FREE AFC Credit and Debt Management Questions and Answers

Question 1

A client with a steady income wants to protect their home from foreclosure and catch up on missed mortgage payments. They have significant unsecured debt but also valuable assets they wish to keep. Which form of bankruptcy would an AFC® most likely explain as a potential option for this client?

Accepted Answer

Chapter 13 Bankruptcy

Answer

Chapter 13 bankruptcy is designed for individuals with regular income who want to create a plan to repay all or part of their debts over three to five years. It allows debtors to keep valuable assets, like a house, and provides a way to catch up on missed mortgage payments to stop foreclosure.

Question 2

Under the Fair Credit Reporting Act (FCRA), a consumer has the right to dispute inaccurate information on their credit report. Once a dispute is filed with a consumer reporting agency, what is the agency's primary responsibility?

Accepted Answer

To conduct a reasonable investigation of the disputed information.

Answer

The FCRA requires consumer reporting agencies to investigate consumer disputes regarding the accuracy of information in their reports, unless the dispute is considered frivolous. They must conduct a reasonable investigation, typically within 30 days, and correct or delete any information found to be inaccurate, incomplete, or unverifiable.

Question 3

A financial counselor is helping a client choose a debt repayment strategy. The client feels overwhelmed and needs to see progress quickly to stay motivated. Which of the following methods would be most appropriate to recommend for this client's psychological needs?

Accepted Answer

Debt Snowball Method

Answer

The Debt Snowball method focuses on paying off the smallest debts first, regardless of interest rates. This approach provides psychological 'wins' as balances are eliminated quickly, which can build momentum and keep a person motivated to continue paying off their debt.

Question 4

A client is applying for a mortgage. The lender calculates their front-end debt-to-income (DTI) ratio. Which of the following costs is included in the front-end DTI calculation?

Accepted Answer

Proposed principal, interest, taxes, and insurance (PITI)

Answer

The front-end DTI ratio, also known as the housing ratio, specifically compares the borrower's proposed monthly housing expenses (Principal, Interest, Taxes, and Insurance - PITI) to their gross monthly income. Other debts like car loans, student loans, and credit cards are included in the back-end DTI ratio.

Question 5

Which of the following is a key feature of Chapter 7 bankruptcy, also known as liquidation bankruptcy?

Accepted Answer

It allows for the sale of non-exempt assets to pay back creditors.

Answer

Chapter 7 bankruptcy involves the liquidation (sale) of a debtor's non-exempt assets by a trustee. The proceeds from the sale are then distributed to creditors. This is different from Chapter 13, which is a reorganization with a repayment plan.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

FREE AFC Credit and Debt Management Questions and Answers