Debt Relief Programs & Consumer Options Flashcards

Which type of bankruptcy allows an individual to keep certain exempt assets while having most unsecured debts discharged?

Answer: Chapter 7

Chapter 7 bankruptcy is a liquidation process that discharges most unsecured debts while allowing debtors to keep exempt assets such as a primary home (up to a limit), vehicle, and basic household items.

A Debt Management Plan (DMP) is typically administered by which type of organization?

Answer: A nonprofit credit counseling agency

DMPs are structured repayment plans administered by nonprofit credit counseling agencies, which negotiate reduced interest rates with creditors on the debtor's behalf.

What is the typical timeframe for completing a Chapter 13 bankruptcy repayment plan?

Answer: 3 to 5 years

Chapter 13 repayment plans must be completed within 3 to 5 years, with the length depending on the debtor's income relative to their state's median income.

Debt consolidation loans are BEST suited for clients who:

Answer: Have stable income and credit scores that qualify for a lower interest rate than existing debts

Debt consolidation loans benefit clients with sufficient creditworthiness to secure a lower interest rate, allowing them to combine multiple debts into one manageable payment at reduced cost.

Which debt relief option typically has the MOST negative short-term impact on a client's credit score?

Answer: Debt settlement / negotiating a lump-sum payoff for less than owed

Debt settlement requires accounts to fall severely delinquent before creditors will negotiate, causing major derogatory marks on the credit report and significantly lowering the credit score.

Under the CARD Act of 2009, credit card issuers are required to apply payments above the minimum to:

Answer: The balance with the highest interest rate first

The CARD Act mandates that any payment amount above the minimum must be applied to the balance carrying the highest annual percentage rate, helping consumers pay down the most expensive debt first.

Which of the following is a key eligibility requirement to file Chapter 7 bankruptcy?

Answer: The debtor must pass the means test showing income below a threshold

The Chapter 7 means test compares the debtor's average monthly income to the state median; those earning above the median may not qualify for Chapter 7 and may need to file Chapter 13 instead.