CBS Financial Counseling & Risk Assessment 2 — Questions and Answers
Question 1: A debtor seeking Chapter 7 relief has a household of 3 with monthly income of $5,200. The applicable state median income for a household of 3 is $5,000. What is the next required step?
- Automatic disqualification from Chapter 7
- Complete the means test Form 22A-2 to calculate disposable income (Correct answer)
- File immediately under Chapter 13
- Seek a hardship waiver from the trustee
Correct answer: Complete the means test Form 22A-2 to calculate disposable income
When income exceeds the state median, the debtor must complete the full means test (Form 22A-2) to determine whether presumption of abuse arises.
Question 2: Which counseling intervention is most appropriate when a client insists on reaffirming a car loan with a 24% interest rate on a vehicle worth far less than the outstanding balance?
- Support the reaffirmation as client autonomy must be respected
- Counsel the client on the financial risks and explore surrendering or redemption alternatives (Correct answer)
- Advise immediate reaffirmation to preserve transportation
- Recommend converting to Chapter 13 without further analysis
Correct answer: Counsel the client on the financial risks and explore surrendering or redemption alternatives
A CBS specialist must present all options—including surrender and redemption—so the client can make an informed decision about underwater secured debt.
Question 3: In pre-bankruptcy counseling, a practitioner identifies that a client transferred a vacation home to a sibling for $1 six months ago. What is the primary concern?
- The transfer reduces the client's dischargeable debt
- The transfer may be avoided as a fraudulent conveyance under §548 (Correct answer)
- The transfer is protected because it was to a family member
- The transfer eliminates the need for a means test
Correct answer: The transfer may be avoided as a fraudulent conveyance under §548
Transfers made within two years for less than reasonably equivalent value may be avoided by the trustee as fraudulent under 11 U.S.C. §548.
Question 4: A client's financial risk profile shows 80% of unsecured debt is medical bills, no discretionary income, and ownership of exempt assets only. Which outcome metric best captures their repayment risk?
- Debt-to-income ratio above 50%
- High concentration in non-consumer debt with no asset recovery potential for creditors (Correct answer)
- Credit utilization rate exceeding 30%
- Negative net worth greater than $50,000
Correct answer: High concentration in non-consumer debt with no asset recovery potential for creditors
Medical debt concentration in an asset-exempt debtor signals near-zero recovery for creditors and very low repayment risk for the debtor's future income.
Question 5: During counseling, a client reveals they withdrew $15,000 from a 401(k) to pay credit cards three months before filing. How should the counselor address this?
- Ignore it because retirement accounts are exempt
- Note it has no effect since the debt was paid before filing
- Discuss the preference payment risk and possible trustee recovery from the creditors paid (Correct answer)
- Advise the client to withdraw more retirement funds to reduce asset exposure
Correct answer: Discuss the preference payment risk and possible trustee recovery from the creditors paid
Payments to unsecured creditors totaling more than $600 within 90 days before filing can be recovered by the trustee as preferential transfers under §547.
Question 6: A post-bankruptcy counseling client asks how long Chapter 7 will appear on their credit report. What is the accurate answer?
- 5 years from discharge date
- 7 years from filing date
- 10 years from filing date (Correct answer)
- 10 years from discharge date
Correct answer: 10 years from filing date
Chapter 7 bankruptcy remains on a credit report for 10 years from the filing date under the Fair Credit Reporting Act.
Question 7: Which factor is LEAST relevant when assessing whether a client should pursue debt negotiation versus bankruptcy?
- The client's current credit score (Correct answer)
- Whether debts are primarily dischargeable in bankruptcy
- The client's ability to fund a settlement lump sum
- Creditor willingness to negotiate without litigation
Correct answer: The client's current credit score
Credit score reflects past behavior but does not determine whether debt negotiation or bankruptcy is the better financial strategy.
CBS Financial Counseling & Risk Assessment 2
A debtor seeking Chapter 7 relief has a household of 3 with monthly income of $5,200.
The applicable state median income for a household of 3 is $5,000.
What is the next required step?