Debt Glossary

With so much financial jargon and terminology, it can sometimes be a little tricky to understand all the different debt related phrases and meanings. With that in mind, we’ve put together a comprehensive list of the most common debt related phrases and financial terms below.

Abandonment
Abandonment is the voluntary relinquishment of ownership by failure to use the property, coupled with the intent to abandon.
Administration Order
An administration order is an initiative that can help to product you from creditor demands providing that you have atleast one County Court Judgement against you. The CCJ must be less than �5,000 of combined debt, and must be spread across two or more creditors.
The administration order will allow you to make one monthly payment to the court who will then distribute the money on a pro rata basis to your creditors.
Add On Interest
Add on interest is a way of charging interest amounts. Initially, interest is calculated based on the total amount borrowed and then added on to the principal. Each payment made is then deducted from the total amount. In most cases interest calculated on real estate loans is usually done so on the balance owing after each payment is made.
Adverse Credit History
Also known as poor credit history, bad credit history, sub-prime credit history, non-status credit history, and impaired credit history. An adverse credit history is a credit history that shows the individual to have a negative credit history. In most cases a negative credit rating is often considered to be undesirable to lenders and other extenders of credit for the purpose of loaning money and/or capital.
Amortisation
Amortisation refers to payments of debt that are in equal instalments of principal and interest - in contrast to interest only payments.
Apparent Insolvency
pparent insolvency is a term given to individuals who are unable to pay debts with atleast one of the creditors proceeding in legal action.
Annual Percentage Rate (APR)
Annual Percentage Rate or APR is a measurement of interest that is applied to loans and other financial products.
Arrears
An account is considered to be in arrears when the individual falls behind in their contractually agreed payment of debt. Such as a loan, mortgage or utility bill.
Arrestment
Arrestment is a term given to money or goods that have been held by a third party and 'frozen'. The most common cases involve the arrestment of funds from the individuals bank account, which are then inturn handed over to the creditor.
Assets
Assets are items that an individual owns that hold some form of monetary value. This could include their home or any other property, car, savings, stocks, shares or antiques.
Assignment
An assignment is the term used when a creditor sells your debt to another company. This should not be confused with a creditor passing the debt to a collection agency that acts on behalf of the creditor.
Attachment of Earnings Order / Attachment of Benefits Order
Should a creditor obtain a court action against you, and then you fail to keep up to the required payments, then the creditor can further seek to enforce the judgement by obtaining an Attachment of Earnings Order. The Attachment of Earnings Order will instruct your employer to make regular deductions from your salary which will then be used to help any the debt. The money is sent directly from your employer to the court and are entitled to charge an administration fee of �1 for every deduction to cover their costs.
An Attachment of Benefits Order works on a similar principle, deducting money from a debtor�s benefit entitlements.
Average Life
Average life is a term to used to describe the length of time that will pass before one-half of a debt obligation has been retired.
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.
Bailiffs
Should you fail to pay a County Court Judgement then the creditor can instruct bailiffs to enter your property and take goods to sell at auction to cover the remaining debt that you owe.
Bankruptcy
Bankruptcy is a legal process in which the majority of an individual�s debts are written-off (although in most cases the debtor will be forced to give up control of any assets that they may possess, including their home).
Bankruptcy Order
A Bankruptcy Order is the process of dealing with debts that cannot be paid. The official receiver is responsible for the administration of bankruptcies.
Bankruptcy Petition
A Bankruptcy Petition is a formal document, usually issued by the debtor themselves or by a creditor, and is submitted to the court in order to obtain a Bankruptcy order against the individual.
Bankruptcy Restriction Order
A Bankruptcy restriction order is the procedure in which the individual may have a court order made against them or have been given an undertaking which will mean that bankruptcy restrictions continue to apply for a period of between 2 to 15 years.
Personal Bankruptcy
Personal bankruptcy is where 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.
Company Bankruptcy
Company bankruptcy is when a company becomes insolvent. It may be made subject to liquidation, receivership or an administration order issued by the courts
Budget
A list of all your income and expenditure is a budget.
Budget Deficit
A deficit is the gap between spending and revenue and thus the amount that may need to be borrowed.
