Debt Glossary

A

Abandonment

Abandonment is the voluntary relinquishment of ownership.

Add on Interest

Add on interest is a method of charging interest. Interest is computed on the total amount borrowed and added on.

Administration order

An Administration Order is a court order which deals with outstanding debts. Under an administration order, a monthly payment would be made to the court who would then distribute that money amongst your creditors. For administering this order the court will deduct a fee if 10% from your monthly payment to cover their costs. Whilst the order is in place, no creditor is allowed to take action against you, and debt collection procedures and letters will be stopped.

Amortisation

Amortisation is repayments of debt in equal instalments of the original sum borrowed and interest.

Annual Percentage Rate (APR)

The annual percentage rate is the yearly interest percentage of a loan, as expressed by the actual rate of interest paid.

Arrears

when a payment is made after it is due, the amount due is called arrears.

Arrestment

Arrestment means that money or goods held by a third party are 'frozen'.

Asset

An asset is a physical item that holds monetary value. For example an asset could be a property, a vehicle, cash, stocks and shares or other items.

Attachment

means that goods held by the person in debt, e.g. a car, are 'frozen'. Anything that has been frozen ('attached') can be sold.

B

Balance

The amount of money in an account, equal to the net of credits and debits at that point in time for that account is a balance.

Bankruptcy

Bankruptcy is a form of insolvency where assets are seized and sold to repay debts outstanding, before they are cleared. A person can become bankrupt in 1 of 3 ways. Voluntarily by declaring themselves bankrupt when realising all other options have been exhausted, Involuntarily by creditor whose debt has not been paid, and by a creditor who has agreed to an IVA arrangement, however the client has not kept to the terms of this.

Bank Charges

Fee's charged by banks to those who have either failing to pay, going overdrawn or for services the bank provides at a price.

Bailiffs

Bailiffs Act as debt collectors and carry out debt recovery on behalf of the creditor.

Bankruptcy petition

A bankruptcy petition is a document filed with the courts which petitions for a bankruptcy order to be made.

Beneficial Loan

A beneficial loan is loan made by an employer to an employee on which interest is either not charged or is less than the official rate.

Beneficiary

The Person who is entitled to receive the funds of an asset such as property or an insurance policy for example.

Benefits

Benefits are paid to you by the state and include income support, child benefit, job seeker's allowance, disability benefit, housing benefit, and council tax benefit.

Binding

For example, an agreement, which is binding cannot be legally avoided or stopped.

Budget

A list of all your income and expenditure is a budget or budget planner.

Budget deficit

A deficit is the gap between income and outgoings.

Building Society

Building societies are 'Mutual' non-profit-making institutions, originally set up to lend money to their members for house purchase, now supplying other services. Building societies are 'mutual;' because they are owned by their members, and their members are entitled to their profits and benefits.

C

CCJ's County Court Judgements

CCJs are judgements issued by the court when you are found to have failed to adhere to the terms of a credit agreement. It is possible to receive a CCJ on any unsecured loan and it involves a creditor taking County Court action against you. - The Court will then decide whether you owe money or not and, if so, will determine a payment scheme for you to repay it. This decision is what is referred to when people speak of County Court Judgements.

Citizens advice bureau

An facility available in most districts in the UK, where the public can obtain free advice on an extensive range of civil matters including social security, consumer matters such as loans and rental arrears, employment, housing matters such as mortgage and rent arrears, legal matters such as legal aid, family matters, taxation and many other subjects.

Creditors

Creditors are the person or company who are providing credit and thus owed funds by another the debtor.

Claims

Legal or moral entitlement or permission.

Company bankruptcy

Companies can enter into bankruptcy if they fail to pay debts as they fall due. The company may be made subject to liquidation, receivership or an administration order issued by the courts.

Compensation

The financial compensation recoverable by reason of another's breach of duty; the money paid or awarded to a plaintiff

D

Debt

Means any money that is owed or due to someone else.

Debt consolidation

Debt consolidation is the replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period. It can also be called a consolidation loan.

