Personal bankruptcy – Chapters 7 and 13 | Finance & Capital Markets | Khan Academy

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https://www.youtube.com/embed/H3tg4bH5JuY Ever considering that people began to obtain cash was here one fundamental problem. What occurs when someone can'' t to pay off your debts?( composes )He can'' t repay. What will you do? Before we start what we do in ours modern-day society, let'' s see appearance at a few terms that we will utilize a lot. You will still hear these concepts in the context of debts or loans. On the one hand, we have a debtor in the transaction. It'' s generally a person who obtained money.( composes )She provided money. And since he borrowed money, so he owes them now, so we can state that they obtained cash or that they owed it. (he writes) He owes cash. On the other hand we have financial institutions. (composes) The creditor. It is an entity or individual that is indebted cash or provided cash to the borrower. (writes) They borrowed money. They borrowed cash. We settled the words, but let'' s return to our standard concern. What occurs when the customer can not pay lenders money, which should he repay him? Returning to history, there were various solutions this problem, as we can call it. In ancient Greece (composes) Ancient Greece. They had a really easy service for that. If the debtor is not able to repay his financial obligations, ended up being a debtor'' s debtor.( the debtor servant pays his financial obligations with work )If the lending institution required to do the operate in the garden or clean up your house, the customer and most likely likewise the debtor'' s household then did whatever the lender wanted, until they paid their financial obligations for work. That'' s how they did it in Greece, which is a little stunning for us, but it was their solution. You obtained money, you couldn'' t You pay them back and this occurred to you. Now that we move to medieval Europe, from the start or the middle of the 19th century it existed in Europe and the USA the principle of financial obligation imprisonment, and he fell under these “” handcuffs”” as well Charles Dickens' ' daddy.( composes) Imprisonment of debtors. Truthfully, if I describe it to you, so you will discover that it is even worse than to be a debtor slave. In the debtors' ' prison, you were tossed into jail, tossed … imprisoned you, for that reason it is called the imprisonment of debtors, and have not delivered you up until your family did not pay your financial obligations. (composes) Your household or buddies, if you had buddies, they did not pay your financial obligations. (writes) your financial obligations. The reason it'' s truly terrible is that in this case you had a possibility exercise your debts. Here, if your family, for example in my scenario, if I got to prison, he would be my 10 month old son able to pay off my debts? No, I'' m just rotting in prison forever or if my family doesn'' t like me or if I put on ' t have friend or family, I might owe somebody for instance, $ 1000, and for that reason I could be sentenced to life jail time. You can imagine the prison debtors was rough and in truth, Charles Dickens '' dad was likewise in the debtors' ' jail. It might inform you a little bit why he is writing books with such a theme. This is the past, now we live in modernity society and I hope we have much better methods to how to deal with a situation where the borrower he owes the financial institution money. That is the theme of this video. Today we have actually something called personal bankruptcy. Simply so you understand, the very first variation of personal bankruptcy did not differ much from the debtors' ' jail. Protects creditors more than the debtor, however today we have insolvency laws and you are involved in preventing this insanity or to have someone spend their whole life on this wacky carousel of debts. Let'' s state something more about bankruptcy. I will focus on bankruptcy as it remains in the United States. I will write the insolvency in a different color. (composes) Bankruptcy, bankruptcy. We will concentrate on the United States. In general, I will speak about personal insolvency, although much of it what I will discuss likewise applies business. I likewise made videos about it. Let'' s say I ' m overwhelmed with financial obligation. I have $ 100,000 in charge card loans, I have a home loan, a cars and truck for leasing, I have a little over my head, but what can i do? There are numerous options in the United States. We have Chapter 7, which appears very complicated, these are actually various chapters Bankruptcy Act. (composes) We have chapter 7. This is called direct insolvency. You actually go … it'' s not a simple procedure, but the essence of this is that you go to personal bankruptcy court and state you can'' t settle their debts. They will take yours home and no matter what it is, divide it among financial institutions, and when whatever is done, you no longer owe anyone, despite the fact that you have lost a lot of residential or commercial property. One is released, you can keep it, like the things you need to live, pots and pans, possibly a suit or a tv, so you can discover a job, but if you have a checking account, I probably wear'' t because I ' m in financial obligation. If you have any money, a great diamond, a ring or a Rolex watch, so they ' ll take them to you and trustee, personal bankruptcy court, it will take you, offer it and give cash to your'financial institutions, however finally, when it ' s all over, so you will have paid off your financial obligations. It ' s a way to leave this cycle, when you constantly owe money and just handle it or you can'' t manage it at all. This is direct personal bankruptcy. Why not everyone can do that is that if someone is truly in huge debt, So there are numerous rules that make it harder and report this and this message will keep you notified about your creditworthiness for 10 years. (writes) 10 years in credit reliability details. So you have to believe about it, It will be much better for you if you are for the