Credit Card Debt
Agreement:
A legal agreement between a financial institution and yourself. For example, your credit card company will send you a card holder agreement that describes the terms that apply to your card, including the interest rate charged, method of calculating interest, and any transaction fees. Sometimes called Card Holder Agreement, Terms and Conditions, or Disclosures.
Automatic Payment:
Payment plan you set up with your bank / financial institution, so that they send your minimum payment for your credit cards or other debt sources each month.
Automatic Stay:
Temporary measure enacted when you file a petition for bankruptcy. This injunction prohibits creditors from taking certain actions against you, such as proceeding with lawsuits, attempting to collect debt, initiating foreclosure measures or garnishing wages. This prevents an aggressive creditor from laying claim to a large percentage of your assets before others have a chance.
Charge Off:
A debt that cannot be collected, which is written off as a loss against a lender's taxes. Debt must be charged off in three cases: if it is a certain number of days past due (120 days for a loan and 180 days for credit card debt), if the debt holder dies, or if the debt holder goes bankrupt.
A charged-off debt is not forgiven, though, and it stays on your credit report for 7 years. Lenders also generally sell charged-off debt to collection agencies who will attempt to recoup the debt through various means including lawsuit until its statute of limitations runs out, a time period that varies by state.
Collateral:
Something of value that is pledged to pay off a loan or debt if payments aren't made according to the agreement. Also called security.
Collection Agency:
Credit card companies or banks might send your overdue bill(s) to a collection agency, a company that will attempt to obtain your payment.
Consumer Debt:
Debt incurred for personal, family, or household needs. Does not include debts incurred through business or taxes.
Credit:
Money given to a borrower on condition of repayment over a certain period of time with specific terms and conditions.
Credit Card Debt:
The unpaid balance you carry on your credit card.
Credit Counseling:
Advice given by professional counselors about how to budget, use credit responsibly, and repay your debts.
Credit Insurance:
Insurance that will pay the minimum balance on your credit cards if you are injured or lose your job.
Line of Credit:
The amount of money offered to you by a creditor; also called a "credit line".
Creditor:
Someone who loans or is owed money.
Credit Worthy:
How qualified you are to receive credit, based upon your credit history and credit score.
Debt Consolidation:
Gathering multiple sources of debt under one umbrella, often with a reduced payment rate and longer repayment period.
Debt-to-Income Ratio:
The percentage of before-tax earnings spent to pay off home loans, auto loans, student loans, credit card balances, and the like. Lenders look at a front-end ratio and a back-end ratio. The front-end ratio is the percentage of monthly before-tax earnings that are spent on house payments (including principal, interest, taxes and insurance). In the back-end ratio, other debts are factored in.
Debtor:
Technically, someone who has filed a petition for relief under bankruptcy laws. More generally, a debtor is someone who owes money.
Deferred Payment:
Holding off on paying your debt.
Equal Credit Opportunity Act:
Federal legislation enacted in 1974 that makes it illegal for any creditor to discriminate against any credit-transaction applicant on the basis of gender, race, color, religion, national origin, sex, marital status, or age. A creditor cannot ask you to change terms or close your account if you are widowed or divorced.
Installment Credit:
A credit agreement that allows you to repay a bill in regular payments over a specified period of time.
Liability:
The responsibility for charges to an account. Generally, a debtor agrees to be liable for all charges and transactions for that account. If the debtor shares an credit card with another person, the primary card holder is responsible for paying the bill. Joint card holders may both be responsible for paying the entire balance.
Zero Balance:
What you have when your credit card debt or loan is paid-in-full.
Unused Credit:
Credit spent is subtracted from your credit limit to determine your unused credit.
Status:
Your credit worthiness, as described in your credit report as the type of credit account and your payment history.
Revolving Credit:
A line of credit that allows consumers to pay all or part of an outstanding balance. As the balance is paid, it becomes available to spend again as credit.
A credit card or a home equity line of credit are forms of revolving credit, because you are given a credit limit and as you pay down your balance you get more available credit at your disposal.
Revolve:
To carry a balance to the next billing cycle and pay interest on that balance.
Principal:
Monies owed before interest or other charges are applied.
