Topic 9: Bankruptcy


Flashcards on Topic 9: Bankruptcy, created by karen_v on 06/17/2014.
Flashcards by karen_v, updated more than 1 year ago
Created by karen_v over 8 years ago

Resource summary

Question Answer
________ is the legal proceeding than enables an honest but unfortunate debtor who cannot pay their bills an opportunity to get a fresh financial start. (fill in the blank) Bankruptcy
A chapter 7 bankruptcy will discharge the legal obligation to pay most or all unsecured debt. (True or False) A: True, Chapter 13 enables a debtor to reorganize their debt and get caught up on past due debt.
A client comes to see you, overwhelmed by their debt. They have $1,500 in dental bills; $550 in credit card debt; a $24,000 truck loan; $31,000 in student loan debt; and 2 mortgages on their home – leaving them with little equity. Is Chapter 7 bankruptcy a good option, which debts would likely be discharged? No, the only debt that would likely be discharged would be the dental bills and the credit card debt.
During a chapter 7 bankruptcy filing, non-exempt property can be sold to pay the creditors. Your client owns the following property; which are likely non-exempt? Rare baseball card collection, work truck, antique furniture set, home they live in valued at $225,000, 401(k) account. Rare baseball card collection, antique furniture set, and possibly part of their home, depending on the state laws
A client seeks your services as they are considering filing bankruptcy, but are concerned about how it will affect their credit score and for how long. What advice would you give them? Bankruptcy will affect a credit score, by 100-250 points; however most clients who are considering filing bankruptcy already have a bad credit score because of delinquent accounts. Suggest that they look up their current credit score to help them make a rational decision. A bankruptcy will stay on their credit report for 10 years.
How much debt must a person have to file a chapter 7 bankruptcy? There is no particular debt limit that a person must have in order to file
A client in need of advice has over $500,000 dollars in medical debt, they would like to file a chapter 13 bankruptcy, can they? No, there is a maximum amount of debt for a chapter 13 filing ($383,175 – unsecured and $1,149,525 in secured debt)
The ________ _________ was designed to reserve chapter 7 filings for those who truly need the debt relief protection. It determines if a person can potentially afford to pay off most of their debt through a chapter 13 repayment plan. (fill in the blanks) means test
What are the 4 different forms of bankruptcy? Chapter 7, chapter 13, chapter 11 and chapter 12
There are 4 different forms of bankruptcy. Which one is much like a chapter 13 filing but is for farmers? Chapter 12
A client comes to see you, interested in filing bankruptcy again. They heard that you can only file every 10 years is this true? No, depending on which bankruptcy chapter they filed under before and which one they intend to file under now, they can refile in different amounts of time. -Chapter 7: 4 to 8 years = Chapter 13 only; 8 + years = either chapter -Chapter 13: 2 to 6 years = Chapter 13 only; 6 + years (and paid at least 70% of debt) = either chapter; 6 + years (and paid less than 70% of debt) = Chapter 13 only
Your cousin is planning on filing bankruptcy on some medical bills and credit card debt. He has decided to pay grandma back the $1,500 he owes her before he files so she does not have to be included on the filing. Is this a good idea? No, the creditors could sue grandma - claiming favoritism
A client has decided to file bankruptcy, she thinks she will cash in her 401(k) retirement account and pay off as many creditors as possible first. Is this a good plan? No, a 401(k) is an ERISA qualified retirement account and will be exempt. Also, choosing to pay off any creditors before filing will look like favoritism.
Petitioners filing bankruptcy must complete Budget and Credit Counseling within ____ days of filing. (fill in the blank) 180
Petitioners filing bankruptcy are required to complete an approved Personal Finance Education course. When filing chapter 13, they must complete this before their last payment is due, when must it be completed if filing a chapter 7? Within 45 days of the meeting of the creditors
Dischargeable debts are those debts that are forgiven through the bankruptcy filing. Name several debts that would likely be dischargeable. Medical, credit card, charge card, utility arrears, unpaid rent, past due phone bills, signature loans, personal loans, deficiency balances on repos, and collection judgments
A client seeks your advice about an upcoming bankruptcy filing. He asks you if his car loan is dischargeable debt. What is your reply? A chapter 7 filing can dismiss the personal liability involved with a secured debt like a car loan, however the creditor can and likely will choose to repossess the property. If the client wishes to keep the car he will need to reaffirm the debt or file a chapter 13.
A discharge order will not cover all types of debt. Name a few debts that are non-dischargeable. Certain taxes, debts not listed on the filing, alimony, child support, government fines, most student loans, DUI debt, debt for luxuries or cash advances, reaffirmed debts, debt incurred by fraud, or debt for personal injury to others.
Your brother plans to file chapter 7 bankruptcy. He has a personal loan that your mother co-signed on and she is worried that they will come after her if he files, is she right or wrong? Right. In a chapter 7, you brothers liability may be discharged, but the creditors can still turn to the co-signer for payment. In a chapter 13, your mother would be protected by your brothers’ automatic stay.
Often a bankruptcy petitioner will choose to reaffirm a debt, such as a car loan so they are able to keep the vehicle. When is reaffirmation not a good idea? - the debt is unsecured - there is no proof of security interest - client has no interest in keeping the collateral - client is hopelessly behind on payments and collateral is likely to be repossessed anyway
Your client filed a chapter 13 bankruptcy a year ago, they got in a bad car accident and are now permanently disabled and unable to work. What options do they have as far as the bankruptcy filing is concerned? A hardship discharge (problems out of their control)
If a chapter 13 bankruptcy petitioners filing is dismissed, what happens to the debts? the automatic stay is lifted, collection efforts resume
How long is a typical repayment plan under a chapter 13 bankruptcy filing? 3 to 5 years
Your client who recently filed bankruptcy is concerned because they received a 1099 tax form in the mail – they are worried that the debt that was discharged will be considered income and they will have to pay taxes on it; is their concern valid? No, debt discharged in a bankruptcy is not considered income, it is not taxable
Is non-exempt property like an RV sold to pay off creditors in a chapter 13 filing? No, the petitioner gets to keep non-exempt property in a chapter 13.
An automatic stay immediately prohibits creditors from engaging in any type of collection action; when does it go into effect? Right after the packet of forms is filed with the court
Some people believe bankruptcy is a great low cost option to get out of debt fast, is this true? No, there is a cost related to filing bankruptcy, usually between $1,000 and $1,500. Additionally the entire process may take 3 to 5 months for a chapter 7 – 3 to 5 years for a chapter 13; and the bankruptcy will affect a debtor for 10 years.
During a chapter 13 bankruptcy filing, when does the first payment need to be made, who is the payment made to, and when will it be distributed to the creditors? The first payment must be made within 30 days of filing, the bankruptcy trustee holds the payments until the plan is approved by the court, at which point the payments will be distributed to the creditors.
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