next 10 years settle your financial obligations? When I can pay off my debts, if I have a possibility, so I need to do it and not damage it his great name for ten years, however if I'' m in a dead end I can do that. So you know, this is not a cure for whatever. If you have … maybe $ 300,000 trainee loans, so it will take more than 10 years, before you pay it back, and you say that according to the personal bankruptcy of Chapter 7 everything will be great, regrettably you will learn that student loans can not be in Chapter 7 waived. There are really a great deal of loans, or we can state commitments financial obligations to other individuals, which can not be waived, such as specific taxes, student loans, kid assistance, these they will not be forgiven. This applies to things like credit card loans. It'' s not a simple process, so the important things I'' m informing you here today you definitely need to talk to a specialist to the scenario to get more information. This is simply an overview. This is Chapter 7, direct insolvency. I have no chance to settle debts, I desire a whole clean slate. Another way to hear about it in context individual bankruptcy is Chapter 13. (composes) Chapter 13. This is often also called reorganization. (composes) Reorganization. It works so that you have a wage, work, however you have more debt than you can introduce. It doesn'' t need to be since you acted irresponsibly, you may pay for treatment, maybe I have some unidentified expense, which has emerged from someplace. You tell the lending institution that you desire to settle your financial obligations, but what you'' re asking me to do now it'' s just insane. If you want me to, I'' ll wind up in Chapter 7, and in my interest, as a debtor, in'my interest and in yours, why put on ' t we create a plan as I can in fact pay within 3 to 5 years. It may include saying that rather of $ 50,000 you owe now just$ 40,000 or rather of my interest on the credit card was 20%, so it will be only 10% each year, so it will be a little negotiation. You need to come up with a plan and as quickly as you feature him, you will repay it for another 3 to 5 years. (writes) 3 to 5 years. Again, you can say that you owe $ 100,000 on credit card financial obligation you will go to your lenders, with a touching story and you will look Credibly, they can tell you lower financial obligation, which can assist you. But there is also punishment for that and it will also show up on your credit reliability info. In general, you come up with a strategy as you pay lenders over 3 years and after that it will appear on your creditworthiness information for a duration of 7 years. (composes) 7 years on your credit reliability information. Given that you ask for it, until it leaves your info 10 years, as in Chapter 7. Both of these situations are not that you would throw yourself into them, and think how simple a solution to your debts you have discovered. These scenarios will impact you for rather a long period of time in your life, it'' s difficult things. It'' s great to know if you will have it over your head or you'' ll be drowning in debt, or you know somebody in this scenario, at least it feels when you can say that if you do something, so perhaps in 3 or 10 years, it depends on how you look at it you can have a new start. To make you mindful of how common this is, so I looked it up. In the US, as you understand, we are ideal in the middle of an economic downturn, so the bakers are rising, so I'' ll compose it. This is Chapter 7.( writes )Chapter 7 and here is Chapter 13. If you are interested in the Chapters between, so we have Chapter 12, which is actually Chapter 13 for farmers and anglers, they have a bit more benefits than us, because individuals are supported, who offer food. We likewise have Chapter 11, which is about reorganization of the company, this might also use some individuals who are “” giants””, their individual property portfolio and liabilities are really comparable to business, so Chapter 11 will be more appropriate for them than Chapter 13. These are the other 2 Chapters. In regards to personal bankruptcy Chapter 7 and Chapter 13 are what people are most thinking about. Cases as frequently it will appear if you discover yourself in this situation so you understand that you are not completely alone, and likewise to see that they are truly increasing now. (composes) 2007, 2008, 2009. Chapter 7 had in the United States in 2007 413,000 files in 2008, this increased to 560,000. It'' s an increase of more than 25%. Then in 2009 it was 819,000 files, two times as many than in 2007. In Chapter 13, there were 277,000 files in 2007, so for every single two Chapters 7, it appears like that we have … well, for each 4 we have about 3 of these. Then we have 334,000 files in 2008 and 370,000 In year 2009. You can see that Chapter 7 … both are growing very quick, however Chapter 7 is more remarkable. In a situation where individuals do not have work, Chapter 13 is not a totally usable service, for that reason, he must do something like Chapter 7. I hope this has actually been beneficial for you and that now you know a little bit more about insolvency. As found on YouTube – Creative Commons License

Video Transcript:

The factor it'' s actually terrible is that in this case you had an opportunity work out your debts. No, I'' m just rotting in jail forever or if my family doesn'' t like me or if I don ' t have family or pals, I might owe somebody for example, $ 1000, and therefore I might be sentenced to life jail time. Let'' s say I ' m overwhelmed with financial obligation. One is released, you can keep it, like the things you need to live, pots and pans, perhaps a fit or a tv, so you can find a job, however if you have a bank account, I most likely put on'' t because I ' m in debt. If you have any money, a great diamond, a ring or a Rolex watch, so they ' ll take them to you and trustee, personal bankruptcy court, it will take you, offer it and provide money to your'lenders, however lastly, when it ' s all over, so you will have paid off your debts.

License: Creative Commons