There are words and phrases within the debt world which can be confusing and difficult to understand. We have created a frequently asked question (FAQ) debt glossary based on queries people in debt have asked in the past, in order to explain what each word or phrase means.
An Administration Order is where a County Court administers payments to all your creditors. This applies if you have at least one CCJ against you and the total amount of your debt does not exceed £5,000. One payment is made to the court and the court splits these payments between all of your creditors according to how much they are owed. As long as you have an order in force, creditors cannot take further enforcement action against you and all interest is stopped.
Accountant in Bankruptcy regulates all insolvency solutions in Scotland including Protected Trust Deed,Bankruptcy, Sequestration, DAS (Debt Arrangement Scheme), LILA (Low Income Low Asset) and Certificate of Sequestration.
This means it is cancelled.
This is the legal term which means you are unable to pay your debts and that at least one ofyour creditors has taken legal action against you.
Annual Percentage Rate (APR) is the figure which incorporates the interest rates of the loan and any charges which are incorporated into the loan, for example, administration fees, compulsory insurances etc. The APR allows consumers to compare interest rates with different companies. Over the allocated period of time the credit deal withthe lowest APR rate is the cheapest one.
Is the term which is used when you do not meet the contractual payments to your household bills for example mortgage, rent or council tax etc. You can also be in arrears if you don't keep up your payments to any unsecured debts. Failing to keep up payments will result in arrears accumulating and you will need to pay an additional amount as well as your contractual payment until the arrears are settled.
This is where things that you own have a monetary value that you could sell. Assets include things like ahouse, car, caravan, shares, stocks or savings.
An assignment is where a creditor sells on your debt to another company after they have tried to settle the account with you. This is not to be mistaken with a creditor passing the debt to a debt collection agency that is acting on behalf of the creditor.
Deductions could possibly be taken from your benefits if you fail to keep up repayments after a County Court Judgement (CCJ) has been issued by the court. The rate is 5% of the personal allowance for asingle claimant aged 25 and above. The attachments of benefits will cease once the debt has been paid.
This happens when you fail to pay a creditor even after having been ordered to do sothrough a CCJ. The creditor will then go back to court to get money taken directly from your wages. The court will decide a reasonable amount to deduct from your wages. (Attachment of Earnings Orders for Council Tax is dealt differently through the Magistrates Court).
If you do not pay a CCJ once it has been granted then the company can use bailiffs to enter your home to remove goods to cover your debt and these items will be auctioned off.
The legal term that allows your debt to be written off and this is one of the way to deal with debts you cannot afford to pay. It is damaging for your credit rating.
The Bankruptcy Order is the system by which debts which cannot be paid are processed.
A Bankruptcy Petition is issued by the debtor or by their creditor to the court in order for theBankruptcy Order to be granted.
This is a Scottish legal term that gives a debtor 14 days to pay their debt or the creditor can then take action, if this is received then they can use this for Apparent Insolvency. This is similar to a CCJ.
If you default on a CCJ then a charging order can be served. This allows them to secure the debt onan asset for example, a house.
Once you sign a credit agreement you commit to make regular payments set out in your agreement. By failing to keep up with the payments you will be in breach of contract. This could have an adverse affect on your credit rating.
This is where a court awards a judgment as you have not kept up your payments to a debt and not made any attempt to reach an agreement with your creditor.
You will receive this form to let you know a creditor is going to be making legal action against you. Should you choose to ignore this then you will be asked to pay the whole amount straight away.
The credit card is a popular form of payment for goods.
This shows your credit history including applications made for credit, this file is held with credit reference agencies. Your credit file can be damaged by defaults on your record.
These agencies gather all the information regarding people's credit score and creditrelationship and creditors will use the information to determine if they wish to issue you with your application forcredit. The major credit reference agencies are Experian, Equifax and Call Credit.
A creditor is the people you borrow money from.
You can enter a DAS by speaking to an approved money advisor, typically from your local authority. This solution was set up by the Scottish Government. You will pay back the full amount within aset time period usually no more than ten years and if you own your home then this will be protected under the scheme. Interest and charges are also frozen. This solution is for people living in Scotland only.
These companies will be hired by creditors to pursue you for money owed. These companies do not have any additional powers so they can be treated like any other form of unsecured debt.
Is the person or persons who are in debt.
A debt management plan is an informal agreement made with your creditors.
A route into Bankruptcy which is cheaper and easier than traditional bankruptcy. You must meet qualifying criteria for the DRO.
This is a legal order meaning you need to repay money to your creditor. This will usually be followed by court action for example: Up to £750 - small claims; £750-£1500 = summary cause; £1500 + an ordinary claim. Thisis granted in Scotland.
A creditor can apply to take ownership of a property and this would happen if the case is found in their favour through the Court of Session.
A creditor will issue a default notice if you miss a payment and break the terms of your creditagreement. The notice will include details of the breach and how you can rectify this. The notice could include if there is any compensation and how long you have to rectify the matter.
This would be your children or any other person you care for that would rely on you for living requirements as they usually do not have their own source of income.
This is the amount of money you have left after you take away all your living expenses from your take home pay (income).
A court will make this ruling so that a company can deduct money from your salary until the debt is paid off. This term is only applicable to people living in Scotland.
The amount of money left after you deduct your outstanding mortgage balance from the current house price.
Everything you own will form your estate and will also include goods or money you may receive.
This is the document you will receive once your bankruptcy ends. You will then no longer owe the remaining debt and your bankruptcy will be at an end.
Financial Services Authority.
This is the abbreviation for a full and final settlement.
Some companies may require someone to act as a guarantor and this person would become liable for the debt should the debtor not make the agreed payments.