Debt management plan

A debt management plan is a method used for debts that are becoming out of control in the sense that payments are late and those due are taking a large a portion of income, or even exceeding it. The plan involves noting all the debts, assessing income and budget, and re-negotiating interest rates and payments with the lenders, this is typically done via a debt management company.

Debtor

A debtor is an individual who owes money to another person or company.

Deduction

An expense subtracted from gross income when calculating taxable income, such as for taxes paid, charitable gifts, and certain types of interest payments.

Default notice

This is a letter reminding a debtor that they haven't paid their debt. This must be issued by a creditor in respect of debts covered by the Consumer Credit Act 1974 before any further action is taken.

Demand

The lender's statement of the amount due to pay a loan.

Death Benefit

The payment made to a beneficiary from an annuity or policy when the policyholder dies.

Direct debit

An instruction you give to your bank or building society permission to make regular payments from your account to a specific company. Unlike a standing order you agree that the creditor can vary this amount each month.

Disclaimer

A statement made to free oneself from responsibility.

E

Earnings arrestment

If you are working, the money you owe to a creditor can be taken from your wages/salary directly from your employer by an earnings arrestment.

Endowment policy

An endowment policy is an investment vehicle and comes in various forms, over a range or terms, commonly used as savings vehicles for mortgages.

Entitlement

Benefits guaranteed to an individual, such as dividends for shareholders or government aid for those who qualify.

Equity

The value of a person's interest in real property after anything owing in debt and charges have been deducted.

F

Fee

A charge for services rendered

Final Salary

The basis of determining a person's pension entitlement in a final salary scheme and which normally refers to an occupational pension

Finance

The funds necessary to purchase something, this may be provided by a third party.

Funds

A pool of money normally set apart for a purpose, for example, a pension fund to provide pensions.

G

Grace period

The period, normally 30 days, during which an insurance policy remains in force even though the premium has not been paid.

Grant

Funding for a non-profit organisation, usually for a specific project.

Gold Card

A plastic payment card which normally allows the holder higher spending limits over the standard card. Also loan facilities are sometimes available. People who hold such a card are often required to be earning a minimum salary level. Gold cards are usually either charge cards or credit cards.

Grantee

One to whom a grant is made.

Gross Income

The total income of a person before deductions. This for example could be a person's salary plus bonuses, plus benefits in kind (e.g. company car and medical insurance) plus income from shares etc.

Guarantee

A commitment made by a person to be answerable for the debts or liabilities of another.

Guarantor

The person who has provided that guarantee

H

Hidden asset

Asset not immediately apparent from a balance sheet.

High equity

A mortgage which is low in comparison to the value of the property.

Hire purchase (HP)

The pre-agreed purchase of an asset where the asset e.g. computer is in your possession as long as repayments are kept to. Once enough payments are made, the asset becomes your property.

Holder

A person in possession of a negotiable instrument such as a bill of exchange or promissory note. That person may be the payee or the endorsee. Or a person who has made an opening purchase of an option and thus has acquired the rights to them.

I

Incapacity benefit

Incapacity benefit is a state benefit payable after the expiry of state sickness benefit if a person is still unfit to work.

Income tax

An income tax is a tax levied on the financial income of people, corporations, or other legal entities.

Inland Revenue

The government department responsible to the Treasury for the collection of direct taxes which include income tax, capital gains tax and inheritance tax.

Interest

The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as a percentage rate of the amount borrowed. The rate is dependent upon various factors.

Interest Rate

The percentage rate at which interest is charged on a loan or paid on savings etc.

Iva – individual voluntary arrangement

IVA is often an alternative to bankruptcy and was established by the Insolvency Act 1986 and constitutes a formal repayment proposal presented to a debtor's creditors via an Insolvency Practitioner.

Investment

Process of exchanging income for an asset that is expected to produce earnings at a later time.

J

Joint

Refers to multiple parties on the same side of an agreement or transaction.

Joint account

Typically a bank account in the names of two or more people.

