CCC CCC Bankruptcy & Credit Recovery 2 — Questions and Answers
Question 1: A credit counselor is helping a post-bankruptcy client rebuild credit. Which is the BEST first step for re-establishing credit?
- Applying for multiple unsecured credit cards simultaneously
- Opening a secured credit card and paying the balance in full each month (Correct answer)
- Requesting a high-limit personal loan from a bank
- Avoiding all credit products for at least five years
Correct answer: Opening a secured credit card and paying the balance in full each month
A secured credit card, used responsibly and paid in full monthly, is one of the most effective tools for rebuilding credit after bankruptcy.
Question 2: What is a 'reaffirmation agreement' in bankruptcy proceedings?
- A court order eliminating a secured debt
- A voluntary agreement where the debtor agrees to remain personally liable for a dischargeable debt (Correct answer)
- A lender's agreement to reduce the principal balance of a loan
- An agreement between creditors to share the debtor's assets equally
Correct answer: A voluntary agreement where the debtor agrees to remain personally liable for a dischargeable debt
A reaffirmation agreement allows a debtor to voluntarily keep a debt (such as a car loan) that would otherwise be discharged, maintaining personal liability.
Question 3: Under the Fair Credit Reporting Act (FCRA), how long may a Chapter 13 bankruptcy remain on a consumer's credit report?
- 5 years from the filing date
- 7 years from the filing date (Correct answer)
- 10 years from the discharge date
- 10 years from the filing date
Correct answer: 7 years from the filing date
Chapter 13 bankruptcy is reported for 7 years from the filing date, compared to 10 years for Chapter 7.
Question 4: A client has a credit score of 540 after a bankruptcy discharge two years ago. Which factor will have the GREATEST positive impact on their score recovery?
- Closing all old accounts with negative history
- Consistently making all payments on time on new accounts (Correct answer)
- Disputing accurate negative items on their credit report
- Applying for as many new accounts as possible to increase available credit
Correct answer: Consistently making all payments on time on new accounts
Payment history is the most heavily weighted FICO factor (35%), so consistent on-time payments have the greatest positive impact on credit score recovery.
Question 5: What is a 'means test' in bankruptcy law?
- A test to determine the value of the debtor's assets
- An income-based calculation to determine if a debtor qualifies for Chapter 7 (Correct answer)
- A review of the debtor's ability to repay under Chapter 13
- A credit score threshold required before filing for bankruptcy
Correct answer: An income-based calculation to determine if a debtor qualifies for Chapter 7
The means test compares the debtor's income to the state median income to determine eligibility for Chapter 7; those who fail must consider Chapter 13.
Question 6: When counseling a client about credit rebuilding, what is the recommended credit utilization ratio to maintain for the best credit score impact?
- Below 10%
- Below 30% (Correct answer)
- Below 50%
- Below 70%
Correct answer: Below 30%
Credit scoring models generally reward utilization below 30%, and the lowest utilization ratios (under 10%) produce the best score outcomes.
CCC CCC Bankruptcy & Credit Recovery 2
A credit counselor is helping a post-bankruptcy client rebuild credit.
Which is the BEST first step for re-establishing credit?