This is where a customer will pay for something but will not own it until after the payments have been made. This is most likely a car but it can be other items also.
This is when the person in debt speaks to a creditor and they agree to reduced payments for aperiod of time.
When a person is not able to pay debts as and when they fall due or do not have enough available funds to pay all debts. Insolvency solutions include bankruptcy, sequestration, trust deed and iva.
An accountant who specialises in insolvency and have a licence to practice. This person must have the appropriate qualifications and be regulated to manage people in an insolvency situation.
An agency of the Department of Trade and Industry which administers the affairs of bankrupts in England and Wales.
The Interest is a charge added to the majority of loans and other financial products such as credit cards.Typically you will see this as your APR.
The court will appoint this person to deal with your estate until a permanent trustee is appointed.
This is the abbreviation for an Individual Voluntary Arrangement. The IVA is a debt solution available to people living in England, Wales and Northern Ireland for people who are insolvent.
Where more than one person has signed the credit agreement.
The company or person who lends money.
This is the abbreviation for Low Income Low Asset sequestration. This solution is only available to people living in Scotland.
This is secured against your house until it has been paid in full. This is also known as a First Charge. If you do not keep up the payments to your mortgage then you could lose your home.
This is you asking your creditors for a short term holiday break from payments. This may begranted if it can be demonstrated that something short term or unforeseen has happened (e.g. loss of job).
This is when the outstanding mortgage amount is more than the current market value.
The nominee is an Insolvency Practitioner (IP) who carries out the preparation of documentation to take it to the creditors for an IVA prior to being accepted. If accepted, typically the nominee will become the supervisor.
The Official Receiver deals with all the administration for all of the bankrupts in the UK. They will carry out an interview of the bankrupt and it is their decision whether the bankrupt assets are to be sold for the benefit of their creditors. The Official Receiver also deals with compulsory company liquidations.
Is Great Britain's consumer and competition authority. This protects all customers from any company that has bad business practices. OFT stands for Office of Fair Trading.
Is a formal application made to the court.
The form used by any of your creditors to make a claim for them to be included in an IVA or Bankruptcy and receive a percentage of the available income.
This is where a creditor will get a restriction on your house. This typically applies to the entire duration of any arrangement.
A voluntary agreement covered by the Bankruptcy in Scotland Act allowing you to put aproposal to your creditors and if it is approved, it enables you to pay your debt in an efficient and affordable manner.This typically will last three years but could be extended. See our Protected Trust Deed section for more information. This debt solution can only be set up through a Licensed Insolvency Practitioner. This debt solution is only available to people living in Scotland.
You need to owe a minimum amount of £1500 in unsecured debt. This can also be made up of anumber of creditors to the amount of £1500.
This is where a court can order for the control of your assets to be placed under the authority of an Official Receiver.
This will happen if a creditor fails to recoup money from you then repossession is possible. The company will regain the item that has been sold to a debtor and this will be used for either full or part payment of a debt owed to them.
If you have a credit card and a current account with the same company it means they can use this to take money from your current account if you fall behind on your credit card. The lender does not need your permission to do this. This is to bring the account back in line.
This is basically a secured loan against your property. Should you come into difficulty in paying this loan the company can look at repossessing the home. The mortgage company will have a first charge so if the house is sold they would get all money owed to them. The second charge will then come into force and any remaining funds from what is left over from the sale of the house would then go to them.
This is where money is borrowed against any asset whether it is a home, vehicle or even furniture. If the terms of the contract is broken they could repossess the item(s).
The legal term for Bankruptcy in Scotland is sequestration. This is one of the ways you can deal with debts if you are unable to maintain credit agreements. This is a solution for people based in Scotland only.
There are alternatives to Sequestration including a Protected Trust Deed, Debt Managment Plan or Debt Arrangement Scheme.
If you do not keep up with your rent agreement, or if your rent is unpaid, the landlord can raise this action against a tenant for the unpaid rent. This is different from formal sequestration or bankruptcy. Scotland Only
This is where local authorities can get a court order for unpaid money owed to them. This is used for unpaid taxes or rates.
An Insolvency Practitioner (IP) who has been appointed to look after the IVA.
This is basically the same as Disposable Income.
This is used to vary a consumer credit agreement. This could be used to freeze any interest on your agreement.
You can pay token payments to a creditor if you are finding it hard to make the contractual payment. Your payments could even be as low as £1 per month. By making this commitment you are showing you still want to satisfy your debt but at present don't have the available funds to repay what you originally agreed to.
A Trust Deed is the shortend name for a Protected Trust Deed and is a voluntary agreement covered by the Bankruptcy in Scotland Act allowing you to put aproposal to your creditors and if it is approved, it enables you to pay your debt in an efficient and affordable manner.This typically will last three years but could be extended. See our Protected Trust Deed section for more information. This debt solution can only be set up through a Licensed Insolvency Practitioner. This debt solution is only available to people living in Scotland.
The Trustee is the person in an insolvency solution that takes control of your assets. This can be done by the official receiver or by an insolvency practitioner. The main duties include the disposal of any assets that you have and also the distribution of monies amongst all the creditors. A Trustee would be required for solutions such as a Protected Trust Deed or Sequestration.
These debts are not secured on any property or assets. Typical unsecured debts are credit cards,store cards, personal loans and catalogues etc.
This is when you have a CCJ, and you are unable to pay this due to unforeseen circumstances then an application to alter the payments could be made.
Using this warrant a bailiff can gain access to a property and acquire good to the value of debt. This would normally happen is somebody in debt fails to pay a CCJ and no variations have been made.
A windfall is money you come into e.g. winning the lottery or inheriting money from family.