Personal Finance 2nd Edition Walker Test Bank

Personal Finance 2nd Edition Walker
Test Bank
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Personal Finance, 2e (Walker)
Chapter 8 Debt, Foreclosure, and Bankruptcy
1) Which is not an early warning sign of financial trouble to come in the future?
A) Not having an emergency fund
B) Paying only the minimum amount on a credit card bill
C) Not having a monthly budget
D) Investing in a 401(k) or a 403(b) plan
Answer: D
Difficulty: 1 Easy
Topic: Financial crisis and emergencies
Learning Objective: 08-01 Recognize early warning signs of financial trouble.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) Which of the following is not a red flag warning?

A) No savings in place
B) Borrowing from family members or friends to cover payments
C) Using payday loan cash advances on your credit cards
D) Tapping home equity lines to pay off your credit cards
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
3) Which of the following are early warning signs of financial problems?

A) Not having an emergency fund.
B) Living paycheck-to-paycheck.
C) Charging essentials like gas and groceries with a payday loan.
D) All of the choices are correct.
Answer: D
Difficulty: 2 Medium
Bloom's: Apply
1
Copyright © 2018 McGraw-Hill
4) Which of the following is not a major warning sign that you are headed for financial trouble?
A) Cash advances on credit cards
B) Net worth is increasing
C) No emergency fund
D) Taking money from retirement savings
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
5) What is the minimum amount of money you should have in your emergency fund account, and
once you have that, what should your next goal be?
A) $750; 3 months' wages
B) $500; 4 months' wages
C) $1,000; 6 months' wages
D) $1,500; 6 months' wages
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
6) Which of the following is a red flag when it comes to credit card debt?
A) Not being able to make the minimum payment.
B) Getting cash advances from the credit card.
C) Taking money from retirement savings to pay off the bill.
Answer: D
Topic: Debt management
Bloom's: Understand
2
7) Borrowing money from family and friends is a
A) yellow flag warning: caution.
B) red flag warning: danger.
C) green flag warning: go ahead.
D) none of the choices are correct.
Answer: B
Difficulty: 3 Hard
Bloom's: Apply
8) All are yellow flag warning signs that you are headed toward financial trouble with the
exception of
A) no emergency fund.
B) charging expenses without a payoff plan.
C) living paycheck-to-paycheck.
D) increasing asset-to-debt ratio.
Answer: D
Difficulty: 1 Easy
Bloom's: Understand
9) Which of the following is an early warning sign of credit card trouble?

A) You have an emergency fund.
B) You are getting cash advances on your credit card.
C) You are paying only the minimum balance.
D) You are unable to make the minimum payment.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
3
10) Which is a way to stop little financial leaks?
A) Cutting coupons
B) Pack your lunch
C) Avoid the malls when bored or depressed
Answer: D
Difficulty: 1 Easy
Topic: Achieving financial goals
Bloom's: Remember
11) In stopping little financial leaks, what are the first things you need to sort out?
A) Needs from wants
B) Bills from payments
C) Ongoing bills vs. one-time payments
D) Giving vs. spending
Answer: A
Learning Objective: 08-02 Discover how little changes in spending habits improve financial
well-being.
Bloom's: Understand
12) Which would not be an example of stopping little financial leaks of spending?
A) Cutting coupons
B) Putting credit cards on ice
C) Eliminating convenience foods
D) Eating out a minimum of three times a week
Answer: D
well-being.
Bloom's: Understand
4
13) Ava decided to establish an emergency fund for herself. She established this fund by "paying
herself first" and transferring money out of each paycheck into her new savings account. She
established her emergency fund at a bank that is different from her usual bank where she has her
checking account. Ava's emergency fund
A) is a smart idea because having her emergency fund at a different bank makes it more difficult
for her to gain access to her money and make a transfer.
B) gives her more time to think twice about using her emergency fund if she has to physically go to
a different bank other than her checking account bank for access to her money.
C) has helped her establish a life-long habit to develop her financial security.
Answer: D
well-being.
Bloom's: Understand
14) What is one thing you could do to stop little financial leaks?
A) Stop every morning to get a coffee
B) Avoid malls when you are bored or depressed
C) Eat more convenience foods
D) Keep unwanted purchases
Answer: B
well-being.
Bloom's: Remember
5
15) To keep yourself from using your credit card, you should
A) destroy it.
B) hide it.
C) leave it at home.
D) keep it in your wallet.
Answer: C
Difficulty: 1 Easy
well-being.
Bloom's: Remember
16) The fastest way to get out of debt is to

