LECTURE 10 3-2-15Chapter 7: Choosing a Source of Credit: The Cost of Credit Alternatives-Reasons for Unmanageable DebtOverspendingThe expectation of instant comfort and gratificationKeeping up with the JonesesOverindulgence of childrenLoss of incomeUnemploymentDivorce or DeathIncreased expensesMedical issues-Consumer Credit Counseling ServicesNon-profit services supported by multiple sourcesProvides education about credit and budgetingProvides help with spending planProvides debt counseling services for those with serious financial problemsEx: The Village Financial Resource Center42% of people filling for bankruptcy are people with medical expenses-Personal BankruptcyLegal process for dealing with severe financial debtsThree Types of Bankruptcy1. Chapter 7Many, but not all, debts are dischargedNon-exempt assets are sold to pay creditors(exempt: limited value in home, car, trade tools, books, etc.)Stays on credit report for 10 yearsAfter Chapter 7 people may no longer owe…Credit card chargesUnpaid hospital or physician billsAfter Chapter 7 Bankruptcy still may owe…Taxes and finesChild support and alimonyEducational Loans2. Chapter 13Voluntary plan proposed to the bankruptcy court for those who want to pay a portion of their debt over a period up to five yearsMust have a regular incomeGet to keep assets as long as you are making paymentStays on credit report for 7 yearsLess severe than Chapter 7, still a bad thingBankruptcy Abuse Prevention and Consumer Protection Act of 2005Bankruptcy was designed as a last resort but had become and “acceptable” tool of credit managementAdded a requirement that debtors complete and approved instructional course in personal financial managementHDFS 357 1st Edition Lecture 10Outline of Last LectureI. Applying for CreditII. Credit Report/ScoreOutline of Current Lecture I. Reasons for Unmanageable DebtII. Consumer Credit Counseling ServicesIII. Personal BankruptcyCurrent Lecture LECTURE 10 3-2-15 Chapter 7: Choosing a Source of Credit: The Cost of Credit Alternatives -Reasons for Unmanageable Debt- Overspendingo The expectation of instant comfort and gratification o Keeping up with the Joneseso Overindulgence of children- Loss of incomeo Unemploymento Divorce or Death- Increased expenseso Medical issues -Consumer Credit Counseling Services- Non-profit services supported by multiple sourceso Provides education about credit and budgetingo Provides help with spending plano Provides debt counseling services for those with serious financial problemso Ex: The Village Financial Resource Centero 42% of people filling for bankruptcy are people with medical expenses -Personal Bankruptcy- Legal process for dealing with severe financial debts- Three Types of Bankruptcyo 1. Chapter 7 Many, but not all, debts are discharged Non-exempt assets are sold to pay creditors (exempt: limited value in home, car, trade tools, books, etc.) Stays on credit report for 10 years After Chapter 7 people may no longer owe… Credit card charges Unpaid hospital or physician bills After Chapter 7 Bankruptcy still may owe… Taxes and fines Child support and alimony Educational Loanso 2. Chapter 13 Voluntary plan proposed to the bankruptcy court for those who want to pay a portion of their debt over a period up to five years  Must have a regular income Get to keep assets as long as you are making payment Stays on credit report for 7 years Less severe than Chapter 7, still a bad thing- Bankruptcy Abuse Prevention and Consumer Protection Act of 2005o Bankruptcy was designed as a last resort but had become and “acceptable” tool of credit managemento Added a requirement that debtors complete and approved instructional course in personal financial