FiCEP Handling Financial Difficulties 5 — Questions and Answers
Question 1: A client calls a debt collector and verbally requests they stop contacting them. Under the FDCPA, what must the collector do?
- Stop all contact immediately upon verbal request
- Cease contact only after receiving a written cease-and-desist letter (Correct answer)
- Continue contact for 30 more days before stopping
- Transfer the debt to another collector who may continue contact
Correct answer: Cease contact only after receiving a written cease-and-desist letter
Under the FDCPA, a cease-and-desist must be in writing to legally obligate a collector to stop contact; a verbal request alone is not sufficient.
Question 2: Which of the following debts CANNOT be discharged in a Chapter 7 bankruptcy?
- Medical bills
- Credit card balances
- Federal student loans (in most cases) (Correct answer)
- Personal loans from a bank
Correct answer: Federal student loans (in most cases)
Federal student loans are generally non-dischargeable in bankruptcy unless the debtor proves undue hardship through an adversary proceeding.
Question 3: A financial counselor is working with a client who has a wage garnishment for a defaulted credit card debt. Which strategy could IMMEDIATELY stop the garnishment?
- Enrolling in a debt management plan
- Filing for bankruptcy protection (Correct answer)
- Sending a cease-and-desist letter to the creditor
- Disputing the debt with the credit bureau
Correct answer: Filing for bankruptcy protection
Filing for bankruptcy triggers an automatic stay that immediately halts most collection actions including wage garnishments.
Question 4: What is the primary purpose of the automatic stay in bankruptcy proceedings?
- To permanently discharge all debts
- To temporarily halt all collection actions against the debtor (Correct answer)
- To freeze the debtor's credit score
- To transfer assets to the bankruptcy trustee
Correct answer: To temporarily halt all collection actions against the debtor
The automatic stay immediately halts most collection efforts, lawsuits, foreclosures, and repossessions when a bankruptcy petition is filed.
Question 5: A client with a secured auto loan is 60 days delinquent. The lender repossesses the vehicle and sells it for $8,000, but the outstanding loan balance was $12,000. What is the $4,000 difference called?
- Deficiency balance (Correct answer)
- Redemption amount
- Reaffirmation balance
- Residual debt
Correct answer: Deficiency balance
A deficiency balance is the amount still owed to the lender after a repossessed asset is sold for less than the outstanding loan balance.
Question 6: Under Chapter 13 bankruptcy, what is the maximum length of a repayment plan for a debtor whose current monthly income is above the applicable state median?
- 3 years
- 4 years
- 5 years (Correct answer)
- 7 years
Correct answer: 5 years
Above-median income debtors in Chapter 13 must have a 5-year repayment plan; below-median debtors may use a 3-year plan.
Question 7: A client is considering debt settlement with a for-profit company. Which risk should the financial counselor emphasize FIRST?
- The process may take only 6 months
- Creditors may sue during the negotiation period, and forgiven debt may be taxable (Correct answer)
- The client's credit score will improve immediately
- Settlement companies are regulated by the FTC and guarantee results
Correct answer: Creditors may sue during the negotiation period, and forgiven debt may be taxable
During debt settlement, creditors can still sue the debtor, and any forgiven amounts may be reported as taxable income, making this a significant financial risk.
FiCEP Handling Financial Difficulties 5
A client calls a debt collector and verbally requests they stop contacting them.
Under the FDCPA, what must the collector do?