Debt: Glossary of Terms
A
Adjudications - is an out-of-date term for bankruptcy.
Administration Orders - An Administration Order may apply if you have at least one County Court Judgment against you and total debts do not exceed £5,000. It allows a County Court to administer payments to all your creditors. One payment is made to the court and the court splits this between all creditors according to how much you owe. As long as an Order is in force, creditors cannot take further enforcement action and interest is stopped.
Arrangement to pay- is an agreement between a lender and a customer to vary a customer's payment schedule
Arrears - Arrears occur when you fail to meet the contractual payments to your household bills. Missing payments to your mortgage, rent or council tax etc can lead to serious arrears, which must be paid immediately. You can also be in arrears if you don't maintain your payments on unsecured debts. Arrears will accumulate if you continue to miss payments and you will be required to pay an additional amount on top of the regular payments until the arrears are cleared.
Assets - Assets are items you own that have monetary value. Assets would include your property, car, stocks, shares, antiques and savings etc.
Assignment - the sale or transfer of a contract or agreement by one company to another.
Assignment Notice - A notice to the debtor informing him/her that a debt has been assigned (sold) to another company. Required under s136 of the Law of Property Act 1925.
Attachment of Earnings Order
If a creditor has a judgment against you in the County Court which you do not pay then they can try to enforce the judgment against you. One of the ways this can be done is the creditor applies to the County Court for an Attachment of Earnings Order to be made. This order tells your employer to make deductions straight from your earnings in order to pay the debt. Your employer then sends the money to the court. Your employer can also deduct £1.00 every time they take money out of your wages towards the cost of administering the Attachment of Earnings Order.
The court can order deductions to be made directly from your earnings if:
- You are behind with payments on your County Court Judgment (CCJ).
- You are an employee (not self-employed or on benefits).
- You owe more than £50 on the judgment.
Attachment of Benefits - Similar to Attachment of Earnings, if you fail to make the repayments once a county court judgment has been issued the council may take deductions from your benefit. They are made at the rate of 5% of the personal allowance for a single claimant aged 25 and above. The attachments of benfits will continue until the debt is discharged.
B
Balliff's - Employed mainly by the Court to enter into your property and take goods to sell at auction to cover debt that you owe to a lender who has previously obtained a CCJ to which you have failed to comply with.
Balloon Payment - A lump sum payment on a hire purchase or conditional sale agreement once some monthly payments have been made.
Bank - an institution likened to an organisation that lends out umbrellas but insists on having them back as soon as it starts raining.
Bankruptcy - A legal procedure that writes off all debts (with a few exceptions). You or one of your creditors can petition for bankruptcy. The debt is usually discharged after two to three years. However, if there is any equity in a bankrupt's home or other assets, they will usually be sold to repay debts.
Bankruptcy Order - A way of dealing with debts that cannot be paid. Bankruptcy proceedings free an individual from overwhelming debts. The official receiver is responsible for the administration of bankruptcies.
Bankruptcy petition - A formal document, usually issued by the debtor himself/herself or by a creditor, which is submitted to the court in order to obtain a Bankruptcy order.
C
CAIS (Credit Account Information Sharing) - CAIS refers to the credit account information held by Experian. Lenders provide information on accounts held with their customers. In return, lenders can view the same level of information when they make a search of our records during an application for credit. For example, banks that provide only information on accounts with a history of arrears can view only defaulted and delinquent accounts.
CCA (Consumer Credit Association) - The CCA is a professional body representing the interests of small companies in the credit industry.
CCA 1974 - Consumer Credit Act 1974 - the act of parliament which regulates credit in England and Wales. This Act is supplemented by various reulations (mainly published in 1983) and the CCA 2006.
CCA 2006 - Consumer Credit Act 2006 - a major amendment to the CCA 1974. Charging Order - an order of a court that a charge be placed on a property so that, when it is sold, the first part of the proceeds of the sale go to pay off an outstanding debt. A charging order effectively turns an unsecured loan into a secured loan. The existance of a charging order is noted on the deeds of the property in question. The Charging Orders Act 1979 allows creditors with a high court judgemnet or county court judgment the ability to secure the debt to assets. A charging order can't be made unless payments have been defaulted on a CCJ.
