Debt Glossary and Terms
Here are some of the common terms and lingo you’ll hear when reading about personal finance, and specifically about financial debt.
Arbitration – Arbitration is a forum where a debt dispute can be settled without the formalities of a trial.
Bankruptcy: If you are unable to repay outstanding debts to creditors, debtors may file for bankruptcy in order to be relieved of their financial obligation to repay unsecured debts. Read what you need to file bankruptcy.
Balance: This refers to the amount of money owed to a creditor. It includes any unpaid amount from previous months, new purchases, and any charges such as annual fees or late charges.
Chapter 7 Bankruptcy: This is one of the most common types of bankruptcy proceedings wherein a debtor liquidates their assets to cover the value of the debts either fully, or partially. Filing Chapter 7 bankruptcy can stay your credit score for up to 10 years.
Chapter 11 Bankruptcy: A company that files for Chapter 11 bankruptcy covers businesses that are no longer capable of paying creditors due to its financial state.
Chapter 13 Bankruptcy: Filing a Chapter 13 Bankruptcy filing can help debtors through the creation of a debt repayment plan that allows them to pay off their debts over a period of time without losing their property.
Credit Counseling / Debt Counseling: Companies that offer credit or debt counseling educate consumers on how to best manage or repay their existing debt, usually through a Debt Management Plan (DMP). They can also recommend lifestyle changes to help clients avoid incurring more debt in the future.
Credit repair: This covers a wide range of processes to help improve an individual’s credit rating, which may include identifying and disputing errors in an individual’s credit report, repaying outstanding debts, and establishing new lines of credit.
Credit settlement: Also known as Debt Arbitration or Debt Negotiation, this process involves having both creditor and debtor agree to a lowered amount to be paid either in installments, or in full.
Debt Consolidation: Individuals who have debt through multiple loans or credit card balances may have the option to combine their liabilities into a single loan. This can make it easier for borrowers to pay off their existing debt if they quality for a lower interest rate, or simply make it more convenient to pay a single loan, instead of multiple loans from several lenders.
Debt Relief: This is the partial or complete removal of financial liability for debts incurred.
Debt Settlement: Refers to the process wherein both creditor and debtor agree to settle an outstanding debt or loan for a mutually agreed upon amount.
Discharge: In bankruptcy proceedings, this means that a debtor has been relieved of liability for debt repayment.
Garnishment: A garnishment is a way for a creditor who has a judgment against you to collect. Generally it’s in the form of a wage garnishment and usually no more than 25% of your paycheck.
Hardship relief program: A negotiated repayment plan that offers a lower interest rate (and waives existing late fees).
Levy: A levy is a way for a creditor to look into your financial accounts, such as your checking or savings accounts, and take your money. This can only happen if a judgment has been rendered against you, and if they know where your accounts are.
Lien: A lien is another way for a creditor, with a court order, to collect on a judgment. This is done by putting a lien on a your property, typically a home.
National Debt: The total amount of debt the U.S. carries domestically and internationally. As of May 1, 2020 the national debt is $24.5 trillion.
Payday Loans: A type of short-term cash loan where the borrower agrees to pay the amount loaned by the next payday. Borrowers are usually required to provide proof of income and post-dated checks before they are approved for this type of loan. Payday loans are frowned upon in the industry because they include very high interest and fees.
Read what the FTC says about Payday loans.
Tax Debt: This type of debt usually occurs when a business or individual fails to pay the correct amount of taxes to the State or Federal government.
Read our articles to find learn in-depth info on terms and strategies mentioned in our debt relief glossary.
Getting a better understanding of debt relief terms and debt management strategies, and the support of professional debt counselors can help you find your way to becoming debt-free!