Bankruptcy is a legal process that allows deeply indebted individuals to create a repayment plan or have some debts erased. There are two main types of bankruptcy: Chapter 7 involves liquidating assets to repay debts and allows erasing unsecured debt; Chapter 13 creates a court-ordered repayment plan over 3-5 years. Bankruptcy remains on one's credit record for many years and makes obtaining credit more difficult with higher interest rates. It is a major life event that permanently affects borrowers, lenders, and those declaring bankruptcy. Responsible financial habits like tracking spending, minimizing borrowing, and saving for large purchases can help avoid the need for bankruptcy.

1. Bankruptcy
Personal Finance

2. Bankruptcy Defined...
• A legal process that allows someone
deeply in debt to create a plan to get
out of it.
• About 1.5 Million Americans filed for
bankruptcy in 2009
– 38% increase

3. Reasons People File
• Unforeseen or Unavoidable Misfortune
– Medical, Divorce, Death in the family, etc.
• Irresponsible spending and borrowing

4. Types of Bankruptcy
1. Liquidation – Chapter 7 Bankruptcy
– Some of your assets are sold to repay
your debt
– You get to keep:
• Your house (up to $125,000)
• Your car (up to $3,000)
• Clothes & Household Goods
• Money invested in Retirement Plans

5. Types of Bankruptcy
1. Liquidation – Chapter 7 Bankruptcy
– Allows you to completely erase most of
your debt.
• Secure Debt is not included
– To qualify, you must:
• Have a very low income – Below state avg.
• Go through financial counseling
• Have not defrauded creditors

6. Types of Bankruptcy
1. Liquidation – Chapter 7 Bankruptcy
You can only file
once every years

7. Types of Bankruptcy
2. Reorganization – Chapter 9, 11, 12, & 13
– Which type to file??
• Chapter 9 – Municipalities (Cities)
• Chapter 11 – Corporations or individuals
with more than $350,000 in debt
• Chapter 12 – Farmers
• Chapter 13 - Individuals

8. Types of Bankruptcy
2. Reorganization – Chapter 9, 11, 12, & 13
– A court ordered repayment plan
– Allows you to repay your debt over
3-5 years
• Stops collection procedures & gives you
more time
– A court monitors the repayment plan

9. Types of Bankruptcy
2. Reorganization – Chapter 9, 11, 12, & 13
You can only file
once every years

10. Who does Bankruptcy
Affect?
1. Lenders
– they must absorb the lost loans
2. Responsible Borrowers
– They must pay higher rates.
3. People Declaring Bankruptcy
– It remains on your credit record for years
– Getting credit will always be harder
– You will pay much higher interest rates

11. Final Thoughts...
1. Bankruptcy is for life...
• You will be asked about it any time you apply for
credit.
2. Bankruptcy is one of the top 5 life altering
events.
• Divorce, Severe Illness, Disability, & Loss of a
Family Member
3. Act Your Wage!!

12. Act Your Wage...
...how to avoid debt!
1. Know what you are spending!
2. Borrow only what you need!
3. Save as much as possible BEFORE you
buy!
4. Don’t Apply for every card!
5. Remember, you don’t deserve anything!