The jargon involved with debt and its solutions can all become overwhelming and confusing, which is why this glossary has been created. Let’s take a look at the most common terms and explain what they mean, so you can fully understand the help that is available.
An administration order is a debt solution which involves you making a monthly payment to your local court, to clear what you owe. This is then distributed to your creditors who are unable to enforce any further action. You need a county court judgement and debts of no more than £5,000 to qualify. You may also apply for a composition order if it would take more than 3 years to repay.
Attachment of Earnings Order
This is a form of enforcement a creditor can try to impose on you if you have had a county court judgement and have defaulted on this. If you are unable to pay back your debts your creditors can apply to the court to have money deducted directly from your wages. However, if you do not work they can also have money owed to them taken from your benefits before you receive them. This is known as an Attachment of Benefits Order.
Arrears occur should you fail to make the payments on regular household bills, such as your mortgage, rent or council tax.
Bankruptcy is a debt solution that involves the sale of your assets, such as your home, in order to repay outstanding debts. Creditors can apply to make you bankrupt or you can apply for your own bankruptcy, there is a cost associated with doing so however.
CCJ (County Court Judgment)
A CCJ is an order, issued by the court, when you have failed to keep up repayments on a contractual agreement and have not made any other arrangements for your debts to be paid. Once actioned you have 14 days to respond to the court claim and a record of your judgment will be flagged on your credit report for six years if you do not pay the full amount within a month.
This is a notice issued by your creditor when you fail to adhere to the financial agreement between you and them. It is notice that the creditor is taking the next step to recover the money owed to them.
Equity is the difference between the outstanding mortgage on a property and its current market value. Some debt management solutions may require you to sell or remortgage your home to release equity. Equity is seen as an asset by creditors so they may ask, if it is a significant amount, that it is used to increase the amount of debt cleared.
An agreement set up between you and your creditors that is not legally binding or assisted by a third party.
Individual Voluntary Arrangement (IVA)
This is a debt solution for those unable to make the minimum repayments to their debts and it would take an unrealistic time to repay. You work with an Insolvency Practitioner to put together a proposal for a set monthly repayment amount, which is then sent to your creditors to review.
75%, in value, of your creditors must approve this proposal for the IVA to proceed and then a payment schedule is set up. This is then paid over five to six years, with an annual review to ensure your payments are on track and that the monthly amount is still manageable. A debt management company, such as PayPlan, is a good place to start when seeking further information on IVAs.
Right to Off-Set
If you have a credit card or loan with a bank or building society, who you also hold a current account with, they are able to use the ‘Right to Off-Set’ and take funds directly from your account to make your repayments – and they can do this without your permission! You can, however, use the right to “first appropriation” to let the bank know which debts should be paid.
This is a legal document written up by creditors that requires the debtor to pay an outstanding debt in one lump sum, instalments or use their property against it. If you do not respond to this the creditor can file for bankruptcy.
If you cannot make the minimum repayment a token payment shows your creditors you are still attempting to remove the debt, even if it is as little as £1.00 a month.
This is a debt that is not secured against your assets or a property. For example a loan, credit card, overdraft or store card debt.
These are large sums of money you may suddenly receive; examples of a windfall could be inheritance from a relative or even a lottery win. If you come into a windfall while making debt repayments, you may be required to put this money towards your debts to pay them off.
If you are working to repay your debts, keep this glossary to hand to remind yourself of the key terms you may come across. Seek advice from a free debt management company and ensure you have all the facts before taking that first step towards financial security.