General Flashcards

1
Q

Chapter 7 Bankruptcy - Primary purpose, who can file and eligibility requirements

A

Liquidation

Individuals and businesses

Income must be below a certain amount

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2
Q

Chpt 7 Bankruptcy - what must be repaid

A

Most debts are discharged after 115 days from the date of filing for Chapter 7, but certain obligations must still be repaid:

child support,
alimony,
income taxes less than three years past due,
student loans, and
secured debt.

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3
Q

Chapter 7 Bankruptcy - Unsecured debt, secure debt and impact to foreclosures

A

Unsecured Debt - Can be eliminated

Secure debt - nonexempt assets are sold to pay off secured debt

CANNOT stop foreclosure (but can delay it)

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4
Q

Chapt 7 Bankrupcy - timeline

A

takes 4-6 months

Most debts are discharged after 115 days from the date of filing for Chapter 7

stays on credit report for 10 yrs

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5
Q

Chapter 13 Bankruptcy - Primary purpose, who can file and eligibility requirements

A

Repayment in full over a period of time - a debtor will pay more every month to make payments on their overdue debt along with their current monthly payments.

individuals

debt must be below a certain amount - $419,275 in unsecured debt, such as credit card bills or personal loans. They also can have no more than $1,257,850 in secured debts, which includes mortgages and car loans.

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6
Q

Chapter 13 Bankruptcy - Unsecured debt, secure debt and impact to foreclosures

A

Unsecured Debt - paid back over time through repayment plan

Secure Debt - paid back over time through the repayment plan

CAN Stop foreclosures

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7
Q

Chapt 13 Bankrupcy - timeline

A

takes 3-5 years

stays on credit report for 7 years

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8
Q

Chapter 11

A

Purpose: Reorganization

business but also accommodates those who exceed Chapter 13 debt limitations or lack regular income.

No minimum or max debt or income requirements

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9
Q

Chapter 11 - Debt and foreclosures

A

Unsecured debt - reorganized and paid back over time

secure debt - restructured and paid back over time

CAN stop forclosures

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10
Q

Chapter 11 - timeline

A

takes 6 months - 2 years

stays on credit report for 10 yrs

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11
Q

Values on Personal Balance Sheet

A

items on personal balance sheet are listed at FMV

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12
Q

What is an Asset and that are the 3 types?

A

An asset is anything owned by a business or an individual that has market value.

There are three main types of assets:

Cash and Cash Equivalents.
Investment Assets.
Personal Use Assets.

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13
Q

Are mortage refinance proceeds considered income?

A

When you refinance you are essentially taking out a new loan and using the proceeds of that loan to pay off the existing loan. Loan proceeds received are not considered income.

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14
Q

What are Investment Assets?

A

Investment assets are usually purchased for the purpose of providing income or growth over time.

Investment assets include common stocks, bonds, mutual funds, exchange traded funds, cash value of life insurance, and deferred annuities.

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15
Q

Amounts owned accounts for what % of an individual’s credit score?

A

30%

Credit utilization = amount credit used from amount of credit available. The more credit it utilized the more overall credit score will be lowered

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16
Q

How many years will it take for anything falls of the credit report?

A

7 Years

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17
Q

Fixed Rate vs. Variable Rates for Mortgages

A

Fixed if interest rates are low and/or keeping the home for a long time

Variable if interest rates are high and/or not keeping the home for long

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18
Q

Mortgage Origination Points

A

borrower can pay origination points to lower their rate or improve terms otherwise

points are % of the amount borrowed and can be added to the mortgage

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19
Q

What is PMI and when is it required?

A

PMI = Private Mortgage Interest

Required if down payment is less than 20% of the value of the home

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20
Q

Mortgage/debt $ amount for Jumbo loan

A

Mortgage below $766,500 = Conventional loan

Mortgage above $766,500 = jumbo loan

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21
Q

Gov. Mortgage Programs

A

Federal Housing Administration

Veterans Administration

United States Department of Agriculture

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22
Q

What is price inelasticity ?

