ADRA Financial Analysis & Debt Assessment Flashcards

What is the debt-to-income (DTI) ratio threshold commonly used to identify a client as financially distressed and eligible for debt relief services?

Answer: Above 43%

A DTI ratio above 43% is the widely recognized threshold indicating a client may be in financial distress and benefit from debt relief assistance.

Which financial statement is most useful when a debt relief agent needs to assess a client's ability to make ongoing monthly payments toward a settlement plan?

Answer: Monthly cash flow statement

A monthly cash flow statement reveals disposable income available each month, which directly determines what a client can contribute to a repayment or settlement plan.

When calculating a client's total unsecured debt load, which of the following should be EXCLUDED?

Answer: Home mortgage balance

A home mortgage is secured debt (backed by collateral) and is excluded from unsecured debt calculations used in most debt relief programs.

A client has $45,000 in unsecured debt and $1,800 in monthly disposable income. Approximately how many months would a full repayment plan take with no interest?

Answer: 25 months

$45,000 ÷ $1,800 = 25 months, making Option A the mathematically correct estimate for a zero-interest scenario.

Which metric best measures the proportion of a client's assets that could be liquidated to cover outstanding debts?

Answer: Liquidity ratio

The liquidity ratio measures how easily a client's assets can be converted to cash to meet debt obligations.

When prioritizing which debts a client should address first in a debt relief plan, which category typically takes highest priority?

Answer: Secured debts and priority obligations like taxes and child support

Secured debts and priority obligations (taxes, child support) carry severe consequences like asset seizure or legal action if unpaid, so they rank highest in repayment priority.