Charge for Payment - A document served in Scotland, where the debtor has been ordered to pay an outstanding debt within a given timescale. Similar to a County Court Judgement in England and Wales.
CRA - Credit Reference Agency - one of several companies who maintain records of debtors' history of payments, etc.
Credit - the loaning of money.
Credit Agreement - an agreement (contract) between a creditor and debtor to loan money.
Credit Card - a credit token as defined in the CCA 1974.
Creditor - someone lending money. A person or company whom lends you money (usually a bank, building society or credit card company).
Credit Record - the record of a debtor held by Credit Reference Agencies.
Credit File - A file held by authorised companies with financial history regarding credit applications and credit you have obtained.
County Court Judgment - CCJ - A judgement issued by the court in order for you to make payments to a debt you owe when you have failed to keep to an original agreement with the lender and not made any attempts to come to an agreement for repayment.
Contractual Payments - These are the payments you agreed to pay each month when you signed the credit agreement. Failing to make the contractual payments can lead to arrears and this can affect your credit rating.
Company Voluntary Arrangement - This is the equivalent to an Individual Voluntary Arrangement, but for businesses. It allows any financial problems to be overcome with the creditor's consent so that the business can continue to trade.
Certificate of Satisfaction - A county court document confirming a judgment has been satisfied (paid in full) or set aside (removed from the public record because it was paid within one calendar month). A fee of £10 is required.
Citizens' Advice Bureau. - CAB - A voluntary service provided in most major towns which offers free advice to individuals on financial and other matters.
D
Data controller - the person nominated by a company in accordance with the provisions of the Data Protection Act 1998 to be responsible for the keeping of personal data
Debit Card - a card issued by a bank that allows money to be drawn or purcahes made but with the entire balance being due at the end of each month. Debit Cards are not regulated by the CCA 1974.
Debt - the borrowing of money.
DCA - Debt Collection Agency - a company specialising in collecting defaulted debts. They can either operate on behalf of a creditor or can have the debt assigned to them, in which case, they become the creditor.
Debtor - An individual or company that owes debt to another individual or company (the creditor)
Default - the status of a debt when repayments have been missed.
Defaulted account - This is an account for which you have not kept to a credit agreement and the relationship between you and the lender has broken down. The lender has terminated the credit agreement. A record of these accounts is kept for six years from the default date. Default Notice - A notice in a specified form required under s87 of the CCA1974 before a creditor can take certain actions to enforce a credit agreement. The exact format of default notices is specified in the 1983 regulations. A default notice is a formal letter a lender sends you when you are so far behind in your payments that they have decided your relationship with them has broken down. This varies from lender to lender but generally happens when you are between three and six months in arrears. If you receive a default notice it might mean that the lender is planning to take legal action to recover the money, but you must be notified separately of this. A default notice will almost certainly mean that the account will be shown as defaulted on your credit report, which will make it difficult for you to get credit. This information is kept on your report for six years but the balance should be updated as you make repayments and after six years it is removed, whether or not you're fully paid up.
DMP - Debt Management Plan - a plan agreed with creditors for paying off debts by installments, for example one organised by a Citizens Advice Bureau or the Consumer Credit Counselling Service.
E
Earnings Arrestment - The Scottish equivalent to an Attachment of Earnings Order. Where the court can order monies to be deducted from the debtor's wages to repay an outstanding debt.
Electoral roll - The electoral roll is a list of the names of all people registered at an address who are entitled to vote. Lenders use this information to check the identity of those applying for credit.
Equity - This is the difference between the value of the mortgage against a property and its current market value. If the sum of all loans secured on a property is greater than the market value, this is known as negative equity.
Ex Parte - This is a term used when legal proceedings are brought by one person in the absence of and without representation or notification of other parties.
F
Final Discharge - A finial discharge will be posted to you to show the end of your bankruptcy. This document will mean you are free from debt and the bankruptcy is over.
Fraud - Deliberately deceiving someone with false information about yourself in order to gain an advantage (usually financial).
