Strategic Planning & Analysis Flashcards

Under the FTC Telemarketing Sales Rule, when may a debt relief provider collect a fee for settling a specific debt?

Answer: Only after a settlement is reached, agreed to by the client, and at least one payment is made to the creditor

The TSR advance-fee ban allows fees only after a debt is settled, the client agrees, and at least one payment has been made.

When strategically sequencing settlements, which debt is often prioritized first?

Answer: An account where the creditor is actively pursuing litigation

Accounts at risk of lawsuit or judgment are often prioritized to reduce legal exposure for the client.

A creditor forgives $8,000 of debt in a settlement. What tax consideration should the agent disclose to the client?

Answer: The creditor may issue a Form 1099-C and the amount may be taxable income unless an exclusion such as insolvency applies

Canceled debt of $600 or more is typically reported on Form 1099-C and may be taxable unless the client qualifies for an exclusion like insolvency.

How is the IRS insolvency exclusion for canceled debt generally calculated?

Answer: Total liabilities exceeding the fair market value of total assets immediately before cancellation

A taxpayer is insolvent to the extent liabilities exceed the fair market value of assets immediately before the debt is canceled.

What is a key strategic risk to explain to a client who stops paying creditors to fund a settlement account?

Answer: Late fees, credit score damage, collection activity, and possible lawsuits may occur

Stopping payments typically results in fees, credit damage, collections, and potential litigation, which must be disclosed.

Which disclosure must a debt relief provider give before enrollment under the TSR?

Answer: The approximate time before a settlement offer will be made to each creditor

The TSR requires disclosure of the time frame for making settlement offers, along with cost and negative consequences.

Funds a client deposits for a settlement program under the TSR must be held in an account that meets which condition?

Answer: Held at an insured financial institution, owned by the client, and withdrawable by the client at any time without penalty

The TSR permits dedicated accounts only if the client owns the funds, earns any interest, and can withdraw at any time without penalty.