Financial Counseling Certification Program (FiCEP) Practice Exam

What can credit unions do to mitigate losses associated with bankruptcy?

1. Encourage immediate liquidation of all assets

2. Offer incentives to reaffirm on a debt

3. Advise members to ignore their financial obligations

4. Restrict members from accessing credit after bankruptcy

The correct answer is: Offer incentives to reaffirm on a debt

Offering incentives to reaffirm on a debt is a practical strategy that credit unions can employ to mitigate losses associated with bankruptcy. When a member files for bankruptcy, they have the option to reaffirm certain debts, which means that they agree to continue paying those debts despite the bankruptcy proceedings. By providing incentives for members to reaffirm, such as reduced interest rates or improved repayment terms, credit unions can encourage members to keep fulfilling their financial obligations. This approach can help maintain a relationship with the member while also improving the chances of recovering some of the owed amounts. The other choices do not contribute effectively to loss mitigation. Immediate liquidation of all assets can devalue the items and may not yield the desired recovery of funds. Advising members to ignore their financial obligations can lead to further financial issues for both members and the credit union, while restricting access to credit after bankruptcy could harm the member's ability to recover financially and does not support their efforts to rebuild credit.