Joint liability

The legal liability of two or more people for claims against or debts incurred by them jointly.

K

L

Late charge

A charge imposed by a lender to a borrower when the borrower fails to make payment on the due date.

Lease

A contract in which the legal owner of property or other asset agrees to another person using that property or asset in return for a regular specified payment (known as rent) over a set term. Other items such as cars and computers are often leased for business purposes.

Lender

A person or company that offers to lend money to a borrower for a given period of time. The borrower is obliged to repay the loan either by instalments or single payment together with specified interest.

Liability

The debts of a person or company

Liability Insurance

Insurance against legal liability to pay compensation and court costs where the insured has been found negligent in respect of injuries sustained by another person or damage to his/her property.

Life assurance

An insurance policy which, in return for the payment of regular premiums, pays a lump sum on the death of the insured.

Liquid Assets

Cash and other assets which can readily be converted into cash.

Limited (LTD)

'Ltd' after a company name indicates that the company is privately owned with 'limited liability' status. This means that the directors of the company are not liable for the company's debts if it goes bust.

Loan

An advance of money from a lender to a borrower over an agreed period of time.

Loan Account

An account, opened for a customer by a bank, following the granting of a loan. The amount of the loan is credited to the customer's current account and similarly debited to the loan account. An arrangement is subsequently made for the customer to repay the loan, usually over a stated period of time, with interest additionally being paid on the outstanding amount.

Loan ratio

The ratio, expressed as a percentage, of the amount of a loan to the value or selling price of the property. The term is also know as Loan to Value Ratio.

Loan Sharking

Charging an illegally high interest rate on a loan.

Lower earnings limit

The level of income at which employees start to pay Class 1 National Insurance contributions.

Lump Sum

A sum of money paid in a single instalment.

M

Maximizing income

Increasing the use of the amount earnt.

Mortgage

A loan in which the borrower (the mortgagor) offers a property and land as security to the lender (the mortgagee) in exchange for capital to purchase the said property and land until the loan is repaid.

Mortgage Broker

A person or company engaged in the arrangement of mortgages for buyers. The broker is usually paid a commission by the lender.

N

National Debt

The total debt accumulated by a government through the issue of government bonds, Treasury bills and Treasury notes. The government has to pay interest on its borrowings, and this obligation is one of the major budget items for many governments.

National Insurance

A form of taxation, payable by employees, employers and the self employed, which is to fund state benefits including pensions, sickness, unemployment and maternity. It is part of the state's social security system and ultimately controlled by the Department of Social Security.

Negative equity

A situation where the purchaser of a property has taken out a mortgage and some time after the purchase, the value of the property falls below the mortgage amount, the difference between the mortgage balance and the value of the property is known as negative equity.

Net - after deductions

An amount of money e.g. income you take home after income tax, national insurance contributions, payments towards a pension scheme or any other deductions have been taken out.

Net assets

Total assets minus total liabilities of an individual or company.

Nominee

The person, bank or brokerage in whose name securities are transferred.

O

Ombudsman

Ombudsmen do not have any formal power to reverse decisions but they have substantial moral authority over companies or national or local government agencies.

P

Pass book

A book of recorded transactions in a savings account, issued by banks and building societies.

PAYE - Pay as your earn

People who earn income from employment or who receive a pension are liable for income tax under the PAYE system.

Pension

A savings vehicle for retirement. The main types of pension are state and stakeholder.

Personal allowance

Tax allowances are concessions by the Inland Revenue which can be used to reduce a person's Taxable Income.

Personal Equity plan

A plan where people over the age of 18 could formerly invest in the shares of UK and other EC companies via an approved plan manager or through qualifying unit trusts and investment trusts and receive both income and capital gains free of tax.

Personal Income

Personal income is a person's total income which includes salary, and other forms of income.

Personal Loan

Loans available from banks and other financial institutions to private individuals for personal use such as consumer goods.

Personal bankruptcy

an individual, sole trader or partnership is formally declared bankrupt by the court (ie they cannot pay their debts) and that the debts and assets of a person should transfer to an appointed trustee.

