Talking about debt doesn’t need to be complicated but if it you need some clarity, take a look at our jargon buster.
Debt Jargon Buster
Attachment of Benefits (AOB)
Attachment of Earnings (AOE)
This is a formal insolvency solution that you or your creditors can apply for. It has serious consequences. When you are declared bankrupt, your interest in possessions that can be sold, including your home — whether owned wholly or jointly — are transferred to a Trustee.
The bankruptcy order is granted by the court following a bankruptcy application, made by you or your creditors. Once the order has been made, you will be officially declared bankrupt.
If you default on a CCJ, then a final charging order can be served. This allows the court to secure the debt on an asset, for example, a house.
The first stage of civil action taken by a creditor over arrears on an unsecured debt, which may result in a CCJ requiring you to make payment, and sometimes pay the cost of the application, based on what you can reasonably afford.
County Court Judgement (CCJ)
If you have not kept up your payments towards your debt and have not made any attempt to reach an agreement with your creditor/s, they can apply to court for a formal judgment to decide on how you will pay back your creditor/s and any associated cost of the application.
This shows your credit history, including applications made for credit. This file is held with credit-reference agencies and is updated by information provided by your creditors. On your credit file will be a credit score which is used by prospective lenders to assess the level of risk in lending money to you. Your credit score can be damaged by defaults on your record.
These companies will be hired by creditors to pursue you for money owed if you fall into arrears and do not make an arrangement directly with them. These companies do not have any additional powers.
The person who is in debt.
Debt Management Plan (DMP)
A debt management plan is an informal agreement made with your creditors to repay them based on your affordability. Usually a third party company manages your DMP and pays money to your creditors each month based on a % of the overall level of debt. You continue to pay into a DMP until all of your debt is paid in full.
Debt-Relief Order (DRO)
Also known as a ‘mini’ bankruptcy. You must meet the qualifying criteria to apply for a DRO.
Failure to keep to the terms of a credit agreement. A creditor will normally send a default notice if you have missed several payments.
A creditor will issue a default notice if you miss a payment and break the terms of your credit agreement. The notice will include information on the breach and how you can rectify this. The notice could also include details of any compensation owed and how long you have to rectify the matter. It is likely that this default will be registered on your credit file.
This would be your children or any other person you care for that would rely on you financially, 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 dividend is the amount of payment issued, or distributed, to your creditors based on the income received into your chosen debt solution. These payments are typically made monthly on a DMP or IVA.
Full and Final (F&F)
A full and final settlement means that you ask your creditors to let you pay a lump sum instead of the full balance you owe on the debt.
This is where a person will pay for something but will not own it until after all of the payments have been made. This is most likely a car, but the term can refer to other items to include white goods
Individual Voluntary Arrangement (IVA)
An IVA is a debt solution available to insolvent people. It is a formal agreement between a person and their creditors, in which the person agrees to pay a percentage of their debt back in affordable monthly payments, usually over five years.
When a person is not able to pay debts as and when they are due, or when a person does not have enough available assets to pay all their debts, they are classed as insolvent.
Insolvency Practitioner (IP)
An Insolvency Practitioner is specially qualified in insolvency and has been granted a licence to practice. All practicing IPs are regulated by a professional body. Formal Insolvency solutions generally require an Insolvency Practitioner to oversee them – for example, you cannot propose an IVA without an IP who is willing to act on your behalf to supervise the arrangement.
Where more than one person has signed the credit agreement. Usually, the debt is ‘joint and severally liable’ which means that each party to the agreement has joint liability.
Where a debt in the name of more than one person — typically a mortgage/loan held in a couple’s name, each named person is liable for the whole debt. Therefore, if one party enters into a debt solution but the other does not, the joint creditor can pursue the other party for the full amount of debt.
The magistrate’s court usually deals with non-payment of fines or maintenance orders. The court can make an order that will allow bailiffs to call and take away your possessions to be sold to clear your debts. It’s often worth taking professional advice from a solicitor or Insolvency Practitioner at this stage.
This is when the outstanding secured debt amount is more than the current market value of your asset – typically a home or vehicle.
The Nominee is an Insolvency Practitioner who prepares the documentation required for an IVA before it is accepted. If accepted, the Nominee will typically become the Supervisor.
Proof of Debt Form
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 dividend.
This is a creditor who is entitled to receive payments in priority to unsecured creditors. From 1st December 2020, HMRC became preferential creditors in respect of certain types of debts owed to them.
This is where a person can appoint another to attend a meeting and vote on their behalf.
If you have borrowed money against an asset and the creditor fails to recoup money from you, then repossession is possible. The company will regain the item, usually a vehicle or home, and this will be used for either full or partial payment of a debt owed to them.
A creditor who has specific rights over some or all of the debtor’s assets. These are priority creditors.
This is where money is borrowed against any asset whether it is a home, vehicle or even furniture. If the terms of the contract are broken, the item(s) could be repossessed.
A debt in one person’s name.
An Insolvency Practitioner who has been appointed to look after the IVA.
This is the person in Bankruptcy that takes control of your assets. This can be done by the official receiver or by an Insolvency Practitioner appointed as a Trustee. The main duties include the disposal of any assets that you have and also the distribution of monies amongst all the creditors.
A creditor who does not hold security.
These debts are not secured on any property or assets. Typical unsecured debts are credit cards, store cards, personal loans and catalogues.