FiCEP Debt Management Strategies 4

Question 1

A client has a $15,000 medical bill that went to collections 18 months ago. Under the FDCPA, which action by the collector would be a violation?

Accepted Answer

Threatening to file a lawsuit when the debt is past the statute of limitations without intending to sue

Answer

Threatening legal action on a time-barred debt without actual intent to sue is a deceptive practice prohibited by the FDCPA.

Question 2

Which debt repayment strategy minimizes total interest paid over time?

Accepted Answer

Avalanche method — paying highest interest rate balances first

Answer

The avalanche method targets highest-interest debt first, mathematically reducing total interest paid over the repayment period.

Question 3

A client is 90 days delinquent on a $12,000 credit card. The creditor offers to settle for 60 cents on the dollar. What is a key tax implication the counselor should explain?

Accepted Answer

The forgiven $4,800 may be reported as taxable income on a 1099-C

Answer

Creditors must issue a 1099-C for forgiven debt over $600, and the client may owe income tax on the cancelled amount unless an exclusion applies.

Question 4

What distinguishes a Debt Management Plan (DMP) from debt settlement?

Accepted Answer

A DMP pays creditors in full over time with negotiated reduced interest rates

Answer

A DMP repays the full principal balance but typically secures concessions such as reduced interest rates and waived fees from creditors.

Question 5

Under the Military Lending Act (MLA), what is the maximum Military Annual Percentage Rate (MAPR) that can be charged to covered active-duty borrowers?

Accepted Answer

36%

Answer

The MLA caps the MAPR at 36% for most consumer credit products extended to active-duty servicemembers and their dependents.

FiCEP - Financial Counseling Certification Program Practice Test

FiCEP - Financial Counseling Certification Program Practice Test

FiCEP Debt Management Strategies 4