CCC Bankruptcy & Credit Recovery Flashcards

A credit counselor is helping a post-bankruptcy client rebuild credit. Which is the BEST first step for re-establishing credit?

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.

What is a 'reaffirmation agreement' in bankruptcy proceedings?

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.

Under the Fair Credit Reporting Act (FCRA), how long may a Chapter 13 bankruptcy remain on a consumer's credit report?

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.

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?

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.

What is a 'means test' in bankruptcy law?

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.

When counseling a client about credit rebuilding, what is the recommended credit utilization ratio to maintain for the best credit score impact?

Answer: Below 30%

Credit scoring models generally reward utilization below 30%, and the lowest utilization ratios (under 10%) produce the best score outcomes.