ADRA ADRA Negotiation & Settlement Strategies 2

Question 1

Which federal law requires debt collectors to provide a written validation notice within 5 days of first contact with a debtor?

Accepted Answer

Fair Debt Collection Practices Act (FDCPA)

Answer

The FDCPA requires third-party debt collectors to send a written validation notice within 5 days of initial contact, informing the debtor of their right to dispute the debt.

Question 2

A client receives a settlement offer from a collector for 50% of a $20,000 balance. What lump-sum amount would the client need to pay?

Accepted Answer

$10,000

Answer

50% of $20,000 equals $10,000, which is the lump-sum required to settle the account under the offered terms.

Question 3

When a creditor settles a debt for less than the full amount, what potential tax liability should the ADRA agent inform the client about?

Accepted Answer

The forgiven debt amount may be reported as taxable income on IRS Form 1099-C

Answer

The IRS considers forgiven debt as income; creditors who cancel $600 or more of debt must issue Form 1099-C, potentially creating a tax liability for the client.

Question 4

What is the purpose of a 'cease and desist' letter in debt negotiation?

Accepted Answer

To instruct a debt collector to stop all communication with the debtor

Answer

Under the FDCPA, sending a written cease and desist letter legally requires a debt collector to stop further contact except for specific purposes such as notifying of legal action.

Question 5

In a multi-creditor debt settlement scenario, which strategy helps prevent one creditor from filing suit while negotiations with others are still ongoing?

Accepted Answer

Prioritizing the most aggressive creditors first while keeping others engaged in negotiation

Answer

Addressing the most litigation-prone or aggressive creditors first reduces legal risk while maintaining active communication with others to prevent escalation.

ADRA - Accredited Debt Relief Agent Practice Test

ADRA - Accredited Debt Relief Agent Practice Test

ADRA ADRA Negotiation & Settlement Strategies 2