CDO
CDO or Collateralised debt obligations is a term used in financial markets for a structured credit product which has assets underpinning the security. The product itself is structured in a way as to spread the risk for the investor. CDO's have made a lot of headlines recently due to the large amount of money Hedge funds have made trading them.
Charging Orders
Should payments be defaulted during CCJ then a Charging order may be served. This allows creditors the ability to secure the debt to assets.
Consumer Credit Act
The Consumer Credit Act 1974 is the act of parliament which regulates credit services in England and Wales. Various amendments have since been made to the act, most notably in 2006.
Credit Reference Agency
A Credit Reference agency maintains and monitors records of individual financial histories. These agencies are often consulted by lenders to vet potential customers.
Creditor
A creditor is a party (whether it be an individual, organisation, or government body) that offers credit based services to a debtor. The creditor typically asks for repayment to be made at a later date.
Credit Union
The Credit Union is a cooperative financial institution that is mutually owned and controlled by its members. The Credit Union typically offer services to individuals with a "common bond", such as the place in which they live, their job or even their religion. Credit Unions traditionally exist to help promote responsible financial management and offer competitive products or services to those who may find it difficult to access mainstream services.
Contractual Payments
In signing any credit agreement you agree to make regular contractual payments. If you do not make these payments you will be in breach of contract. This may have an impact on your credit rating.
County Court Judgement
A County Court Judgement (also widely known as a CCJ) is a judgement issued by the court in order for the individual to make payments towards any debt that they owe to a current creditor. In most cases a court will only make a judgement when the individual has failed to keep to an original agreement with the lender and not made any further attempts to come to an agreement for repayment.
Court Claim Form
A Court Claim Form is a document which is sent, to inform the individual that a creditor has instigated legal proceedings. You have 14 days to respond to the claim. Should you ignore this, a judgement will be made to immediately pay the whole amount.
Credit File
A credit file held by credit reference agencies which contains your financial history relating to applications for credit and what you have borrowed.
Citizen's Advice Bureau
Citizen's Advice is a charity that offers free, independent advice on a wide range of issues including debt and financial matters.
Consumer Credit Counselling Service
Currently the largest debt charity in the UK. The CCCS exists to provide free, independent help and support to people in financial difficulty.
Credit Rating
Credit ratings are calculated from financial history and current assets and liabilities. Typically, a credit rating tells a lender the probability of the subject being able to pay back a loan. A poor credit rating indicates a high risk of defaulting on a loan, and thus leads to high interest rates.
Classified Property Tax
Property tax which varies in rate depending on the use of the propertyCredit Credit is an agreement in which a borrower receives something of value now and agrees to repay the lender later.
DAS Administrator
The Accountant in Bankruptcy is the DAS administrator. They are responsible for maintaining the DAS Register which contains details of debt payment programs (DPPs), and for the approval of money advisers, payments distributors and debt payment programs (DPPs).
DAS Approved Money Adviser
A DAS approved money adviser is a general money adviser who has received further training (and been approved by the DAS administrator) to act on behalf of the debtor to negotiate a debt payment program (DPP) under DAS.
Death Benefit
The payment made to a beneficiary from an annuity or policy when the policyholder dies.
Debt Capital
Debt Capital is the capital raised through the issuance of bonds.
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 Equity Swap
A Debt equity swap is a transaction in which existing bonds (debt) are exchanged for newly issued stock (equity). A debt-equity swap can help an individual that is in financial trouble by cancelling some of their outstanding debt.
Debt Payment Program (DPP)
A debt payment program is an agreement under the Debt Arrangement Scheme (DAS) that allows you to pay off your debts over an extended period of time. The program can be for any amount of money or for any reasonable length of time.
Debt Relief
The last resort for a debtor when dealing with debt where the debtor cannot pay their debts - bankruptcy. The debtor will lose control of their assets, possibly including their home and their credit rating will be greatly affected.
Deduction
An expense subtracted from adjusted gross income when calculating taxable income, such as for state and local taxes paid, charitable gifts, and certain types of interest payments.
Diligence Stopper
A court order which stops the operation of existing diligence and prevents future diligence.
Debt Collection Agency
A creditor will hire debt collection agencies to recover money which are in default. They can also sell your debt to a debt collection agency. Unlike Bailiffs, DCA's do not have any additional powers and should be treated as an unsecured creditor.