A) buy things you don't need.
B) don't to not buy things you cannot afford.
C) refinance to get better interest rates.
Answer: B
Learning Objective: 08-03 Create a workable plan to become debt-free and gain control of your
finances.
Bloom's: Understand
17) When digging out of debt, what do you need to clarify?

A) Your needs from your wants
B) Your wants from your desires
C) Quality from quantity
D) Size from shape
Answer: A
well-being.
Bloom's: Understand
6
18) What strategy to help impulse buyers does the book suggest?
A) The "ten second hold" rule
B) Realistic budget evaluation
C) The "do I need it?" strategy
D) The stop and think strategy
Answer: A
Difficulty: 1 Easy
well-being.
Bloom's: Remember
19) Buying a soda from the vending machine every morning before class is an example of
A) convenience drinks.
B) everyday habits.
C) everyday necessity.
D) non-essential spending.
Answer: D
Difficulty: 3 Hard
well-being.
Bloom's: Apply
20) Which of the following is not a question to ask when trimming expenses?
A) Can I get a lower rate on insurance?
B) Can I eat out more?
C) Can I live in a less expensive house?
D) Can I cut down my utilities?
Answer: B
Difficulty: 1 Easy
well-being.
Bloom's: Remember
7
21) Paying rent, gas, and utilities and buying groceries are examples of what kind of spending?
A) Necessary
B) Non-essential
C) All of the choices are correct.
D) None of the choices are correct.
Answer: A
Difficulty: 1 Easy
Topic: Budgets
well-being.
Bloom's: Remember
22) Which of the following is the first step in digging yourself out of debt?
A) Increase income
B) Stop using credit cards
C) Don't buy things you cannot afford
D) Put your "wants" on hold
Answer: D
Difficulty: 1 Easy
well-being.
Bloom's: Remember
23) If you are in credit card debt and call the company, what might it do to help you?
A) Nothing
B) Raise your rate
C) Lower your rate and waive fees
D) Wave good bye
Answer: C
well-being.
Bloom's: Understand
8
24) Olivia found herself in over $10,000 worth of credit card debt after she graduated from college.
Most of her purchases on her credit cards came from purchases at the mall which included
clothing, shoes, and purses. She also used her credit cards to finance her vacation to Mexico during
spring break. Overwhelmed by her high credit card balances, Olivia has decided she wants to start
digging herself out of credit card debt. What is the first step she should take?
A) Increase her income
B) Stop using her credit cards
C) Stop buying things she cannot afford
D) Create a realistic budget and use the envelope system
Answer: B
finances.
Bloom's: Understand
25) What is the 10-second rule?

A) If you drop an item in a store, it's still safe to pick it up after 10 seconds
B) Hold an item for 10 seconds before you put it in your cart, asking yourself if you really need the
item and, can afford to pay for it
C) Put an item in your cart and, if you don't want it after 10 seconds take it out
Answer: B
Difficulty: 1 Easy
finances.
Bloom's: Remember
9
26) According to the Fair Debt Collection Practices Act, debt collectors cannot
A) call you before 10:00 a.m.
B) call you after 7:00 p.m.
C) contact you after you ask them in writing to stop contacting you.
D) tell you who they are.
Answer: C
Difficulty: 1 Easy
Topic: Debt collection
finances.
Bloom's: Remember
27) What is the first step of digging out of debt?

