ADRA Financial Analysis & Debt Assessment Flashcards

What does the term 'insolvency' mean in the context of debt relief assessment?

Answer: A client's total liabilities exceed total assets

Insolvency means a client's total liabilities exceed total assets, which is a key qualification criterion for certain debt relief programs.

Which document should an ADRA agent request to verify a client's reported income during the financial analysis phase?

Answer: Recent pay stubs and last two years of tax returns

Pay stubs and tax returns provide verified, documented evidence of income that cannot be easily falsified, ensuring accurate financial analysis.

A client's credit card carries a 24.99% APR on a $10,000 balance with a minimum payment of $250/month. Approximately how many years will it take to pay off if only minimum payments are made?

Answer: Over 10 years

At high APRs with minimum payments, the majority of each payment covers interest, extending payoff to well over a decade.

What is 'charge-off' status on a debt account, and how does it affect a client's debt relief options?

Answer: The creditor has written off the debt as a loss but the debt still legally exists and can still be collected

A charge-off means the original creditor has written the debt off their books as a loss, but the debt remains legally valid and collectable, often sold to a collection agency.

Which credit bureau score model is most commonly used by creditors in the United States when evaluating a client's creditworthiness?

Answer: FICO Score

The FICO Score is the most widely used credit scoring model in the U.S., used by approximately 90% of lenders to assess credit risk.

In a debt assessment, what is 'reaffirmation' most commonly associated with?

Answer: A debtor's agreement to remain legally responsible for a specific debt despite filing bankruptcy

Reaffirmation is an agreement in bankruptcy proceedings where a debtor commits to repay a specific debt (often a car loan or mortgage) rather than having it discharged.