G
Guarantor - When a person has assured the creditor that the debtor will make the repayments. If the debtor fails to make the payments the guarantor will be liable for them
Guarantee - An agreement made by one person to pay a creditor on behalf of another should that other person default
H
Harassment - a criminal offence defined by the Protection from Harassment Act 1997
Hire-purchase - an agreement whereby a company leases goods to a customer and the ownership of the goods passes to the customer at the end of the lease period.
Hire-purchase agreement - an agreement, regulated by the Consumer Credit Act 1974 , to enter into hire-purchase arrangement.
I
Income Payments Order - In Bankruptcy, the Official Receiver or Trustee can apply for an Income Payments Order if they feel that the debtor can afford to make a regular contribution into the bankruptcy, which would then be distributed for the benefit of the creditors.
Informal Arrangment - This is the simple term for arranging reduced payments to your creditors without the assistance of a third party.
Information Commissioner's Office The Information Commissioner's Office regulates the work of credit reference agencies and lenders. If an individual believes that a lender or a credit reference agency has not fulfilled their legal obligations they may request that the Information Commissioner investigates the matter on their behalf.
Insolvency - Having insufficient funds to meet all debts, or being unable to pay debts as and when they fall due.
Insolvency Practitioner - A person who specialises in insolvency - they are recognised by the appropriate board and are fully qualified to deal with your insolvency.
Interest - a percentage charge added to a loan. (see Interest tutorial)
IVA (Individual Voluntary Arrangement) - (Usually) a 5 year formal arrangement with your creditors. A monthly payment is made during the term and the debt is discharged at the end of the term. All interest and charges are prevented from accruing and an affordable monthly payment is made into the arrangement. It is a private and legally binding arrangement, offering a realistic option for people with larger debts. Voluntary Arrangements are an alternative to Bankruptcy. If an individual has accrued a number of debts, they can enter into a Voluntary Arrangement, which is administered by the County Court or a Licenced Insolvency Practioner. It means that a repayment plan has been agreed with creditors.
J
Joint and Several Liability - When you take out a credit agreement, such as a loan or overdraft in joint names (with another person) then you are both liable for the full amount of any debt. (Credit cards are not normally in joint names, although you may have two cards, only one person will be the account holder). This means that if one of you fails to repay the debt (this can occur following divorce or separation) then the creditor could still ask the other for payment of the full amount (you are not just responsible for your "half" of the debt).
L
Lender - A person or company whom lends you money (usually a bank, building society or credit card company).
Levy - When the bailiff retrieves payment or goods to raise the sum on the warrant and costs. Notice of this comes 7 days before the bailiffs arrive.
Liabilities Orders - This order follows non payment of council tax 28 days after due date. A court summons is issued and not paid within the time a liability order is issued. It allows authorities to make arrangement for the arrears to be paid by deducting it at source, from wages or benefits. A liability order enables a Council to do one of three things:
- Instruct bailifs to recover enough property from your home to cover the debt
- Deduct the amount you owe directly from your earnings
- Declare you bankrupt
Liquidation (Winding Up) - When a business/company is terminated or made bankrupt, all company assets are sold off and the proceeds go to pay the creditors. Any remaining money is distributed between the shareholders.
N
Notice of Assignment - see Assignment Notice
O
Official Receiver - The Official Receiver (or Trustee in Bankruptcy) deals with the administration for the bankrupts. They will normally carry out an interview of the bankrupt and it is ultimately their decision as to whether assets should be sold for the creditors benefit.
OC - The Original Creditor
Order of Discharge - The terms of a Bankruptcy have been met.
P
Pro -Rata - This means "in proportion to." For example, if you owe Barclaycard £100, HSBC £900 and have £100 to pay them each month, the pro-rata payment to Barclaycard would be £10 per month and £90 per month to HSBC.
Property Restriction - During an IVA a creditor may put a restriction on your property. Usually the restriction will only apply during the time of the arrangement.
Proof Of Debt Form - A form the creditor can submit to state their claim in an IVA or bankruptcy. (See Assignment Notice also)
Proxy - Creditors rarely attend creditors meeting; they assign a proxy to attend and vote on their behalf.
