Handling Financial Difficulties Flashcards
7 cards from real FICEP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Handling Financial Difficulties flashcards as text
A client is 90 days past due on their mortgage and has received a Notice of Default. Which loss mitigation option allows the client to sell the home for less than the outstanding mortgage balance with lender approval?
Answer: Short sale
A short sale allows the homeowner to sell the property for less than the mortgage balance with the lender's approval, avoiding foreclosure.
Under the Fair Debt Collection Practices Act (FDCPA), within how many days must a debt collector send a written validation notice after initially contacting a consumer?
Answer: 5 days
The FDCPA requires debt collectors to send a written validation notice within 5 days of the initial communication with the consumer.
A client with $40,000 in unsecured debt and a stable income wants to repay creditors in full over time while stopping collection calls. Which option is MOST appropriate?
Answer: Debt management plan (DMP)
A Debt Management Plan (DMP) through a nonprofit credit counseling agency allows clients to repay unsecured debt in full over 3–5 years while stopping collection calls.
Which type of bankruptcy exemption system allows a debtor to choose between federal exemptions and their state's exemptions, whichever is more favorable?
Answer: Opt-in system
In opt-in states, debtors may elect to use federal bankruptcy exemptions if they are more favorable than state exemptions.
A client receives a 1099-C form from a creditor after a debt settlement. What does this form represent?
Answer: Cancellation of debt income that may be taxable
A 1099-C reports cancelled debt as income to the IRS, meaning the forgiven amount may be taxable unless an exclusion (such as insolvency) applies.
Which federal program provides temporary mortgage payment assistance to homeowners who have experienced financial hardship, funded through the American Rescue Plan Act of 2021?
Answer: Homeowner Assistance Fund (HAF)
The Homeowner Assistance Fund (HAF) provides states with federal funding to assist homeowners experiencing pandemic-related financial hardship with mortgage and housing costs.
A client is insolvent with total liabilities of $85,000 and total assets of $60,000. If a creditor forgives $30,000 of debt, how much of the cancelled debt is excluded from taxable income due to insolvency?
Answer: $25,000
The insolvency exclusion limits the tax-free cancelled debt to the amount of insolvency ($85,000 - $60,000 = $25,000); the remaining $5,000 would be taxable.