16 Debt Management Flashcards
What is an automatic stay?
Ends collection activity once a bankruptcy is filed
The automatic stay is a legal provision that halts all collections and legal actions against a debtor upon filing for bankruptcy.
What type of bankruptcy is Chapter 13?
A repayment plan bankruptcy
Chapter 13 bankruptcy allows individuals to create a plan to repay all or part of their debts over a specified period.
What is Chapter 7 bankruptcy?
A liquidation bankruptcy
In Chapter 7 bankruptcy, a debtor’s non-exempt assets are sold to pay off creditors.
Define debt consolidation.
Getting a new loan to pay off several smaller loans
Debt consolidation simplifies debt management by combining multiple debts into a single loan.
What is a debt limit?
Overall maximum you believe you should owe based on your ability to meet repayment obligations
Establishing a debt limit helps individuals gauge their financial capacity and avoid excessive borrowing.
What is a debt management plan?
Consumers send the credit counseling agency a monthly payment that is then distributed to the consumer’s creditors in return for lower interest rates and/or fees
This plan helps consumers manage their debt more effectively by negotiating better terms with creditors.
What does it mean to default?
Not meeting the repayment terms of a loan contract
Defaulting on a loan can lead to serious financial consequences, including damage to credit scores.
What is a deficiency balance?
The amount owed on a repossessed item after it has been sold
This occurs when the sale price of the repossessed item is less than the outstanding loan balance.
What is discharged debt?
Debt that a bankruptcy filer does not need to repay after a bankruptcy is complete
Discharged debts are eliminated from the debtor’s obligation, providing a fresh financial start.
Define disposable income.
The amount of income remaining after taxes and withholdings
Disposable income is critical for budgeting and determining affordability for expenses and debts.
What is a means test?
Determines if a person’s income is sufficient to allow them to file a Chapter 13 or if it is insufficient, in which case can file for a Chapter 7 bankruptcy
The means test is a key factor in determining eligibility for different types of bankruptcy.
What is power paying?
A loan repayment strategy in which, each time a debt is totally paid, the monthly payment amount from that loan is then applied to the next debt
This strategy accelerates debt repayment by utilizing freed-up funds to tackle subsequent debts.
What happens during repossession?
A creditor seizes property that was used as collateral for a loan that has not been repaid
Repossession is a legal remedy for creditors to recover collateral when borrowers default on loans.
What does restructuring debt involve?
To change the terms of the loan(s)
Restructuring can include altering payment schedules, interest rates, or other loan conditions to make repayment more manageable.
What is wage garnishment?
When an employer withholds part of an employee’s compensation to pay debts
Wage garnishment is often used as a means to enforce court-ordered debt payments.
