Debt recovery has a variety of terminology. Even agencies themselves still argue whether to be “debt collectors” or “debt recovery agents”. This minor squabble aside, there are plenty of terms that could be useful to know. Whether you are looking to recover a debt of your own or you need to repay, this blog can help you. We have created a small debt dictionary to help you navigate the common terms.
Arrears: This is being behind with payments. It is the number of payments you have missed. If you have missed 3 months of rent payments, it means you are 3 months in arrears. These are payments outstanding.
Assets: Items that you own (big or small) that contain value. This can be property, a car, television or anything with value. In extreme cases, assets may be seized to fund repayment.
Bankruptcy: If you have compiled enough debt that you cannot repay at all, you could be declared bankrupt. While your debts may be written off, this is not always so certain. It can also lead to you surrendering some financial freedoms. Becoming bankrupt will affect future credit.
Creditor: The person who is owed money
Debt management plan: This is a plan to spread the debt into regular payments, eventually repaying the debt. While it is not guaranteed, collection agents may accept a repayment plan based on circumstances.
Default: When a payment due to be made fails to occur. This usually happens when in a payment plan. After which the creditor can send a letter to acknowledge the repayment terms have been broken.
Guarantor: Somebody who agrees to be financial support in the event of missed payments or hardship. If the debtor can’t pay the debt themselves, the guarantor is responsible for ensuring payments are still made.
Fixed rate: Interest rates that will not change during the period of repayment.
Individual voluntary arrangement (IVA): An IVA is an agreement to pay off either all or part of a debt. It is taken care of officially through an insolvency practitioner. The practitioner helps decide what can be feasibly be repaid each month based on income and expenditure. They then divide the repayments among creditors.
The amount doesn’t always have to be the full value of the debt. The IVA can also be enforced if over 75% of creditors agree, meaning if you disagree but 75% agree, you are bound to accept.
Insolvent: Being insolvent means you are unable to repay your debts in a reasonable timescale.
Personal guarantee: In business debts, a personal guarantee is a promise by the owner of a company to ensure the debt is repaid, including themselves as liable to pay if the company can’t. It protects the creditor if the debtor company becomes insolvent or ceases trading.
Secured creditor: Debts which must be paid off as a priority. This could mean assets being used to secure money to repay the debt.
Secured debt: Debt which is tied to assets such as a house or a car. These assets may be seized to secure repayment.
Unsecured creditor: A creditor who has no priority or guarantee or repayment when calculating what can and can’t be repaid.
Unsecured debt: Debts which are not tied to assets such as credit cards and overdrafts.