Question

todd and mary love the finer things in life. they both like to drive expensive cars and wear designer clothes and jewelry. the problem is that they cannot afford to live this lavish lifestyle. they have been living well beyond their means for many years. they have extremely high debt and have missed many of their payments over the last six months. they want to buy a home, but they have not been able to get a mortgage. both todd and mary are realizing that they have made poor financial decisions, and they are thinking of declaring bankruptcy.

what effects are mary and todd likely to face if they declare bankruptcy? check all that apply.

they will find it hard to get new loans
they will find it easier to buy a home, since their debt will have been eliminated
they will get to keep their cars, but they will not have to make payments
they will have to pay higher interest rates on any new credit cards they obtain
they will have poor credit reports

Explanation:

Analyze the scenario

Todd and Mary have high debt, missed payments, and are considering declaring bankruptcy.

Evaluate option one

Bankruptcy severely damages creditworthiness, making lenders hesitant to offer new loans.
This statement is correct.

Evaluate option two

Bankruptcy stays on credit reports for years, making home buying much harder.
This statement is incorrect.

Evaluate option three

Bankruptcy does not allow keeping financed assets without making payments.
This statement is incorrect.

Evaluate option four

Lenders charge higher interest rates to high-risk borrowers after bankruptcy.
This statement is correct.

Evaluate option five

Bankruptcy severely lowers credit scores, leading to poor credit reports.
This statement is correct.

Answer:

• They will find it hard to get new loans (Correct answer)
• They will find it easier to buy a home, since their debt will have been eliminated
• They will get to keep their cars, but they will not have to make payments
• They will have to pay higher interest rates on any new credit cards they obtain (Correct answer)
• They will have poor credit reports (Correct answer)