Chapter 4.4, Problem 1R

Solution

The significance of usury law and bankruptcy are to be explained.

Usury law: Usury law is defined as the law in which the amount of interest charged for credit is restricted. There has been different rates for different kind of consumer credit in some states. Credit cards and accounts have the maximum rates, for example, many times it can be 18 percent per year. There are also consumer financial agencies which charges even higher rates because the risk involved in those loans is very high.

Bankruptcy: Bankruptcy is a legal state where the person is unable to pay the debts with the available income. When an individual has too many loans, too many credit cards, but at the end is not able to pay off the debts, then one can file personal bankruptcy. When the court approves the bankruptcy, the it would require one to give up everything they own to pay to the creditors. When person declares personal bankruptcy, then it will show in his credit record for almost 10years. During that period, one will not be able to take any kind of funds to buy car or home.