Transcript Money Matters: Values, Vision, Mission and You

Debt, Foreclosure, and
Bankruptcy
CHAPTER PLAYLIST SONG:
“Working in a Coal Mine” by Devo
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
• LO 8-1 Examine the early warning signs of financial
trouble and learn how to avoid mistakes that
can lead to financial crisis.
• LO 8-2 Discover how little changes in your spending
habits can make a big difference in your
financial well-being.
• LO 8-3 Create a workable plan to become debt-free
and in control of your finances.
8-2
Learning Objectives, ctd.
•
LO 8-4 Describe options for protecting your
credit if at risk of foreclosure.
•
LO 8-5 Identify when bankruptcy is a viable
option and know the consequences and
how to restore your credit afterward.
8-3
Early Warning Signs of Financial Trouble
8-4
Red Flag Warnings
8-5
Emergency Fund Refuge
 Keep at least $1,000 in an emergency fund
 Once established, save a minimum of 6 months
income in an emergency account
 It takes discipline and hard work!
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Log spending habits
Create balance sheets
Create income statements
Create a budget
8-6
Stopping Little Leaks
 Assess necessary vs. nonessential spending
 Trim expenses
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Move to a less expensive apartment or house? Refinance your
mortgage?
Save money on gas or give up a car altogether? Live with only one
car?
Get a better price on insurance? Call around and make sure you are
getting the best price you can? Consider taking a higher deductible?
Drop a land line? Save money by calling over the Internet?
Live without cable or satellite TV?
Cut down on your utility bills?
Cut down on eating out? Take sack lunches?
Buy food in bulk? Start using coupons?
FEED THE PIG
8-7
Tips for Stopping Little Leaks
 Cut coupons, shop sale items, make a list and only buy
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necessities
Make shopping more difficult
Put your credit cards on ice
Change everyday habits
Cut out convenience foods
Pack your lunch
Return unwanted purchases
Avoid the malls when bored or depressed
Read up on voluntary simplicity or thriftiness
8-8
Paying Yourself First
 Extra cash flow from stopping leaks goes toward a
savings account
 Directly deposited into an account so you do not
miss it
 Deposit into your savings account is as important as
all your other bills
 Pay yourself first: Make a commitment to your future
financial fitness
8-9
Steps to Digging Out of Debt
8-10
Don’t Buy Stuff You Cannot Afford
 Saturday Night Live Skit
8-11
Doing the Math
8-12
Debt Consolidation
Help via Online Calculators:
http://finance.yahoo.com
/calculator/index
8-13
Credit Counseling Services
www.nfcc.org
8-14
Debt Settlement/Credit Counseling Agency
Screening Tips
8-15
Consumer Protection and Debt Collection
Under the Fair Debt Collection Practices Act,
collectors cannot do the following:
 Call before 8:00 a.m. or after 9:00 p.m.
 Call at work if you ask them not to
 Harass you, use obscene or profane language, or threaten the use of violence
or other criminal means to harm you, your reputation, or your property
 Conceal his or her identity on the phone
 Lie or falsely imply that you have committed a crime
 Disregard a written request from you to cease further contact
 Falsely represent the amount, character, or legal status of debt
 Continue to contact you if you ask them in writing to stop
8-16
Serious Residential Mortgage
Delinquency/Foreclosures Rates 2000-2009
8-17
Temporary Solutions
 Reinstatement: A temporary solution to the risk of
foreclosure that involves re-establishing a loan if
terms of a new agreement are met
 Forbearance: Temporary reduction or suspension
of your mortgage payments for 3 or 4 months,
followed by a new repayment plan for the loan
 Repayment plan: Your lender may agree to a plan
that includes regular monthly payments plus a
portion of the past due payments each month until
current
8-18
Long-Term Solutions
 Loan modifications: Lender rewrites the terms of
the mortgage loan so monthly payments are
affordable (by extending the time to repay or
changing interest rate). May have to pay processing
fee; if you have an FHA-approved loan, special loan
modification programs may be available.
 Partial claim: Some insurers provide a one-time,
interest-free loan to bring an account up-to-date.
