Quick glossary to debt

On the following pages are definitions of some of the words or phrases that you may come across. If there is anything else you do not understand, do not hesitate to call us on 0800 0288 696.

Attachment of Earnings

A court order entitling your creditor to have their payments paid from your earnings, via your employer. The amount deducted is agreed with the court. Certain professions will not tolerate an Attachment of Earnings order and an application for one could lead to your dismissal. In such instances, the court may take this into consideration and suspend the order to safeguard your employment.

Bailiffs

Officials who have the authority to take goods away from you and sell them off to pay towards your debts. They have no right to break in to your property, however, they do have the right to gain access through an open door or window but cannot force themselves past you. They can make forced entry if you have previously invited them in to your home. If you are aware that a bailiff will be visiting, seek advice immediately.

Capitalisation

This is where your mortgage lender will remove the arrears outstanding on your account and add them back in to the overall amount owing. This is usually done if you have restarted paying your monthly contractual repayments, having been in arrears. Each lender is different so you may want to check whether they will consider doing this and under what criteria.

Some creditors take similar steps with unsecured loans or credit cards. They may call it a 're-age' or 'clearing arrears'. If you are maintaining your monthly payments but still have arrears outstanding, check with your creditor whether they offer this facility.

Charging Orders

If you do not make the payments as instructed by the court through a judgment, the creditor can apply to have the judgment enforced through a charging order. This is a charge on your property and means that when you sell your property, any proceeds from the sale will be paid to your creditor with the remaining funds then being released to you. In some instances, the creditor can apply to force the sale of the property.

Collection Agents

If the creditor feels that they have exhausted all attempts to recoup the money that you owe them, they can pass your account on to a collection agent. These agencies specialise in collecting debt and may ultimately go on to buy the debt from your creditor. They do not, however, have any more power than your creditor and dealings should be treated in the same way. Some creditors may also sell your debt on to a Collection Agent whilst you are on a repayment plan. This may be because it is cheaper and more efficient for them to do this and should not necessarily be interpreted as the commencement of further recovery action.

Conditional Sale/Hire Purchase

Some purchases made on finance, for example, a car, remain the property of the creditor until the finance has been fully repaid. If you fall in to arrears and fail to bring the account up to date after a Default Notice has been issued, the goods can be repossessed unless you have repaid one third of the total amount repayable. You also have the right to hand the goods back at any time within the agreement, as long as you have paid 50% of the total amount payable and that the goods are in fair condition. Check your original terms and conditions for more information.

County Court Judgment (CCJ)

If you do not pay your arrears or break any arrangement that you may have made, your creditors may take you to court. These are not criminal courts. You should receive a letter advising you are being taken to court, however you can often prevent this action by paying the balance outstanding. If you are unable to do so, the court will decide a repayment amount should any offer you make be rejected by the creditor. Once you have repaid the debt outstanding, you can apply to have the file marked as 'satisfied with the Credit Reference Agencies'. If you fail to keep to the payment schedule set by the court, your creditor can apply for an order of enforcement, such as an Attachment of Earnings or a Charging Order.

Default Notice

Your creditors are legally obliged to issue this letter to you before commencing with legal action. The letter must clearly state the breach of contract that they are pursuing (usually non-payment) and what action you should take to remedy the breach. The letter must also show the outstanding balance and what amount is required to close the account. It must also give you 14 days to bring your account back in order.

Interim Order

The main effect of an interim order is to prevent a bankruptcy petition being presented or proceeded with while you are preparing offers to your creditors. This will only be considered if a Insolvency Practitioner has been appointed and you are planning to pursue an Individual Voluntary Arrangement.

Priority Debts

These are the most important debts when you are working out your income and expenditure. They include fines, income tax demands, utility bills, rent or mortgage payments, Council Tax, and debts secured on goods. These should be paid in full before you distribute the remaining money between your creditors.

Pro-rata

This is the method of calculation used to work out how much money you should pay to each creditor.

Secured

An asset (for example, a home) that has been used to secure a loan or mortgage. If you miss payments, you are at risk of having the asset taken off you and sold to pay towards the debt.

Statutory Demand

This is a legal document that a creditor must serve against you before petitioning for your bankruptcy. You have 21 days from receiving the demand to make a satisfactory response on how you intend to clear your debt, otherwise the creditor can apply to have you declared bankrupt. The debt that is being pursued must be more than £750. If you receive a Statutory Demand, seek advice immediately.