A

When prices change significantly, the demand does not react/fluctuate significantly

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23
Q

ST and LT under normal economic conditions

A

Under normal economic conditions, SHORT-TERM rates are LOWER than LONG-TERM rates

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24
Q

Who can have a Coverdell ESA?

A

Any beneficiary who is under age 18 or is a special needs beneficiary.

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25
Q

Who can contribute to a Coverdell ESA?

A

Generally, any individual (including the beneficiary) whose modified adjusted gross income for the year is less than $110,000 ($220,000 in the case of a joint return).

26
Q

Are distributions tax-free?

A

Yes, if the distributions are not more than the beneficiary’s adjusted qualified education expenses for the year.

27
Q

Coverdell Education Savings Account (CESA) max funding

A

$2000 per beneficiary, per year combined from all sources

28
Q

529 funding for Tuition cost for K-12

A

529 account funds can be used for up to $10,000 of annual tuition costs associated with K-12 education

The remainder of expenses must be covered from other funding sources (i.e., CESAs, savings accounts, scholarships, grants, loans)

29
Q

Who can contribute to a UGMA/UTMA account?

A

Anyone can contribute to a UGMA or UTMA. They are taxable investment accounts with no contribution limits.

Kiddie tax rules may apply to unearned income generated by the investments.

30
Q

Standard Deduction (Dependents)

A

The standard deduction for an individual who can be claimed as a dependent on another person’s tax return is generally limited to the LARGER of:

$1,300, or
The individual’s earned income plus $450, but not more than the regular standard deduction for filing Single (generally $14,600 in 2024)

31
Q

What is a Series EE/Series I bond?

A

Special savings bonds through which an exclusion from taxation on interest is available when used for qualifying educational expenses.

32
Q

Who can purchase and own a Series EE/Series I bond?

A

The purchaser/owner must be at least 24 years old before the bond’s issue date.

The bond must be issued either in one parent’s name (as the sole owner) OR

in the name of both parent and spouse (as co-owners).

33
Q

Are Series EE/I bond distributions tax-free?

A

When used for qualifying educational expenses and the owner’s MAGI is below certain limits, interest from bonds is tax-free.

34
Q

Kiddie Tax Treatment

A

Gross Income = Earned Income + Unearned Income

Total Tax Due =
((unearned income - 1300) x 0.10) + ((unearned Income - 2600) x parent’s margin tax rate) + (Gross Income - SD for Dependents x child’s tax rate of 0.10)

35
Q

Withdrawal from Traditional IRA for qualified educational expenses

A

If funds withdrawn before 59 1/2 for qualified educational expenses - taxed ordinary income, no 10% penalty;

If funds withdrawn after 59 1/2, tax free (no penalty)

36
Q

Pell Grant - Eligibility

A

A Pell Grant is awarded to undergraduate students who have exceptional financial need and who have not earned a bachelor’s, graduate, or professional degree.

37
Q

Pell Grant - Eligible Schools

A

Schools have to participate in the program to provide the grant; each school participating in the program receives enough funds each year from the U.S. Department of Education to pay the Federal Pell Grant amounts for all its eligible students.

38
Q

Distributions from following accounts ARE considered INCOME for financial aid

A

Distributions from student-owned Coverdell ESA account are counted as income.

Roth IRA distributions are considered income on the FAFSA, as well.

39
Q

Withdrawals from which accounts are NOT added back as income on student’s financial aid application?

A

Withdrawals from

parent-owned or dependent student-owned 529 plans
parent-owned or third-party owned Coverdell ESAs

40
Q

529 ABLE - Qualified disability expenses

A

include any expenses incurred at a time when the designated beneficiary is an eligible individual.

The expenses must relate to blindness or disability, including expenses for maintaining or improving health, independence, or quality of life.

41
Q

529 ABLE - Contributions

A

ARE NOT TAX DEDUCTIBLE (are limited to the annual gift tax exclusion amount ($18,000 for 2024)

MUST BE IN cash or cash equivalents.

