ADRA ADRA Financial Analysis & Debt Assessment 2 — Questions and Answers
Question 1: What does the term 'insolvency' mean in the context of debt relief assessment?
- A client's total liabilities exceed total assets (Correct answer)
- A client has missed three or more payments
- A client's income is below the federal poverty level
- A client has filed for bankruptcy
Correct 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.
Question 2: Which document should an ADRA agent request to verify a client's reported income during the financial analysis phase?
- Recent pay stubs and last two years of tax returns (Correct answer)
- Bank account number only
- A verbal confirmation from the employer
- Utility bills
Correct 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.
Question 3: 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?
- Over 10 years (Correct answer)
- 2 years
- 5 years
- 7 years
Correct answer: Over 10 years
At high APRs with minimum payments, the majority of each payment covers interest, extending payoff to well over a decade.
Question 4: What is 'charge-off' status on a debt account, and how does it affect a client's debt relief options?
- The creditor has written off the debt as a loss but the debt still legally exists and can still be collected (Correct answer)
- The debt is legally forgiven and no longer collectible
- The debt has been paid in full
- The debt has been transferred to a government agency
Correct 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.
Question 5: Which credit bureau score model is most commonly used by creditors in the United States when evaluating a client's creditworthiness?
- FICO Score (Correct answer)
- VantageScore 1.0
- TransUnion Risk Score
- Experian PLUS Score
Correct 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.
Question 6: In a debt assessment, what is 'reaffirmation' most commonly associated with?
- A debtor's agreement to remain legally responsible for a specific debt despite filing bankruptcy (Correct answer)
- A creditor lowering an interest rate
- A client voluntarily paying off a debt before it is due
- A debt being removed from a credit report
Correct 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.
ADRA ADRA Financial Analysis & Debt Assessment 2
What does the term 'insolvency' mean in the context of debt relief assessment?