Business Law Bankruptcy – Flashcards
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insolvent
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unable to pay debts owed
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liquidation
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assets of company that has been brought to an end are divvied up among creditors and shareholders
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reorganization
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attempt to extend the life of a company facing bankruptcy through special arrangements and restructuring in order to minimize the possibility of past situations reoccurring.
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voluntary bankruptcy
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anybody may petition for protection from creditors and does not have to be insolvent.
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involuntary bankruptcy
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any person or business, except farmers, financials and charitable institutions and insurance companies owing at least $11,625 to their petitioning unsecured creditors and unable to pay debts when they come due may be forced into involuntary bankruptcy.
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secured debt
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easy to obtain, less risk for lender (collateral), lower interest rates (because low risk)
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unsecured debt
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requires no security for the loan, based solely on borrower's creditworthiness and promise to repay (credit score, debt-to-income requirements), higher interest rate (more risk, no collateral)
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artisan's lien
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personal property
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mechanic's lien
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real property
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commercial paper
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order to pay sum of $
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draft
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one person directing another to pay third party
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promissory note
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pay to another by definite time
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check
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on a bank by depositor bank pay third party
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certificate of deposit
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bank repay with interest at a date
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endorsements
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blank: endorsement that consists of the endorser's signature only, and thus does not specify a particular person to whom the paper is transferred. qualified:endorsement to disclaim or limit the endorser's contract liability. restrictive: endorsement that indicates the use of the proceeds or imposes a condition on payment special: endorsement making paper payable to the order of designated party
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endorser
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owner of commercial paper who signs on reverse side
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endorsee
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party to whom paper is endorsed to
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bankruptcy
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protects debtors by giving fresh start and give fair treatment to creditors competing for debtor's assets causes: job loss, emotional spending, failure to budget and plan, injury or illness adv: debt erased, exempted assets are retained, certain incomes are unaffected, cost is small disadv: credit is damaged, property is lost, some debts continue, co-signers myst pay
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undisclosed debts
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debts that are not included in bankruptcy petition such as: certian taxes, alimony, child support, student loans, etc.
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chapter 7 bankruptcy
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straight bankruptcy liquidation form for individuals wipes out most debts in exchange for giving up assets immediate debt relief difficult to qualify for
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chapter 13 bankruptcy
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reorganization (payment plan) form of bankruptcy for individuals allows debtors to keep most of their property
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chapter 11 bankruptcy
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reorganization form of bankruptcy for businesses that allow them to continue operating under court supervision as they repay debts
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chapter 12 bankruptcy
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debt relief for family farms similar to chapter 13
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how to apply 20-10 to income
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Never borrow more than 20% of your yearly NET INCOME (after taxes) not including housing debt; and your monthly payments shouldn't exceed 10% of your monthly net income.
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types commercial paper
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check, promissory note, draft, certificate of deposit
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three major credit reporting businesses
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experian transunion equifax
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three C's used to determine creditworthiness
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character will you repay the debt capital what if you don't repay the debt capacity can you repay the debt
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debtor protection laws
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fair debt collection practices act: prevents debts collectors from using unfair abusive or deceptive tactics when collecting debts. truth in lending act: ensures consumers are fully informed about cost and conditions of borrowing fair credit reporting act: protects the privacy and accuracy of information in credit check equal opportunity act: prohibits discrimination in giving credit on the basis of sex, race, color, religion, national origin, marital status, age, or receipt of public assistance