A) Create a realistic budget
B) Make payments on time
C) Stop using credit cards
D) Don't try to buy stuff you can't afford
Answer: C
Difficulty: 1 Easy
finances.
Bloom's: Remember
28) Elijah has three major purchases to pay off on his credit card. They are as follows: $1,000 at
10%, $500 at 15%, and $250 at 5%. How should he pay off his debts?
A) Pay them all sporadically until they're gone
B) Pay off the highest amount first
C) Pay off the lowest amount first
D) Split the money to pay off the debts equally between all purchases
Answer: C
Difficulty: 3 Hard
finances.
Bloom's: Apply
10
29) Before you buy an item, you should hold it for ________ seconds.
A) 5
B) 10
C) 15
D) 20
Answer: B
Difficulty: 1 Easy
finances.
Bloom's: Remember
30) Which of the following terms describes the case in which a lender renegotiates a loan at a
lower interest rate?
A) Cramdown
B) Skimming
C) Reinstatement
D) Forbearance
Answer: A
Learning Objective: 08-04 Describe options for protecting your credit if you are at risk of
foreclosure.
Bloom's: Remember
31) You have three credit cards, each of which has a balance due. Which should you pay off first?
A) The largest balance
B) The smallest balance
C) Neither; pay some of each every month
D) All of the choices are incorrect.
Answer: B
foreclosure.
Bloom's: Understand
11
32) Which of the following terms describes a temporary reduction or suspension of the mortgage
payments for three or four months, followed by a new repayment plan to keep borrowers from
foreclosure?
A) Cramdown
B) Forbearance
C) Reinstatement
D) Mortgage assistance
Answer: B
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
33) Which of the following is a temporary solution to a financial problem?

A) Reinstatement
B) Partial claim
C) Credit cards
Answer: A
Difficulty: 1 Easy
foreclosure.
Bloom's: Understand
12
34) ________ is a re-writing of the terms of the original mortgage loan to make the monthly
payments more affordable by extending the number of years payable or the interest rate charged on
the loan.
A) Reinstatement
B) Loan modification
C) Foreclosure
D) Cramdown
Answer: B
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
35) Jamil and Vicki have been experiencing financial troubles and are unable to keep making their
mortgage payments. They both want to improve their financial situation as best they can, so they
agree to sell their home. However, they know that they will not be able to sell their home for the
full amount of their loan. They negotiate with their mortgage lender, who agrees to accept the
selling price as satisfying the mortgage. Jamil and Vicki are selling their home as part of
A) an assumption of loan.
B) a deed-in-lieu of foreclosure.
C) a short sale.
D) a sale.
Answer: C
Difficulty: 3 Hard
foreclosure.
Bloom's: Evaluate
13
36) The best way to deal with not being able to pay your mortgage is
A) don't open the mail from the bank.
B) call your lender and work something out.
C) don't answer the phone.
D) move in the middle of the night.
Answer: B
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
37) What is a cramdown?