Debtor
A debtor is an individual or company that is in debt to another individual or company (the creditor).
Default
When scheduled or agreed repayments of a debt have been missed, it is known as a default.
Default Notice
A default notice is a formal letter that a lender sends to you when your account is so far in default that they consider your relationship with them has broken down. This is typically when an account is between three and six months in arrears and a record of this will be held on your credit file for six years.
Deficit
If you earn more than you spend then you are in financial deficit. Reducing your outgoings or increasing your income can assist in a financial deficit.
Debt Management Plan
Debt management plan or repayment schedule agreed with creditors for paying off your existing debts.
DMC
Debt Management Company
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
A permanent fund bestowed upon an individual or institution, such as a university, museum, hospital, or foundation, to be used for a specific purpose.
Entitlement
Benefits guaranteed to an individual, such as dividends for shareholders or government aid for those who qualify.
Equity
Equity is the difference between the market value of an asset, such as a property, compared to the amount of finance that is currently secured on it. If the total sum of any credit secured on a property (such as a mortgage) is higher than the value of the property itself, it is known as negative equity.
Final Discharge
A final discharge is a formal document that indicates that you have completed a bankruptcy and that all debts have been cleared.
Full and Final Settlement
An offer to repay a percentage of the debt, on the condition the creditor agrees to write off the rest of the debt.
FSA
Financial Services Authority
Flexible Mortgage Account
A combined mortgage and current account. Any savings each month earn the mortgage rate, which is a relatively high and tax-free rate of return.
Frozen Account
A bank account whose funds may not be withdrawn until a lien is satisfied or an ownership dispute is resolved.
Funds
A pool of money normally set apart for a purpose, for example, a pension fund to provide pensions.
Guarantor
A guarantor is an individual or organisation that has ensured a creditor that a debt will be repaid. If the debtor fails to meet their obligations, the guarantor becomes liable for the debt.
Hidden Asset
Asset not immediately apparent from a balance sheet.High equityA mortgage which is low in comparison to the amount deposited in cash by the purchaser.
Hire Purchase
An agreement whereby a company leases goods to a customer, with ownership of the goods passing to the customer at the end of the lease period.
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.
Inflation
This is the rise in cost of consumer times over time. Inflation is measures by using the Retail Prices Index, RPI. The RPI is publish each month by the National Statistics Office (NSO)
Income Payments Order
During bankruptcy, a trustee could issue an Income Payments Order if he believes that the debtor can afford to make a regular contribution into the bankruptcy.
Informal Arrangement
An informal arrangement is whereby you agree an alteration to your repayment terms with your creditor without the assistance of a third party.
Insolvent / Insolvency
When a debtor does not have the finances sufficient to service their debt, they are considered to be insolvent.
Insolvency Practitioner
An individual who has recognised qualifications to deal with insolvency issues.
Interest
Interest is a percentage charge that is applied to the majority of loans, mortgages and other financial products. This is usually advertised as the APR or Annual Percentage Rate.
Interim Trustee
Someone appointed by the court to handle your estate until a permanent trustee is appointed.
IVA (Individual Voluntary Arrangement)
An Individual Voluntary Agreement is a formal arrangement between a debtor and his/her creditors relating to the repayment of debts totalling in excess of �15,000. It is widely considered as a more favourable alternative to bankruptcy.
Joint & Several Liabilities
When you take out a credit agreement, such as a loan or overdraft in partnership with another person (such as your partner) then you both become liable for the full amount of the debt. If one party fails to make their payments, any other persons named on the agreement are fully liable.
Lender
A person or company whom lends you money, usually a bank, building society or credit card company.
Liquid Assets
Cash plus assets which can readily be converted into cash.
Liquidated Damages
A definite amount of damages, set forth in a contract, to be paid by the party breaching the contract. A pre-determined estimate of actual damages from a breach.
Liabilities Order
A liabilities order is issued if a council tax debt remains unpaid for a period of 28 days after the payment deadline. It is an application to the court that could allow the council to deduct payment from a debtor�s income or benefits. A liabilities order also enables the council to instruct bailiffs to remove property to the value of the debt or to declare you bankrupt.
Loan
A loan is an agreement between a borrower and a lender that allows the borrower to access a cash lump sum, to be repaid over an agreed period of time. Loans can either be unsecured, where the lender has no form of security in the event of non-payment, or secured against an asset. In this case, the borrower offers an asset, typically their home or car, as a guarantee against non-payment.