The interest-free loan is due when you refinance,
pay off the mortgage, or sell the property.
8-19
Cramdown
An arrangement in which the mortgage terms are
altered in an attempt to keep the borrower from
foreclosure.
http://download.publicradio.org/video/marketplace/2009/02/18/whiteb
oard_cramdowns.m4v
8-20
SALE OF HOME
 Sale: Lender will usually give you a set amount of time
to find a buyer and pay off your mortgage. Keep in good
communication throughout the process
 Short Sale: When a residential property cannot be sold
for the full amount of the loan and the lender accepts the
selling price as satisfying the mortgage
 Deed-in-lieu of Foreclosure: An arrangement
whereby property is given to the lender in return for
forgiveness of the balance of the mortgage
 Assumption of Loan: Lender may grant that a
qualified buyer be allowed to assume (take over) your
mortgage
8-21
Pre-foreclosure Process
8-22
Process of Foreclosure
8-23
Types of Bankruptcy
 Bankruptcy: A legal procedure for dealing with
debt problems; specifically, a case filed under one of
the chapters of Title 11 of the United States
 Chapter 7: Quickest and simplest form of
bankruptcy; the liquidation of assets with the
proceeds distributed to the creditors
 Chapter 13: A reorganization bankruptcy, where
the debtor proposes a plan of reorganization to keep
his/her assets and pay creditors over an extended
time period, usually three to five years
8-24
Definitions of Bankruptcy
 Liquidation: A sale of a debtor’s nonexempt
property and the distribution of the proceeds to
creditors
 Wage Earner Bankruptcy: Chapter 13
bankruptcy for individuals with a regular source of
income
 Means Test: To file Chapter 7, your income must
be below your state’s median income
8-25
Counseling and Education Requirements
 Mandatory prebankruptcy credit counseling
 Evaluation of your personal financial situation, a discussion of
alternatives to bankruptcy, and a personal budget plan
 Post-filing debtor education
 Budgeting, managing money, using credit wisely
 Must present certificate of completing a debtor
education course to have your debts discharged
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Only credit counseling organizations and debtor education
course providers that have been approved by the U.S. Trustee
Program may issue these certificates
8-26
Consequences of Bankruptcy
 Moral and Social Consequences of Bankruptcy
8-27
In the News
What responsibility do you believe the lending
institutions had in this situation?
2. What is your position on the federal court ruling
and why?
1.
8-28
Life After Bankruptcy
8-29
Learn
 LO 8-1 Examine the early warning signs of financial
 LO 8-2
 LO 8-3
 LO 8-4
 LO 8-5
trouble and learn how to avoid mistakes that can
lead to financial crisis.
Discover how little changes in spending habits can
make a big difference in your financial well-being.
Create a workable plan to become debt-free and in
control of your finances.
Describe options for protecting your credit if at risk
of foreclosure.
Identify when bankruptcy is a viable option and
know the consequences and how to restore your
credit afterward.
8-30
Plan & Act
 Check for early warning signs of financial troubles
(Worksheet 8.1)
 Using your balance sheet from Chapter 3, derive a
minimum emergency fund balance you should strive
for (Worksheet 8.2)
 Using your Every Penny Counts Spending Journal
from Chapter 3, identify saving opportunities where
you could reallocate savings toward your emergency
fund (Worksheet 8.3)
 Create a debt priority pay-off plan (Worksheet 8.4)
8-31
Evaluate
“If you can control the person in the mirror,
you can be skinny and rich.” ~ Dave Ramsey
 Review your online GoalTracker.
 Record newfound savings opportunities from the
worksheets to help build momentum for reaching
your goals.
 Identify the current balance of your emergency fund
and methods to grow the fund to a safe balance.
8-32
Continuing Case: Budget
 Karri, about to graduate, new job $32,000/year
 $10,000 in credit card debt
 $15,000 in student loans (payments of $180/month
will begin 6 months after graduation)
1. What advice would you give Karri so she can build
an appropriate emergency fund?
2. Create a realistic budget for Karri.
8-33