A) Altering mortgage terms in an attempt to keep borrowers from foreclosure
B) Sending your banker lots of cakes and cookies
C) Shoving money at your banker
Answer: A
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
38) If a lender agrees to new loan terms in an attempt to help a homeowner, and the terms of the
new agreement are met, this constitutes a
A) foreclosure.
B) loan modification.
C) forbearance.
D) cramdown.
Answer: B
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
14
39) During the process of foreclosure, at which step does the lender begin to become concerned?
A) You missed the first payment.
B) You are unable to make your payment.
C) You miss your second payment.
D) You miss your third payment.
Answer: C
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
40) ________ is when you alter mortgage terms in attempt to keep borrowers from foreclosure.
A) Avoiding foreclosure
B) Cramdown
C) Interest rate
D) Reinstatement
Answer: B
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
41) Which of the following are short-term solutions if you are at risk for foreclosure?
A) Reinstatement
B) Loan modifications
C) Loan defaults
D) Partial claim
Answer: A
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
15
42) When foreclosure is likely, lenders want to
A) get the owner out of the home so they can sell it and make a profit.
B) work with the owner to negotiate payments.
C) sell the home regardless of what the owner thinks.
Answer: B
Difficulty: 1 Easy
foreclosure.
Bloom's: Understand
43) A temporary reduction or suspension of your mortgage payments for three or four months
followed by a new repayment plan is called a
A) reinstatement.
B) new payment plan.
C) forbearance.
Answer: C
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
44) What is a long-term solution if you are having trouble paying back your loan?
A) Loan modification
B) Reinstatement
C) Forbearance
D) A repayment plan
Answer: A
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
16
45) The Federal Trade Commission considers a loan delinquent after how many days?
A) 60
B) 30
C) 90
D) 120
Answer: C
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
46) What do you call altered mortgage terms that attempt to keep borrowers from foreclosure?
A) Forbearance
B) Reinstatement
C) Cramdown
D) Bankruptcy
Answer: A
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
47) Which of the following is the first step in the foreclosure process?
A) The bank files a paper with the courts declaring the intent to foreclose.
B) Required legal notices are published in the local paper.
C) The property is sold to the highest bidder at the sheriff's auction.
D) The new owner evicts the existing owner from the property.
Answer: A
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
17
48) After bankruptcy, it's important for a person to rebuild his or her credit history. Which of the
following is a good habit to follow in coming out of bankruptcy?
A) Continue your previous lifestyle
B) Pay all your bills on time
C) Continue to use credit
D) Open as many new credit card accounts as possible
Answer: B
Difficulty: 1 Easy
Topic: Bankruptcy - costs and considerations
Learning Objective: 08-05 Identify when bankruptcy is a viable option and develop a plan to
restore your credit.
Bloom's: Analyze
49) Bob has filed for bankruptcy. What doesn't he have to do?
A) Undergo pre-bankruptcy credit counseling
B) Repay the discharged claims
C) Undergo debtor education
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
50) How does Chapter 7 bankruptcy differ from Chapter 13 bankruptcy?

A) Chapter 7 is the quickest and simplest form of bankruptcy
B) In a Chapter 13 bankruptcy, the debtor proposes a plan of reorganization to keep his or her
assets and pay creditors over an extended time period
C) Both are correct.
D) Neither is correct.
Answer: C
Difficulty: 3 Hard
Topic: Bankruptcy - Chapters 7 and 13
Bloom's: Analyze
18
51) Stanley experienced many financial problems and ended up filing for bankruptcy. Now, he is
looking to restore his credit and develop good financial habits. Which of the following will help
Stanley establish good habits after his bankruptcy?
A) Pay everything on time
B) Change his lifestyle by using self-control and self-discipline to stay within his budget
C) Don't use credit; if Stanley wants or needs something, he should save up money for it
Answer: D
Bloom's: Understand
52) Which type of bankruptcy involves the liquidation of assets with the proceeds distributed to the
creditors?
A) Means test
B) Chapter 13
C) Chapter 7
D) Chapter 9
Answer: C
Bloom's: Understand
19
53) In which type of bankruptcy does the debtor propose a plan of reorganization to keep his or her
assets and pay creditors over an extended period of time?
A) Chapter 7
B) Chapter 9
C) Chapter 13
D) Chapter 11
Answer: C
Difficulty: 3 Hard
Bloom's: Apply
54) What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?

A) Chapter 7 liquidates all of your debts.
B) Chapter 13 liquidates all of your assets.
C) In a Chapter 7 bankruptcy, you do not have to pay off anything.
D) In a Chapter 13 bankruptcy, you pay off your debt over a period of 3 to 5 years.
Answer: D
Difficulty: 3 Hard
Bloom's: Analyze
55) What is the quickest and simplest form of bankruptcy?

A) Chapter 13
B) Chapter 8
C) Chapter 7
D) Chapter 5
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
20
56) After bankruptcy, what is the best way to build credit?
A) Get a secured credit card
B) Get an unsecured credit card
C) Don't worry about credit; it got you in trouble in the first place
D) Take out a loan
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
57) Which is not one of the three main reasons people declare bankruptcy?
A) Bad luck
B) Lack of preparation
C) Getting cash advances on credit cards
D) Poor decisions
Answer: C
Difficulty: 1 Easy
Topic: Bankruptcy - laws and protections
Bloom's: Remember
58) What is another term for Chapter 13 bankruptcy?