R
Right To Offset - When you have fallen into arrears with payments to a credit card or loan and you also hold a current account with the same company, they can use the "Right to Off-Set" to take funds from your current account (without your permission!) to bring the debt repayments back up-to-date. The right can also be used to bring an overdrawn current account back under it's overdraft limit by moving funds from the customer's savings account, if such exists.
Repossession - Members of the Council of Mortgage Lenders record information on customers who have given up their homes or had them repossessed.
S
Secured Debt - Money borrowed that is secured on an asset, i.e. house, car or furniture.If terms of payment are not kept to, the lender may demand the monies back by the sale or return of the asset that money was secured on.
Secured Loan - a loan taken out secured on a property (a house or car for example). If the debtor defaults, then the creditor can take possesion of the security to repay the loan.
Statutory Demand - A statutory demand is a legal document requiring the debtor to pay an outstanding debt in instalments or as a lump sum, or to secure it against a property. The debtor has 21 days to pay. After that a bancruptcy petition may be issued.
A statutory demand requires that the debtor either:
- Pays the relevant amount
- Offers to secure it against property
- Offers to repay the debt in a way that is satisfactory to the creditor. For example, by instalments.
Some creditors use statutory demands as a way of persuading debtors to pay off the debt, usually by borrowing elsewhere.
However, statutory demands should be taken seriously. After 21 days the creditor can petition for a bankruptcy order. Therefore, it is usually worth contacting the creditor by telephone and asking them what their next step will be.
Ignoring a statutory demand may encourage the creditor to petition for bankruptcy. It is worth bearing this in mind, particularly if the debtor is contemplating petitioning for his own bankruptcy.
If the debtor wants to avoid bankruptcy he should consider:
- Making payment(s) to reduce the debt to less than £750; or
- Making an offer to pay by instalments; or
- Making an offer of a reduced amount in settlement of the debt; or
- Applying to have the statutory demand set aside
Subject Access Request - a request made to a data controller for information held on an individual (the subject) under section 7 of the Data Protection Act 1998
Surplus Income - This is the amount you are left with if you subtract all your living expenses (housing costs, food, travel, clothing insurances etc.) from your incomes (wages, pensions, benefits etc). This is the amount of "surplus income" available for the creditors.
T
TCC - Total Cost of Credit - the total of arrangement fees and interest added to the loan amount.
Time Orders - Permits the court to make changes to the consumer credit agreement, very useful if the creditor won't freeze interest or agree to the payments. A Court has the power to reduce the monthly payments and interest on your loan. However, the Court may only agree to do this if the debtor is in temporary financial difficulty and intends on returning to the original repayment terms once this difficulty is relieved
Token Payments - When you are unable to make repayments to your creditors, it may be necessary to make small "token payments" to each creditor. This may be as little as £1.00 each per month, but it is better to send this "token payment" than send nothing at all.
Transactions at an Undervalue - If, prior to bankruptcy proceedings, a debtor attempts to transfer an asset (such as a property, vehicle or expensive item) into the name of a family member or friend, in the hope that it will be excluded from the bankruptcy estate, the Official Receiver or Trustee can examine the debtors previous finances (up to 10 years prior to the bankruptcy) to establish if the asset was transferred for less than the market value. For example, if the debtor had sold a property to a friend for £1.00 and then attempted to go bankrupt 8 years later, with the hope of regaining the property once the bankruptcy had been discharged, the OR can apply to have the property sold and any equity realised for the benefit of the creditors. This is known as a "Transaction at an Undervalue".
Trustee - Either the official receiver or the insolvency practitioner who will take control of the selling of assets during an IVA or bankruptcy.
U
Unsecured Loan / Debt - a loan taken out with no security (see Secured Loan)
V
Variation Order - When a CCJ has been ordered but due to unforeseen circumstance the debtor can't pay it, an application to vary the payments can be done by using the form N245.
W
Warrent Of Execution - When debtors have failed to pay the CCJ and no variation orders have been made, bailiffs can go to property and acquire goods to the value of debt.
Windfalls - Any assets that come about during an IVA or bankruptcy will go towards repaying the debt.
