PCS Credit Risk Assessment & Analysis 3

Question 1

Under the Fair Credit Reporting Act (FCRA), how long can a Chapter 7 bankruptcy remain on a consumer's credit report?

Accepted Answer

10 years from the filing date

Answer

Chapter 7 bankruptcy can remain on a consumer's credit report for 10 years from the filing date under the FCRA.

Question 2

A creditor assigns a portfolio of accounts with an average age of 4.5 years past charge-off. What is the primary collection risk factor?

Accepted Answer

The statute of limitations may have expired on many accounts, limiting legal remedies

Answer

As accounts age past charge-off, the statute of limitations for legal action may expire, significantly limiting the collector's enforcement options.

Question 3

What does a high 'utilization rate' on a debtor's credit report indicate about their financial risk?

Accepted Answer

The debtor is using most of their available revolving credit, indicating financial stress

Answer

High credit utilization (typically above 30%) suggests the debtor is heavily reliant on revolving credit, signaling financial strain and elevated collection risk.

Question 4

Which financial statement metric is most useful when assessing the credit risk of a small business debtor?

Accepted Answer

Cash flow from operations

Answer

Cash flow from operations reflects the business's actual ability to generate cash to meet obligations, making it the most relevant metric for collection risk.

Question 5

A collector notes that a debtor's credit report shows 'account included in wage garnishment' on a separate judgment. How does this affect risk assessment for the current debt?

Accepted Answer

It indicates a portion of the debtor's income is already encumbered, reducing available funds for other debts

Answer

An existing wage garnishment reduces the debtor's disposable income, making it harder for them to service additional debts and lowering recovery prospects.

(PCS) Professional Collection Specialist Practice Test

(PCS) Professional Collection Specialist Practice Test

PCS Credit Risk Assessment & Analysis 3