A) Liquidation bankruptcy
B) Chapter 7 bankruptcy
C) Wage-earner bankruptcy
D) All of the choices are incorrect.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
21
59) Using your credit card to buy a motorcycle you know you can't afford is
A) breaching a moral obligation.
B) liquidation.
C) forbearance.
D) starting a reinstatement program.
Answer: A
Difficulty: 3 Hard
Topic: Consumer credit - general
Bloom's: Apply
60) In Chapter 13 bankruptcy, a person

A) sells all his/her assets to pay off lenders.
B) doesn't pay anything back because he/she has no money.
C) takes out a loan from the federal government to pay off lenders.
D) reorganizes his or her finances in order to keep his/her assets, but still pays off lenders in the
long term.
Answer: D
Bloom's: Understand
61) There are some important habits to follow after your bankruptcy has been discharged. Which
of the following is not one of them?
A) Change your lifestyle
B) Pay everything on time
C) Get all new credit cards
D) Establish a secured credit card
Answer: C
Bloom's: Understand
22
62) ________ is a legal process in which a person declares his or her inability to pay debts.
A) Liquidation
B) Cramdown
C) Bankruptcy
D) Chapter 13
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
63) Chapter 13 is
A) the quickest and simplest form of bankruptcy; it is the liquidation of assets with the proceeds
distributed to the creditors.
B) a reorganization bankruptcy, in which the debtor proposes a plan of reorganization to keep his
or her assets and pay creditors over an extended time period, usually three to five years.
C) a sale of a debtor's nonexempt property and the distribution of the proceeds to the creditors.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
64) The best way to avoid a financial crisis is to arrive at a point where you are spending less than
you make.
Answer: TRUE
Difficulty: 1 Easy
Topic: Budgets
Bloom's: Remember
23
65) Budgeting and money journaling are helpful tools for realizing where you are financially and
what you can trim.
Answer: TRUE
well-being.
Bloom's: Understand
66) If you focus on paying off the largest balance first, you can gain momentum in getting out of
debt by experiencing a "quick win".
Answer: FALSE
finances.
Bloom's: Understand
67) The deed-in-lieu of foreclosure forgives the balance of your mortgage and gives the property to
the lender.
Answer: TRUE
Difficulty: 1 Easy
foreclosure.
Bloom's: Remember
68) Bankruptcy will discharge a student loan.
Answer: FALSE
Topic: Bankruptcy - laws and protections
Bloom's: Understand
24
69) When you live paycheck-to-paycheck, you are close to financial trouble.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
70) Chapter 7 bankruptcy is also known as wage-earner bankruptcy.
Answer: FALSE
Difficulty: 1 Easy
Topic: Bankruptcy - Chapters 7 and 13; Digging out of debt; Early warning signs of financial
trouble; Foreclosure; Ins and outs of bankruptcy; Stopping little leaks
Bloom's: Remember
25

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Personal Finance 2nd Edition Walker

2) Which of the following is not a red flag warning?

3) Which of the following are early warning signs of financial problems?

9) Which of the following is an early warning sign of credit card trouble?

16) The fastest way to get out of debt is to

17) When digging out of debt, what do you need to clarify?

25) What is the 10-second rule?

27) What is the first step of digging out of debt?

33) Which of the following is a temporary solution to a financial problem?

37) What is a cramdown?

50) How does Chapter 7 bankruptcy differ from Chapter 13 bankruptcy?

54) What is the difference between a Chapter 7 and a Chapter 13 bankruptcy?

55) What is the quickest and simplest form of bankruptcy?

58) What is another term for Chapter 13 bankruptcy?

60) In Chapter 13 bankruptcy, a person

68) Bankruptcy will discharge a student loan.

70) Chapter 7 bankruptcy is also known as wage-earner bankruptcy.

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