Priority debt

Priority debts are those where serious action can be taken against you if you default upon them, these include mortgage or rent payment, tax and utility bills.

Power of attorney

A document which authorises a person to act on behalf of another is a power of attorney.

Privatisation

The sale of government-owned equity in nationalised industries or other commercial enterprises to private investors is the act of privatisation.

PPI – Payment Protection Insurance

Type of insurance that provides an income to maintain a borrower's debt repayments in the event of an accident or sickness that prevents them from working, or unemployment.

Q

Quick assets

Cash and other assets which can or will be converted into cash quickly.

R

Rebate

A return of money paid.

Recovery

Receiver

A person appointed by a court to finalize the affairs of a company and to utilise assets to pay its creditors

Re mortgage

To re-mortgage is to arrange finance for a property which is already mortgaged either with the same company or another.

Repossession

To take back goods or property from a buyer who has failed to keep up payments on them.

S

Salary

Wages received on a regular basis, usually weekly or monthly.

Savings account

An account with a bank or building society which pays interest on the amount deposited.

Scottish trust deed

Scottish Trust Deeds is a formal, legally binding agreement between an individual who is struggling to pay their creditors, and a licensed insolvency practitioner (the Trustee). Scottish Trust Deeds is a legal process for residents of Scotland with a significant debt problem.

Second Mortgage

A second mortgage is taking out a mortgage or loan which is secured on a property which is already mortgaged. This can be used to raise capital if the property has significantly increased in value and would involve finance companies rather than banks or building societies.

Secured loan

A loan which secured upon an asset, usually property, which gives the lender some security in the case of default.

Self assessment

From April 1996 all taxpayers in the UK are obliged by law to maintain records of their income and all types and capital gains so as to enable annual tax returns to be completed. This is known as Self Assessment. In April each year the Inland Revenue sends out almost nine million self assessment forms to taxpayers.

Sequestration

The Scottish legal term for personal bankruptcy is sequestration. This is where an individual, sole trader or partnership is formally declared bankrupt by the court, and that the debts and assets of a person should transfer to an appointed trustee.

Shortfalls

An amount by which something falls short of what is required

Sole trader

An individual proprietor of the simplest form of business, e.g. a shop owned and run by a single person.

Standing order

An instruction you give to your bank or building society to make regular payments from your account to a specific company. This is a fixed amount unlike a direct debit which can vary.

Surplus income

This means the amount of money which you have left over when you subtract necessary expenditure from your income.

T

Tax credits

Tax you receive back in certain circumstances, e.g. pension credit, child tax credit and working tax credit.

Tax Codes

Under the PAYE system of taxing income, tax codes are allocated annually to employees. These codes enable the employer to deduct tax at the correct rate from salaries or wages on a monthly or weekly basis for the Inland Revenue. Most codes show a number followed by a letter. The number refers to the amount of salary payable free of tax.

Taxable earnings

The amount of an individual's annual income on which tax is payable defined as taxable earnings

Trust deed

A form of debt relief where you're unable to pay your debts but have money tied up in assets, such as a house. Creditors can agree that you give everything you own to a trustee (usually an accountant) and sign a trust deed, which is legally binding. The trustee offers to pay your creditors as much as possible of what you owe them from the value of your assets.

Trustee in bankruptcy

One appointed by a bankruptcy court, and in whom the property of the bankrupt vests. The trustee holds the property in trust, not for the bankrupt, but for the creditors.

Trustee

Usually an accountant (a qualified insolvency practitioner), a trustee acts for the creditors by managing the trust deed when a debtor agrees to sign over their assets into a trust deed or when they are declared bankrupt.

U

Unsecured creditor

A creditor who does not hold security for money owed.

Unsecured Loan

An unsecured loan is a loan where the lender has no entitlement to any of the borrower's assets in the event of the borrower failing to make the loan repayments. Such a loan normally carries a higher interest rate than a secured loan.

V

Value

The worth or desirability of something expressed as an amount of money.

W

X

Y

Z