Friday - June 5th - Bankruptcy

Chapter 7 bankruptcy is when an individual or organization...

• can sell their assets to pay some or all of their unsecured debts.

• can pay off their debt in one, lump sum payment.

• can construct a more affordable repayment plan to pay off their debts.

• can keep their assets but get rid of all of their unsecured debts.

Which of the following types of debt can typically be discharged as a result of bankruptcy?

• Student loans

• Mortgage

• Child support payments

• Personal loan from the bank

Your cousin has been struggling financially for a few years and is seriously considering filing for bankruptcy. However, he doesn't seem to have all of his facts straight. Which of his following statements reveals a common misconception about bankruptcy?

• "I'm a bit worried to declare bankruptcy, because it will affect my credit score."

• "Bankruptcy is a good option for me right now, because it's a free way for me to get rid of all of my debts."

• "After my debts have been erased, I plan to get just one credit card a few months after I declare bankruptcy to reestablish my credit."

• "I decide to declare bankruptcy, I know that it won't solve all my problems. I'll really have to focus on building better financial habits."

Which of the following is likely to lead to financial distress and possible bankruptcy?

• Having student loans of $20,000 when your starting salary out of college is $55,000.

• Contacting your student loan servicer to discuss an alternate repayment plan - your current payment is too high.

• Having student loans, car or mortgage payments, and minimum monthly credit card payments that exceed your monthly income.

• Taking a lower paying job because it has more opportunity for career advancement.

Chapter 13 bankruptcy is when an individual or organization...

• can sell their assets to pay some or all of their unsecured debts.

• can pay off their debt in one, lump sum payment.

• can construct a more affordable repayment plan to pay off their debts.

• can keep their assets but get rid of all of their unsecured debts.

Sallie wants to avoid filing for bankruptcy. Which of the following steps would be beneficial for her?

• Keeping a log of all of her existing assets and storing them away to preserve their value.

• Making sure her creditors are not aware of her financial situation; otherwise, they may increase her interest rate.

• Maxing out her credit cards to pay off her other debts, such as mortgage payments and student loans.

• Take out unnecessary expenses from her budget, such as cable, her landline phone, etc.

All of the following are potential consequences of filing for bankruptcy EXCEPT...

• Bankruptcy is a matter of public record, so friends, family, employers, and acquaintances could find out about your financial troubles.

• You may feel emotionally or mentally like a failure.

• Bankruptcy will remain on your credit report for 15-20 years.

• You may be forced to give up your liquid assets, car, or valuable possessions to repay creditors.

You are trying to get a better handle on your finances and decide to see a credit counselor. What would be a red flag?

• The credit counselor says that they are a certified counselor.

• The credit counselor offers to give your free advice before you even make a payment.

• The credit counselor tells you that they are not a debt settlement agency.

• The credit counselor promises to make your debts go away without your involvement.

Amber has not paid her credit card bill in 7 months. Which of the following is a possible consequence?

• Amber gets her tax return, pays off the bill in full, and regains her old credit score.

• Amber finds it difficult to get additional loans or credit cards, because companies think she's too risky.

• Amber cancels her card with the bank to erase her credit card debt.

• The credit card company files bankruptcy against Amber so they can get their money back.

Which of the following best describes the difference between secured and unsecured debt?

• Secured debt comes from a bank, which is FDIC insured; unsecured debt comes from elsewhere.

• Secured debt is covered by the owner's insurance policies; unsecured debt is totally uninsured.

• Secured debt must be repaid; unsecured debt should be repaid but doesn't have to be if you can't afford payments.

• Secured debt is guaranteed by a physical object, such as your car or house; unsecured debt has no item that could be repossessed for nonpayment.