Debt Relief Programs & Consumer Options Flashcards

What does the term 'statute of limitations' mean in the context of consumer debt?

Answer: The time period within which a creditor can sue to collect a debt through the courts

The statute of limitations is the legally defined period — which varies by state and debt type — after which a creditor loses the right to file a lawsuit to collect the debt.

A 'zombie debt' refers to:

Answer: Old, time-barred debt that collectors attempt to revive by contacting consumers

Zombie debt is old debt — often past the statute of limitations — that debt buyers attempt to collect on; consumers may inadvertently restart the statute of limitations by making a payment or acknowledging the debt.

Which federal agency has primary supervisory authority over large non-bank debt relief and credit counseling companies?

Answer: The Consumer Financial Protection Bureau (CFPB)

The CFPB has supervisory authority over larger non-bank financial companies, including debt relief service providers and credit counseling organizations, and can examine them for compliance with consumer protection laws.

The FTC's Telemarketing Sales Rule (TSR) prohibits debt relief companies from collecting fees before:

Answer: A settlement or other relief has been achieved and the client has made at least one payment pursuant to it

Under the FTC's amended TSR, for-profit debt relief companies that use telemarketing are prohibited from charging fees until they have renegotiated or settled a debt and the consumer has made at least one payment on that agreement.

Which of the following is an advantage of a Debt Management Plan (DMP) over debt settlement?

Answer: A DMP typically does not require accounts to go delinquent, minimizing credit damage

DMPs allow clients to repay debts in full at reduced interest rates without requiring delinquency, which means far less damage to the client's credit score compared to debt settlement, which requires accounts to default.

When a debt is sold to a third-party debt buyer, which document is most critical for the buyer to pursue legal collection?

Answer: A chain-of-title or bill of sale proving legal ownership of the debt

A proper chain of title — the series of assignments from the original creditor to each successive buyer — establishes the legal right to collect the debt; without it, a debt buyer may lack standing to sue.

A client who is considering debt relief options asks about the impact on their ability to obtain new credit. Which statement is MOST accurate?

Answer: Bankruptcy typically remains on credit reports for 7-10 years, while settled accounts remain for 7 years from the date of first delinquency

Chapter 7 bankruptcy stays on credit reports for 10 years from the filing date, Chapter 13 for 7 years; settled accounts are reported as negative items for 7 years from the original delinquency date, all distinct from a DMP's relatively lighter impact.