CCM Collections & Recovery 3 — Questions and Answers
Question 1: Which of the following is a primary objective when negotiating a payment plan with a delinquent commercial debtor?
- Maximize recovery while preserving the business relationship where viable (Correct answer)
- Immediately obtain a court judgment to secure the debt
- Charge the maximum allowable late fees to recover lost interest
- Require full payment within 10 days regardless of circumstances
Correct answer: Maximize recovery while preserving the business relationship where viable
Effective commercial collections balance recovery goals with relationship preservation, especially if the debtor is a valuable long-term customer.
Question 2: A judgment lien gives a creditor what type of security interest?
- An interest in the debtor's non-exempt real and personal property (Correct answer)
- Priority over all secured creditors in bankruptcy
- The right to garnish wages without further court order
- An interest only in accounts receivable of the debtor
Correct answer: An interest in the debtor's non-exempt real and personal property
A recorded judgment lien attaches to the debtor's non-exempt real and personal property in the jurisdiction where it is filed.
Question 3: A creditor extends a payment plan to a debtor who later defaults again. Which document best protects the creditor's legal position?
- A signed forbearance agreement or promissory note acknowledging the debt and new terms (Correct answer)
- A verbal agreement confirmed by email
- A collection notice sent via certified mail
- An updated credit application
Correct answer: A signed forbearance agreement or promissory note acknowledging the debt and new terms
A signed forbearance agreement or promissory note creates a clear legal record of the debt balance and the agreed repayment terms.
Question 4: The 'statute of limitations' in collections refers to:
- The period within which a creditor must file suit to collect a debt (Correct answer)
- The time a creditor has to report a delinquency to credit bureaus
- The maximum interest rate allowed on a delinquent account
- The number of collection calls permitted per week
Correct answer: The period within which a creditor must file suit to collect a debt
The statute of limitations sets the maximum time after a default during which a creditor can bring a legal action to collect the debt.
Question 5: Which ratio is most useful for assessing a debtor company's short-term ability to repay outstanding invoices?
- Current ratio (current assets ÷ current liabilities) (Correct answer)
- Debt-to-equity ratio
- Return on assets
- Gross margin ratio
Correct answer: Current ratio (current assets ÷ current liabilities)
The current ratio measures whether a company has enough short-term assets to cover its short-term obligations, indicating liquidity for near-term payables.
Question 6: Under UCC Article 9, a 'perfected' security interest provides a creditor with:
- Priority over subsequent lien creditors and a trustee in bankruptcy (Correct answer)
- The right to collect the debt without a court judgment
- Immunity from the automatic stay in bankruptcy
- Guaranteed full recovery in any insolvency proceeding
Correct answer: Priority over subsequent lien creditors and a trustee in bankruptcy
Perfection of a security interest (typically by filing a UCC-1 financing statement) establishes the creditor's priority claim over later creditors and the bankruptcy trustee.
Question 7: When a commercial account is placed with an outside collection agency, the creditor typically pays the agency through:
- A contingency fee based on a percentage of amounts actually recovered (Correct answer)
- A flat monthly retainer regardless of results
- A per-letter fee for each dunning notice sent
- A fixed placement fee paid upfront at account transfer
Correct answer: A contingency fee based on a percentage of amounts actually recovered
Most third-party commercial collection agencies work on contingency, earning a percentage of what they successfully collect on the creditor's behalf.
CCM Collections & Recovery 3
Which of the following is a primary objective when negotiating a payment plan with a delinquent commercial debtor?