Glossary
A
Accounts Payable
The amounts owed by a debtor for the goods or services they have received to a creditor (the person who provided the goods or services).
Annual Percentage Rate (APR)
APR stands for Annual Percentage Rate and is a way of comparing the cost of different types of credit. Adverts on television for most types of credit will tell you the APR. All lenders must, by law, provide the APR using a standard formula so that people can easily compare different credit cards, loans, mortgages and other types of credit agreements.
APR is calculated by taking into account all the charges, such as the basic interest rate, initial fees, when interest is charged (for example, daily, weekly, monthly or annually) and any other costs you have to pay.
Essentially, the lower the APR, the better rate of lending.
Arrears
When a debtor falls behind on the monthly payments due to a creditor, or payable in their Individual Voluntary Arrangement.
Assets
Items a debtor owns of monetary value, for example a property, that could be sold to settle a debt.
B
Bailiffs
Bailiffs are called upon by creditors when an outstanding debt has not been paid. They are able to remove assets from a debtor’s home as payments towards the debt.
Bankruptcy
When an individual is unable to pay back the debts they have, they can declare themselves legally insolvent.
Bankruptcy Order
A court order which states that someone is bankrupt.
Base Rate
The lowest interest rate that a bank charges.
C
Capital
The amount of money and assets a person has after taking into account their debts.
Chairman
In an IVA, the chairman is the person who holds the meeting of creditors, at which votes are lodged stating whether to accept or reject the proposal.
County Court Judgement (CCJ)
A decision is made in court stating that the individual must pay back the outstanding debt, usually by monthly payments. CCJs are shown on credit reports and will be displayed as satisfied once the debt has been cleared.
Credit Rating
The rating that credit companies give to individuals based on their past experience of managing credit. These companies then use this to assess if the person is reliable and safe to give credit to. A credit rating is based upon several factors including whether someone has paid credit cards bills on time and how many credit accounts they have.
Creditors
Companies or people that a person owes money to.
Current Account
A bank account that comes with facilities such as a cheque book and the option of an overdraft.
D
Debt
Money borrowed from a company or person that needs to be paid back to them.
Debt Consolidation
When a person’s debts are paid off with a larger amount of credit with only one monthly affordable payment.
Debt Management Plan
An informal agreement between a debtor and their creditors to help them repay their debt with monthly payments.
Debtor
A person that has borrowed money and is now in debt.
Default Notice
A creditor will issue a default notice if an agreed arrangement has failed. The notice will inform the debtor that the creditor is trying to recover their money and is taking further steps to do so.
Disposable Income
The money left over from household income after essential expenses have been paid.
E
Earned Income
The money earned by an individual that originates from employment or pensions.
F
Finance
The selling of assets to raise money – “to finance something”
G
Gross Income
The total of income someone has before any deductions such as tax and national insurance are made.
Guarantor
An individual borrows money with the aid of a guarantor; if that individual fails to make the financial payments then it will fall to the guarantor to make the payments.
I
Individual Voluntary Arrangement (IVA)
A legally binding arrangement between a debtor and their creditors outlining the percentage they are going to pay back and how they intend to do so, normally through 60 monthly payments.
Insolvency Practitioner (IP)
An IP is a licensed individual that is qualified to deal with any insolvency procedures such as IVAs and bankruptcy.
Insolvent
A debtor is said to be insolvent when they are unable to settle debts that have become payable.
Interest Rate
A percentage that is charged on the amount of money borrowed from a creditor.
J
Joint Liability
When two or more people have their names on an account, they are both responsible and liable for repaying the debt.
Judgement
A decision made in a court of law normally ruling in favour of one party.
L
Litigation
When an individual or company takes legal action against another in court.
Loan
An amount of money that is given out to be paid back over a period of time with regular payments being made usually with added interest.
M
Mortgage
A loan that is taken out for and secured upon property or land, usually lasting over a long period of time.
O
Ombudsman
An official from a third party that will investigate any complaints or conflicts and provide information on how to resolve the issue.
P
Personal Loan
A loan that is given for your own personal use.
Priority Debts
Debts that must be paid or there is a risk you may lose the items for example a mortgage, rent or a secured loan. When calculating a household expenditure, priority is given to these debts.
Proposal
A document prepared for an IVA outlining a debtor’s reasons for incurring their debts and how they intend to repay them. It is sent to all the debtors’ creditors so they can consider whether to accept or reject the proposal for an IVA.
Proxy
Proxy forms are received from companies or individuals entitled to act for a creditor. The form usually states how the company wishes to vote and instructs the meeting chairman to use the vote accordingly.
R
Re-mortgage
Replacing a mortgage on a property with another mortgage for example to get a lower interest rate or a lower monthly repayment.
Repossession
A creditor can take a debtor’s personal possessions to fund a debt if they are unable to pay it as agreed.
S
Second Mortgage
Another mortgage taken out on a property, usually with a higher interest rate.
Secured Debt
Money that is borrowed against an asset, for example a house or car. If repayments are not met, the asset may be repossessed in order to repay the debt.
Statutory Demand
A notice which requires repayment of a debt exceeding £750 within 21 days, or the debtor may face bankruptcy proceedings against them.
U
Unsecured Debt
A debt that is not secured to any assets.
Utilities
Services that every household needs, for example electricity, gas and water.