Housing/Tenancy, Property, Debt, Loans, Bankruptcy

Question 1

What is “Consumer Debt?”

Answer 1

Credit Card Debt

One of the most expensive forms of debt, especially if used on fixed expenses.

Question 2

What is “Negative Leverage?”

Answer 2

Paying more interest on debts than you are earning in interest from investments

Question 3

The 4 components of housing costs

Answer 3

PITI
1. Principal
2. Interest
3. Taxes
4. Insurance

Question 4

Explain how the “Reverse Mortgage” works

Answer 4

1. Lender loans homeowner cash via the equity of the home
2. Loan is repaid when homeowner dies/moves

(This is usually for old people)

Question 5

Tenancy in Common

Answer 5

2 or more related or unrelated persons

Each person holds an undivided but not necessarily equal interest in the entire property

Question 6

Joint Tenancy with right of survivorship (JTWROS)

Answer 6

2 or more related or unrelated persons

Each person holds an undivided AND equal interest in whole property

e.g. if Tenant A dies, Tenant B holds property

Question 7

Community Property

Answer 7

Married individuals own an equal undivided interest in ALL property accumulated during marriage (income included)

Not always automatic right to survivorship

Question 8

Tenancy by Entirety

Answer 8

Spouse only

Two tenants own an undivided interest in the whole asset, but ownership can’t be severed without the consent of the other spouse

e.g. If Tenant A dies, Tenant B holds property

Question 9

Chapter 7 Bankruptcy

Answer 9

Total liquidation of individual’s non-exempt assets and liabilities
or
business’s assets and liabilities

Question 10

Chapter 11 Bankruptcy

Answer 10

Businesses only

Debt is restructured/reorganized so debtor can keep running business

Question 11

Chapter 13 Bankruptcy

Answer 11

Individual only

Keeps property

Debt is adjusted via payment plan extension/partial discharge

Question 12

What does an individual have to do before filing for bankruptcy?

Answer 12

They have to take an approved credit counseling class 6 months prior to filing

Question 13

What does “The Means Test” do?

Answer 13

It calculates an individual’s monthly income minus certain expenses to determine if they get Section 7 or Section 13 Bankruptcy

Question 14

What is the “Interest Factor?”

Answer 14

The annual percentage rate used to determine the lease payment

Question 15

How does leasing work? (3 step process)

Answer 15

1. Residual value is subtracted from the price of an item.
2. The lessee pays the lessor (lender) the difference with interest over a period of time.
3. Lessee returns item.

Question 16

What is the “Teaser Rate?”

Question 17

Explain how the “Balloon Payment” works.

Answer 17

The final payment at the end of the term is substantially larger than the prior payments.

Question 18

Explain how the “Teaser Rate” works.

Answer 18

You get a low rate for the first few payments that jumps to a higher rate after a short period.

Question 19

What is a “Prime Rate?”

Answer 19

The rate that banks generally charge their most creditworthy clients

Question 20

What is the quality of debt assessment based on?

Answer 20

The relationship between term of debt AND useful life of the asset

Question 21

What is the “Capitalized Cost?”

Answer 21

Essentially the total purchase price of an asset

Question 22

What does “Residual Value” mean?

Answer 22

It’s the value remaining in an asset at the end of the lease period

Question 23

What is “Secured Debt?”

Answer 23

Debt that has collateral to secure payment:

-Mortgages
-Auto Loans
-Margin Accounts
-etc.

Question 24

What is “Unsecured Debt?”

Answer 24

No collateral; just borrower’s “integrity”

-Credit Cards
-Signature Loans

Question 25

3 main solutions to debt

Answer 25

1. Avoid additional non-essential credit purchases
2. Pay off highest interest obligations first
3. Liquidate lower interest investments and pay off higher interest loans