Laws Protecting Debtors/Creditors and

Bankruptcy

Unit C Basic Business LawObjective 6.02

2

Laws Protecting Debtors Setting maximum interest rates

Usually apply to loans of money

Some states govern charges imposed on credit purchases of goods/services “on time”

3

Disclosure of Terms

Full disclosure of interest and finance charges

Does not limit percentage amount

True annual percentage rate (APR)

Does not apply to first mortgages

Laws Protecting Debtors

4

Challenging Unconscionable Contracts

Unfair and oppressive

Judge decides if conscionable Refuse to enforce contract Remove unfair clause and enforce contract Limit clause’s application so no longer unfair

Laws Protecting Debtors

5

Prohibiting Abuse in the Credit System Federal Equal Credit Opportunity Act

May not refuse due to sex or marital status May not ask marital status if applying for

unsecured separate account May not prohibit a married female from

opening/maintaining account in maiden name May not request information about birth control

practices or intentions Married persons with joint accounts have right

to have credit information reported in both names

Laws Protecting Debtors

6

Federal Fair Debt Collection Practices Act

Prohibits: Harassment of debtors Abusive and profane language Threats of violence Contract with 3rd parties Communication with the debtor at work

Laws Protecting Debtors

7

Federal Fair Credit Billing Act

Creditors must mail bills at least 14 days before due date

Creditors must acknowledge billing inquiries within 30 days

Creditors must settle complaints within 90 days Creditors may not send repeated letters demanding

payment until disputes over billing are settled Credit cardholders may withhold payment for items

defective without being liable for entire amount owed (purchases of $50 or more and 100 miles from home)

Laws Protecting Debtors

8

Federal Fair Credit Reporting Act

Deals with unfavorable credit reports Have right to correct report

Credit Repair Organization Act

Governs companies that help consumers correct credit reports

Laws Protecting Debtors

9

Notice of debt payment to be recorded

Request receipt Canceled checks

Types of Bankruptcy

Chapter 7 Chapter 11 Chapter 13 Chapter 12

Laws Protecting Debtors

10

Bankruptcy Chapter 7 – Liquidation

Sale of nonexempt property for cash

Nonexempt property

Bank Accounts Stocks Bonds

11

1. File the following with the court:a. List of all creditors and amounts owedb. List of all property ownedc. Statement about financial affairsd. List of current income and expenses

2. Trustee is selected3. Assets liquidated4. Proceeds used to pay creditors5. Money left over returned to debtor

Chapter 7 Bankruptcy Procedure

12

Chapter 11 Reorganization

Business can keep operating

Files plan of reorganization

Court approves plan

Bankruptcy

13

Bankruptcy Chapter 12

Used for Family Farmers wishing to make a debt adjustment to save the business

Debt Ceiling $1.5 million Debt plan is for 3 years with a

possibility of a 2 year extension

14

Chapter 13 Extended Time Payment Plan Applies to individuals with regular income

Unsecured debts less than $250,000 and/or secured debts of less than $750,000

Submit plan for repayment of debts within three years

May be extended to five years

Creditors cannot file suit

Bankruptcy