Partial Payment:
Paying less money than the full amount that is due.
Periodic Rate:
The interest rate described in terms of an amount of time. The monthly periodic rate is the cost of credit per month, or 1/12th of the account's APR.
Previous Balance:
The amount owed after the previous month's payments and charges are applied to your current credit card balance.
Credit Life Insurance:
A type of insurance policy that pays off all or some of your loan if you die.
Credit Disability Insurance:
Also known as accident and health insurance, this is an insurance plan that makes payments on your loan if you become ill or injured and can't work.
Involuntary Unemployment Insurance:
This credit insurance makes your loan payments if you lose your job due to no fault of your own, such as a layoff.
Also known as Involuntary Loss of Income Insurance.
Credit Property Insurance:
A type of credit insurance that protects personal property that is used to secure a loan or mortgage.
Essentially it insures the property against being destroyed by events like theft, accident or natural disasters.
Balance-to-Limit Ratio:
The ratio of credit spent to total available credit. If you have a little debt and a lot of available credit, your balance-to-ratio limit is low, which is good for your credit score.
For example, if you have a credit card with a $1,000 credit limit and your balance on that credit card at the end of your billing period is $500 then your balance-to-limit ratio will be 50%.
Credit Utilization Ratio:
The ratio of credit spent to total available credit.
Bankruptcy:
Bankruptcy is the process wherein consumers or businesses seek legal assistance when they cannot pay their bills. Some types of bankruptcies wipe debt clean; other types of bankruptcy restructure the amount of debt, which is then repaid under the supervision of the bankruptcy court.
Zombie Debt:
Old debts that have never been paid. Often, debt issuers sell these debts to debt collection agencies, who go to greater efforts to collect the debt.
Security:
Something of value that is pledged to pay off a loan or debt if payments aren't made according to the agreement. Also called collateral.
Debt-to-Available-Credit Ratio:
The ratio of the sum of all your credit card balances relative to the sum of the credit lines of your credit cards.
For example, if you had 2 credit cards and each one had a credit line of $100 and a balance of $50 then your Debt-to-Available-Credit Ratio would be ($50+$50) / ($100+$100) = 50%
Chapter 11 Bankruptcy:
A legal procedure where businesses can reorganize under a court-approved plan, with protection from creditors during the reorganization period.
Chapter 13 Bankruptcy:
A bankruptcy court supervised 3- to 5-year plan for a creditor to repay his or her debts.
Chapter 7 Bankruptcy:
A bankruptcy filing that allows an individual's debt load to be wiped clean.
Charge Off Rate:
A formula where the amount of charge offs is divided by the average outstanding card balances owed to the credit card company. When a company has decided that collecting a debt is a lost cause, it charges it off its ledger. A rising rate of charge offs points to economic duress.
Collection:
Collection refers to the attempt made by a collections department or collection agency to receive payment on an old debt.
Cramdown:
An industry slang term that refers to a bankruptcy judge's ability to lower the amount owed by a debtor to a creditor.
Credit Obligation:
A binding legal agreement between a debtor and creditor that the debtor will repay the creditor on a certain schedule or penalties will be exacted.
Deadbeat:
Credit industry term for someone who pays off their entire revolving debt each month, so as not to accrue interest on their credit accounts.
Delinquency:
Fancy term for saying that you are late on a loan or credit card payment.
Sometimes you will hear: "30 days delinquent" or "60 days delinquent", etc. That means that it has been 30 or 60 days, respectively, since your credit card or loan was in "good standing" (i.e. not late).
Adequate Protection:
Security, collateral, or another measure provided by a debtor who has filed bankruptcy, that protects a claim holder from depreciation of collateral before the bankruptcy plan is approved, or during the time when the debtor still has possession or use of the collateral item/property.
Claim Holder:
Someone who holds the right to payment or the right to a fair remedy for a debtor's default or breach of performance. A bankruptcy case might have many claim holders attached to it.
Adversary Proceeding:
A lawsuit filed in bankruptcy court that is related to a debtor's bankruptcy case, such as a dispute about terms or debt discharge ability.
