Banking and Financial Services
PROBLEM LOAN MANAGEMENT
“Copyright and Terms of Service
Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as
the property of the Texas Education Agency and may not be reproduced without the express written permission of the
Texas Education Agency, except under the following conditions:
1) Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of
the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission
from the Texas Education Agency;
2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual
personal use only without obtaining written permission of the Texas Education Agency;
3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any
way;
4) No monetary charge can be made for the reproduced materials or any document containing them; however, a
reasonable charge to cover only the cost of reproduction and distribution may be charged.
Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any
entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain
written approval from the Texas Education Agency and will be required to enter into a license agreement that may
involve the payment of a licensing fee or a royalty fee.
Call TEA Copyrights with any questions you have.
Copyright © Texas Education Agency, 2014. All rights reserved.
2
WHAT IS A “PROBLEM” LOAN?

A loan that is in default – when a borrower does
not meet the loan obligations, such as:
 Regularly
making late payments, that is, not on or
before the due date
 Not making payments on a loan
Copyright © Texas Education Agency, 2014. All rights reserved.
3
OPTIONS FOR PROBLEM LOANS
Collection
Bankruptcy
Garnishment
Repossession
Foreclosure
Loan
modification
Copyright © Texas Education Agency, 2014. All rights reserved.
4
COLLECTION
Collection- when payments are not made on a
loan and efforts must be made to collect the
debt owed.
 A loan can be transferred to another department
within the lending institution or, to an outside
source who will attempt to collect as much of the
loan funds as possible.

Copyright © Texas Education Agency, 2014. All rights reserved.
5
GARNISHMENT
Portion of a borrower’s salary is automatically
withdrawn to help to repay debts
 Requires a court order
 According to Title III of the Consumer Credit
Protection Act, garnishment may not exceed:

 25%
of the week’s disposable income, or
 “the amount by which his disposable earnings for
that week exceed the Federal minimum hourly wage .
. . whichever is less”

Stops if the borrower files bankruptcy
Copyright © Texas Education Agency, 2014. All rights reserved.
6
REPOSSESSION
When a lender takes possession of an asset that
has a loan attached to it
 Lender can sell asset and use funds to repay the
loan

Copyright © Texas Education Agency, 2014. All rights reserved.
7
LOAN MODIFICATION
Possible
reduction of an
interest rate on
a loan
Possible
extension of the
loan term
Copyright © Texas Education Agency, 2014. All rights reserved.
Designed to help
make a loan
more affordable
for a borrower
and is less costly
than legal
processes such
as foreclosure or
bankruptcy
8
FORECLOSURE
Occurs as a result of non-payment of a loan
 Legal proceeding that removes the property rights of
an owner
 Usually refers to real estate such as homes, buildings
or land
 Short sale– can preclude a foreclosure by selling
property for less than what is owed, but reduces
costs of a potential foreclosure
 Real-estate owned– when a bank cannot sell a
property at a foreclosure sale and has to try to sell it
itself

Copyright © Texas Education Agency, 2014. All rights reserved.
9
BANKRUPTCY
Legal proceeding designed to reduce or eliminate
a borrower’s debt
 Sometimes referred to as a second financial
chance by allowing a borrower to have a “clean
slate”
 “Stays,” or stops, foreclosure proceedings
temporarily

Copyright © Texas Education Agency, 2014. All rights reserved.
10
EFFECTS OF BANKRUPTCY
On the Borrower
On the Lender
Remains on borrower’s credit
report for 10 years
Second chance for lender to
receive money toward loan,
depending upon the chapter
filed
Allows borrower to, somewhat,
“start over” financially
Copyright © Texas Education Agency, 2014. All rights reserved.
11
TYPES OF BANKRUPTCY
• Liquation: assets can be sold and cash is used to repay debt
Chapter 7 • More popular for individuals
• Reorganization: businesses can change their structure
Chapter 11 • Make agreements for repayments of debt
• A form of reorganization for individuals
Chapter 13 • Borrower must have an income
Copyright © Texas Education Agency, 2014. All rights reserved.
12
CREDIT COUNSELING/DEBT CONSOLIDATION

Credit counseling
 Budgeting
workshops
 Counselors contacting creditors
 May renegotiate credit terms
 May charge fees for their services

Debt consolidation
 Can
be high-interest loans
 Combine all of your debt into one loan
 May charge fees for their services
Copyright © Texas Education Agency, 2014. All rights reserved.
13
INDEPENDENT PRACTICE ASSIGNMENTS



Case Study Assignment #1 – Provide students with scenarios of different problem
loan situations. In pairs, have them decide upon the most favorable resolution of
their situation as it relates to the details presented in each case. They will create
a presentation using visuals as appropriate.
Famous Bankruptcies Assignment #2 – Students will conduct research to locate
famous people in the news who have filed bankruptcy. They will select one and
write a one-page report including the following information: when the
bankruptcy was filed, what chapter (7, 11, 13), what happened in the bankruptcy
(for example, was property sold? did creditors get the money they were owed),
and any other information they feel is important. Proper writing conventions
should be followed.
Financial Crisis Brochure Assignment #3 – Students will research causes of the
financial crisis of 2008 that were related to real estate lending and prepare an
informative brochure detailing their findings. They should include concepts such
as subprime lending and bailouts of major financial institutions, as well as what
has been done since then to prevent another crisis. Proper mechanics should be
used as well as graphics where appropriate.
Copyright © Texas Education Agency, 2014. All rights reserved.
14