Bankruptcy and credit Business Law By Ashley Smith and Chase Benton
Table of Contents Bankruptcy Laws (slides 3 and 4) The New Bankruptcy Law (slides 5 and 6) Creditor Rights in Bankruptcy (slides 7 and 8) Federal Consumer Credit Laws Checklist (slides 9-14)
Bankruptcy Law Business owners who can't afford to pay back their creditors often look to filing bankruptcy as a way to settle their debt and avoid costly legal action. When you file for bankruptcy, your creditors may be prevented from collecting on debts until the process is completed.
Bankruptcy Law How much creditors can collect depends on how your business is structured. If your business is a sole proprietorship, your personal assets may be used to pay off business debts, depending on which form of bankruptcy is chosen. Corporations, limited liability companies, and some forms of partnerships protect personal assets from being used to pay off business debts. Not all bankruptcies are voluntary. Creditors can also petition for a business to declare bankruptcy.
The New Bankruptcy Law: Changes to Chapter 7 and 13 The latest changes to the bankruptcy law may be making it harder for some people to file bankruptcy. There is now restricted eligibility for chapter 7 bankruptcy. Such as, if your income is too high than you may not be eligible . Also, before you file bankruptcy you must complete credit counseling with an agency approved by the United States Trustee’s office.
The New Bankruptcy Law: Changes to Chapter 7 and 13 Chapter 7 and Chapter 13 apply primarily to individuals, but affect small business owners who operate as sole proprietorships. Under Chapter 7, the bankruptcy trustee will sell assets to satisfy outstanding debts and discharge debts that can't be satisfied with the available assets, Under Chapter 13, the trustee sets up a three to five year repayment plan for the debtor to repay debts from current income. The debtor is allowed to keep more assets under this plan.
Creditor rights in bankruptcy All too often, creditors get a bankruptcy notice and they assume they have neither rights nor alternatives with respect to their claim against the debtor. This is not entirely true. Creditors in bankruptcy are entitled to: 1. Share in any distribution from the bankruptcy estate according to the priority of their claim. Most unsecured, non wage claims come low in the priority scheme, and may receive little or nothing.
Creditor rights in bankruptcy 2. Be heard by the court in matters concerning the debtor's plan (in chapters 11, 12, and 13), the liquidation of the debtor's non exempt assets, and payments from the assets of the estate. 3. Challenge an individual debtor's right to a discharge or to discharge the creditors particular debt.
Federal Consumer Credit Laws Checklist Numerous state and federal laws apply to credit transactions with consumers. If your company extends credit to consumers, you must comply with these laws. Here is a list of the main federal laws. Check with your attorney regarding these laws prior to extending credit to consumers, and regarding state laws that may apply, such as usury laws. Usury laws set limits on the rate of interest that you may be able to charge a consumer. Some also limit late charges and other fees.
THE CREDIT PRACTICES RULE The Credit Practices Rule applies to consumer credit contracts offered by finance companies and retailers for any personal purpose except to buy real estate. It prohibits creditors from including certain provisions (such as wage assignments and waivers of exemption) in consumer credit contracts, and requires a written notice to consumers before they co-sign obligations for others.
THE EQUAL CREDIT OPPORTUNITY ACT The Equal Credit Opportunity Act prohibits credit discrimination on the basis of race, color, religion, national origin, age, sex, or marital status. A business considering whether to extend credit is free to consider the usual factors in granting credit, like the applicant's financial status and credit record.
THE FAIR CREDIT REPORTING ACT The Fair Credit Reporting Act protects consumers by requiring that inaccurate or obsolete credit report information be removed from a credit report. It applies to credit reporting agencies, and to businesses that supply information to credit reporting agencies and those that use consumer reports. Business owners are responsible for correcting inaccurate or incomplete information in a credit report.
THE FAIR DEBT COLLECTION PRACTICES ACT The Fair Debt Collection Practices Act protects consumers by prohibiting debt collectors from taking certain actions when collecting a debt. Personal, family, and household debts are covered under the act. Prohibited actions include using threats of violence or harm, using false statements, or contacting the consumer before 8:00 a. m. or after 9:00 p. m. The debt collector must also send the consumer a written notice containing the amount of the debt, the name of the creditor, and what the consumer can do if he or she believes he or she does not owe the money.
THE TRUTH IN LENDING ACT The Truth in Lending Act deals with the disclosure of information regarding the credit transaction. It requires anyone who regularly extends credit to consumers for personal, family, or household purposes to make certain disclosures regarding those credit terms. The disclosures include such things as the monthly finance charge, the annual percentage rate, when payments are due, when late charges are due, and the total finance charges.
Works Cited http://smallbusiness.findlaw.com/business-forms-contracts/business-forms-contracts-a-to-z/be17_9_1.html http://www.sec.gov/investor/pubs/bankrupt.htm http://www.hg.org/bankrpt.html http://topics.law.cornell.edu/wex/Bankruptcy http://www.nolo.com/legal-encyclopedia/article-30040.html http://www.uscourts.gov/bankruptcycourts/bankruptcybasics/process.html http://www.business.gov/business-law/finance/bankruptcy/