You Learned

1. Discuss the differences between declaring Chapter
   7 and Chapter 13 bankruptcy.

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Section 22.3 Assessment
Reviewing What You Learned
Answer
Chapter 7 may be brought either voluntarily (by
the debtor) or involuntarily (by creditors).
Three creditors must file the petition for
bankruptcy, if the debtor has 12 or more
creditors.
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Section 22.3 Assessment
Reviewing What You Learned
Answer
The combined debt owed the three must exceed
10,000. Chapter 13 permits an individual debtor
to develop a repayment plan.
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Section 22.3 Assessment
Critical Thinking Activity Debt Problems
Do you recognize any of the warning signs of debt
problems? Do they apply to you or to someone you
know?
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Section 22.3 Assessment
Critical Thinking Activity Debt Problems
How might you correct debt problems or advise
someone else to do so? Why is it important to
address debt problems as soon as possible?
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Section 22.3 Assessment
Critical Thinking Activity Answer Debt Problems
Answers may vary but should recognize that taking
care of financial problems will improve the
quality of a persons life.
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Section 22.3 Assessment
Legal Skills in Action Credit Counseling
Unfortunately, many people realize they are in
financial trouble when it is too late to correct
the problem.
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Section 22.3 Assessment
Legal Skills in Action Credit Counseling
Create a skit between a young adult who has too
much debt and a credit counselor. Have the credit
counselor offer advice. Next, act out the skit
with a partner.
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Section 22.3 Assessment
Legal Skills in Action Answer Credit Counseling
Skits will vary but could include a discussion of
the different types of bankruptcy.
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End of Section 22.3