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 Policy
A title insurance policy insuring a mortgagee, or beneficiary under a deed of trust, against loss caused by invalid title in the borrower, or loss caused by invalid title in the borrower, or loss of priority of the mortgage or deed of trust.
Loan Ratio
The ratio, expressed as a percentage, of the amount of a loan to the value or selling price of real property. Usually, the higher the percentage, the greater the interest charged. Maximum percentages for banks, savings and loans, or government insured loans, is set by statute.
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.
Money Adviser
Someone who is trained to offer advice both on debt and on increasing your income. A money adviser can help you work out what your options are and, where needed, negotiate affordable payments and set up repayment plans with your creditors.
Money Broker:
A type of agent who arranges short term loans between banks (which are seeking to lend money) and borrowers such as institutions. The money broker is not involved in the process of lending/borrowing but merely acts as an intermediary earning a commission.
Mortgage
A secured loan on your house, sometimes referred to as a fist charge. If you fail to keep up with repayments you may have your house repossessed.
MPC
Monetary Policy Committee. This is the committee which sets the Bank of England interest base rates to try and control inflation.
Mortgage Protection
Term assurance to cover the repayment of a mortgage in the event of the death of the mortgagor during the period of the loan. In the case of a repayment mortgage the capital sum outstanding is gradually reduced over the term of the loan (albeit slowly during the initial years when the majority of the repayments are paying the interest) so that decreasing term assurance would be incorporated in the policy. For an endowment mortgage where the sum assured and the death benefit are at least equal to the amount of the loan throughout the term of the loan, level term assurance would be apt.
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 notionally 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.
Negotiable
The ability to be sold or transferred to another party as a form of payment. Something which is negotiable is transferable by endorsement and delivery. A negotiable instrument could be a check made out to you, because you could endorse it for payment to you or transfer it to someone else as payment to them.
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 deducted, usually by your employer when you get paid.
Obligation Bond
Mortgage bond whose face value exceeds the value of the underlying property, and for which a personal obligation is created to compensate the lender for any costs that may exceed the value of the mortgage.
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. Within financial services, there are different Ombudsmen for banking, building societies, insurance, pensions, and investments. If you have a complaint about your treatment by a financial services company, the first thing you should do is make the complaint directly to the compliance officer or senior management of the company. If the outcome is unsatisfactory, you can then take it to the Ombudsman who will investigate and consider all the facts of the case, and make a recommendation. The company will not always follow the Ombudsman's recommendation, but usually will.
Open End Mortgage
A mortgage permitting the mortgagor to borrow additional money under the same mortgage, with certain conditions, usually as to the assets of the mortgage.
Ownership
Rights to the use, enjoyment, and alienation of property, to the exclusion of others. Concerning real property, absolute rights are rare, being restricted by zoning laws, restrictions, liens, etc.
Open Interest
The net amount of outstanding open positions, either long or short, in a given futures or options contract.
Official Receiver (or Trustee in Bankruptcy)
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.
OFT
The OFT is the UK's consumer and competition authority, protecting consumers from bad practice in business.
Order Of Discharge
A court order that results in the discharging of a bankruptcy.
Partial Release
Partial Release is a mortgage provision allowing some of the pledged collateral to be released if certain requirements are met.
Payment Cap
Payment Cap is the maximum amount for a payment under an Adjustable Mortgage Loan, regardless of the increase in the interest rate. If the payment is less than the interest alone, negative amortization is created.
Permanent Trustee
A court appointee who will: take possession of your estate; sell any property you own; and pay your creditors as much as possible of what you owe them.
Property Restriction
During an IVA, a creditor may insist on a property restriction being placed on your home. This could require you to release some equity in your property at the end of the IVA term. Any property restriction would be noted by the Land Registry and would prevent you from selling your property whilst the IVA is in effect.
Proof Of Debt Form
A form the creditor can submit to state their claim to any monies owed in an IVA or bankruptcy
Quick Assets
Cash and other assets which can or will be converted into cash fairly soon, such as accounts receivable and marketable securities; or equivalently, current assets minus inventory.