42
Q

529 ABLE - Earnings

A

Earnings in an ABLE account are not taxed unless a distribution exceeds a designated beneficiary’s qualified disability expenses.

43
Q

529 ABLE - Rollover from 529 ACs

A

Rollovers may be made without penalty from a Section 529 tuition account to a Section 529A ABLE account if the beneficiary of the ABLE account is the designated beneficiary of the tuition account or is an eligible family member.

44
Q

529 ABLE - Exclusion from EFC

A

If the 529 ABLE Account is less than $100K, it is EXCLUDED from the EFC calculations

45
Q

Assets Counted Towards EFC

A

Cash, savings, checking accounts, money market funds, and CDs

Investments (e.g., mutual funds, stocks, stock options, bonds, commodities)

Rental real estate equity, businesses, investment farms, and trust funds

College savings plans, CESAs and 529s

46
Q

Financial Need Formula

A

Cost of Attendance (COA) – EFC = Financial Need

47
Q

EFC Income

A

Parents = (AGI) minus an allowance for taxes + living expenses.

Students = Amount over ‘protected amount’ ($9,410 for 2024-25 academic year).

48
Q

Financial aid availability and the EFC Relationship

A

have an inverse relationship.

With a higher EFC, there is less financial aid awarded.

With a lower EFC, there is more financial aid awarded.

As the EFC increases, the available Financial Aid award decreases.

49
Q

Assets NOT counted towards the EFC

A
  • Cash, savings, checking accounts, money market funds, and CDs
  • Investments (e.g., mutual funds, stocks, stock options, bonds, commodities)
  • Rental real estate equity, businesses, investment farms, and trust funds
  • College savings plans, CESAs and 529s
  • Retirement assets and home equity
  • Accounts held/owned by Others (e.g., aunts or grandparents)
50
Q

Accounts counted towards EFC

A

Accounts Held-by:
* Parents or in dependent child’s name: Parent Assets
* Independent students/spouses: Student Assets

51
Q

Student Income and Assets for EFC

A
  • Student Income = 50% (OVER $9410)
  • Student Assets = 20%
52
Q

Parent Income and Assets for EFC

A
  • Parent Income = 22% - 47%
  • Parent Assets = 5.64%
53
Q

When should the funds from college savings owned by relatives/others should be distributed?

A

“If others will contribute more… wait until years 3 & 4.”

Distributions from accounts owned by relatives and others in Years 3 and 4 maximize the potential for Financial Aid.

This is due to the two-year lookback on the FAFSA form for income.

By waiting until Years 3 and 4 of the child’s college enrollment, the family will not have the distributions factored into their Financial Aid.

54
Q

Grants - need and repayment

A

Based on financial need

Don’t have to be repaid

55
Q

Scholarship - tax treatment

A

Generally, a scholarship is tax-free if you are a full- or part-time candidate for a degree at accredited post-secondary institutions.

56
Q

Direct PLUS Loan - AKA

A

Parent PLUS loan when made to a parent

Grad PLUS loan when made to a graduate or professional student.

57
Q

Direct PLUS Loan - Lender and Credit History

A

The U.S. Department of Education is the lender.

Cannot have an adverse credit history.

The maximum PLUS loan: (cost of attendance - any other financial aid received)

58
Q

The Financial aid option that provides most advantageous interest rate and repayment terms

A

Direct Subsidized Loan as the interest is paid for by the U.S. Department of Education while the undergraduate student is attending college at least half-time

59
Q

LLC

A

NON-REFUNDABLE - NO MONEY BACK
LIFE time learning credit - 20% of qualified expenses upto $2K per TAX RETURN

ROOM & BOARD does NOT count as qualified expenses

You may have multiple people qualifying for LLC, but can only take ONE deduction of $2K per tax year

60
Q

AOTC

A

PARTIALLY REFUNDABLE = If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.

MAX Credit: $2500 PER qualifying person

First $2K at 100%; Remaining at $25% of next $2K

ROOM & BOARD does NOT count as qualified expenses

61
Q

529 and Scholoarships

A

You can take same amount from 529 as the awarded scholarship each year