- Accredited Financial Counselor Credit and Debt Management Flashcards

A client is considering bankruptcy but is unsure which chapter to file. What is the primary difference between Chapter 7 and Chapter 13 bankruptcy?

Answer: Chapter 7 liquidates assets to discharge debts while Chapter 13 creates a repayment plan over 3-5 years

Chapter 7 involves liquidating non-exempt assets to discharge most unsecured debts, while Chapter 13 allows the debtor to keep assets while repaying debts through a court-approved plan.

What is a debt consolidation loan and what risk should the counselor highlight before a client pursues one?

Answer: It combines multiple debts into a single loan, but the risk is running up new balances on the paid-off credit cards

Debt consolidation combines multiple debts into a single loan with potentially lower interest, but the primary risk is accumulating new debt on the freed-up credit cards.

A client's credit card statement shows a balance of $5,000 at 18% APR. The minimum payment is $100. Approximately how long will it take to pay off making only minimum payments?

Answer: 9 years

At 18% APR with $100 minimum payments on $5,000, it takes approximately 9 years to pay off, with total interest of roughly $4,300.

What is the Fair Credit Billing Act and how does it protect consumers in credit disputes?

Answer: It establishes procedures for resolving billing errors and unauthorized charges on credit accounts

The FCBA establishes the process for consumers to dispute billing errors and unauthorized charges, requiring creditors to investigate and respond within specific timeframes.

A client received a pre-approved credit card offer with 0% APR for 18 months on balance transfers. What key terms should the counselor advise them to examine?

Answer: The balance transfer fee, post-promotional APR, and whether the promotional rate is voided by late payments

Balance transfer offers have critical fine print including transfer fees (typically 3-5%), the regular APR after the promotional period, and conditions that could cancel the promotional rate.

What is the difference between a secured and an unsecured debt?

Answer: Secured debts are backed by collateral that can be seized upon default; unsecured debts have no collateral

Secured debts are backed by a specific asset (collateral) that the lender can repossess if the borrower defaults, while unsecured debts have no collateral backing.