Qualified Creditor
This is a creditor who you owe a minimum of �1500 (or several creditors to whom you owe a minimum of �1500 in total).
Real Asset
An asset that is valuable because of its utility, such as real estate or physical equipment.
Receiving Order
This court order places the control of your assets under the authority of an Official Receiver.
Right To Offset
This can apply in situations where you hold a current account and a credit card or loan with the same lender. Should your credit card or loan accounts fall into arrears, your bank can use funds from your current account to bring your debt repayments up to date. They do not need your authorisation to do this.
Repossession
Repossession refers to the process in which a lender regains possession of a property that was used as security by a borrower who has since defaulted on their debt.
Retail Price Index
This is a statistic which measures the effect of inflation. This is done by comparing the average change in price of goods and services from one month to the next.
Re mortgage
To re mortgage is arranging alternative finance for the purchase of a property which is already mortgaged.
Repayment Mortgages
A mortgage where throughout the term, regular payments are made to partly repay interest on the capital and to partly repay the capital itself (the amount of the loan). Initially the largest proportion of the repayments will be used to pay interest since the capital amount outstanding is at its highest value. Therefore over the initial years the capital will not reduce very much. However as the years proceed more and more of the monthly repayments will be applied to reducing the capital until towards the end of the term the large proportion will be paying off capital and a small proportion paying interest.
Roll Over Mortgage
Mortgage for which the unpaid balance is refinanced every few years at then-current rates is a roll over mortgage. This is good for the borrower and bad for the lender if interest rates are falling, and bad for the borrower and good for the lender if interest rates are rising.
Second Charge
A second charge is a secured loan on your property. The first charge belongs to the company with whom you have a mortgage. Should payments be defaulted to such an extent that your house will be repossessed, the first charge holders reclaim all monies owing to them first. The second charge holder has the second claim on whatever remains from the sale of the property, after the first charge holders have been repaid.
Secured Debt
A secured debt is described as any form of borrowing, typically a loan or mortgage, in which the borrower offers an asset as some form of security, such as a property of car. In the event of a debtor defaulting, the lender may repossess that asset.
Secured Loan
A loan which is backed up by assets belonging to the borrower (normally property) in order to decrease the risk taken on by the lender. Mortgages and some personal loans are secured loans. If you don't maintain your repayments, your property can be at risk of repossession.
Sequestration
The act of removing, separating or seizing anything from the possession of its owner, particularly in law, of the taking possession of property under process of law for the benefit of creditors or the state.
Statutory Demand
A statutory demand is a legal document that requires a debtor to pay an outstanding debt, either in installments or as a lump sum, or to secure it against a property. The debtor has 21 days to pay or take any appropriate action, after which point a bankruptcy petition may be issued.
Time Orders
If you are suffering from temporary financial difficulty, a court may issue a time order. This allows them to make changes to your credit agreement which could, for example, result in reduced interest or monthly repayments.
Token Payment
When you are unable to service your debts in full, it may be necessary to make a reduced �token� monthly payment. This could be as little as �1 per month.
Trustee
The insolvency practitioner who will oversee an IVA, Trust Deed or bankruptcy. 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.
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. If it is a protected trust deed then the trust deed is a diligence stopper.
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.
Trustor
The borrower under a deed of trust is a trustor.
Unsecured Creditor
A creditor who does not hold security (such as a mortgage) for money owed.
Unsecured Loan / Debt
A loan or other form of credit that is not secured against any asset. In the event of a default, the lender has no form of security.
Variation Order
When a CCJ has been ordered but, due to unforeseen circumstance the debtor is unable to make the required payments, an application to vary the payments can be made.
Warrant Of Execution
When debtors have failed to meet the payments required by a CCJ and no variation orders have been made a warrant of execution may be issued that enables bailiffs to enter a property and recover goods to the value of debt.
Windfalls
Any assets that the debtor acquires or inherits whilst in an IVA or bankruptcy will go towards repaying the debt.
Wrap Around Mortgage
A second or junior mortgage with a face value of both the amount it secures and the balance due under the first mortgage. The mortgagee under the wrap-around collects a payment based on its face value and then pays the first mortgagee. It is most effective when the first has a lower interest rate than the second, since the mortgagee under the wrap-around gains the difference between the interest rates, or the mortgagor under the wrap-around may obtain a lower rate then if refinancing.