AFC - Accredited Financial Counselor Credit and Debt Management 2

Question 1

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

Accepted Answer

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

Answer

Chapter 7 is for businesses only while Chapter 13 is for individuals

Answer

Chapter 13 has no income requirements while Chapter 7 requires high income

Answer

Chapter 7 takes longer to complete than Chapter 13

Question 2

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

Accepted Answer

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

Answer

It combines debts into one payment with no downsides

Answer

It eliminates debt through negotiation with creditors

Answer

It transfers debt to a government program

Question 3

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?

Accepted Answer

9 years

Answer

2 years

Answer

5 years

Answer

30 years

Question 4

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

Accepted Answer

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

Answer

It limits credit card interest rates to 20%

Answer

It prevents creditors from reporting late payments to credit bureaus

Answer

It guarantees credit approval for all applicants

Question 5

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?

Accepted Answer

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

Answer

Only the promotional interest rate matters

Answer

The card's annual fee only

Answer

The credit limit is the only important factor

Question 6

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

Accepted Answer

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

Answer

Secured debts have lower interest rates; unsecured debts have higher limits

Answer

Secured debts are owed to the government; unsecured debts are owed to private companies

Answer

Secured debts cannot be discharged in bankruptcy; unsecured debts always can