Assets:
All properties, tangible or intangible, owned by the debtor. Assets may be liquidated (sold) in bankruptcy, depending upon whether a debtor files for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Exemptions remove particular assets from the property of the estate.
Liquidate:
Selling a debtor's property in bankruptcy and distributing the cash proceeds to creditors/claim holders.
Relief from Stay:
Creditors can file for "Relief from Stay", which, if approved by the bankruptcy court, allows them to repossess or foreclose upon the bankrupt debtor's property, or allows them to pursue the debtor's insurance coverage, even if an automatic stay is in place.
Repossession:
When a creditor takes possession of property that is in default of payments.
Foreclosure:
A legal proceeding that reverts ownership of a property from the buyer to the loan holder. When a property owner has defaulted on a mortgage or other installment agreement, the bank or loan company seizes and sells the property to pay off the debt.
Discharge:
The legal elimination of debt, via a bankruptcy case. Once a debt is discharged, it cannot be legally enforced against the debtor.
Denial of Discharge:
The penalty for a debtor's misconduct regarding the bankruptcy case or its creditors. Any debts that are denied discharge cannot be discharged in any subsequent bankruptcy case.
Lien:
A method by which a lender secures a debt, like a mortgage on a home, or a tax lien, which can be imposed on a property to secure payment of owed taxes.
Mortgage:
A mortgage is a lien on a property or house that 1) secures a loan and 2) is repaid in installments over a set time period.
Avoidance of Lien:
Being granted a release from the effect of a lien, judgment, or security interest in property. This is typically granted in connection with exempt property, but can also be granted via any grounds provided for by the Bankruptcy Code. This is sometimes called Lien Stripping.
Lien Stripping:
Being granted a release from the effect of a lien, judgment, or security interest in property. Most judgment liens attached to the debtor's home can be avoided if the total of the liens (mortgages, judgment liens and statutory liens) is greater than the value of the property in which the exemption is claimed. Liens can be stripped from the debtor's assets in Chapter 11 or Chapter 13 bankruptcy.
Avoidance Powers:
The bankruptcy trustee's rights (or Chapter 11 debtor's rights) to recover certain property transfers, such as preferences, or to void liens that were created before the bankruptcy case began.
Preference:
Preferences are payment on a previous debt that was made by an insolvent debtor within 90 days of filing bankruptcy, that allows the creditor to receive more on its claim than it would have, had the payment not been made and the claim paid through the bankruptcy proceeding, according to Bankruptcy Code 547.
Bankruptcy Code:
Title 11 of the United States Code governs bankruptcy proceedings.
Trustee:
A bankruptcy trustee administers a debtor's bankruptcy estate. He or she is appointed by the bankruptcy court, and either liquidates a Chapter 7 debtor's property, or reviews a Chapter 13 debtor's plan and collects and distributes payments made by the Chapter 13 debtor.
Bankruptcy Estate:
In bankruptcy, the estate is comprised of all legal and equitable interests held by the debtor at the beginning of the bankruptcy case.
Chapter 12 Bankruptcy:
A reorganization plan specifically for family farmers with debts within a certain range.
Confirmed:
Once a reorganization plan for Chapter 11, 12, or 13 bankruptcy has been approved by the bankruptcy court and lawful for all parties, it is considered to be confirmed.
Confirmation:
Confirmation is the court order that binds the repayment of debt plan for Chapter 11, 12, or 13 bankruptcy. Confirmation takes precedence over pre-petitioned claims or events.
Contingent:
Debts dependent upon a future event.
Conversion:
Converting a bankruptcy case from one chapter to another under the bankruptcy code.
Debtor in Possession:
A Chapter 11 debtor assumes trustee duties for his or her own assets, and does not liquidate them. Such a debtor owes his or her highest loyalty to the estate's creditors, as a fiduciary for the creditors of the estate.
Fiduciary:
A fiduciary is someone who is entrusted to carry out someone else's duties. A fiduciary is legally expected to comport himself or herself beyond reproach for loyalty, good faith, and diligence. A Chapter 11 debtor in possession serves as a fiduciary for the creditors in the bankruptcy case, and not for the debtor's shareholders.
Dischargeable:
Debts that can be eliminated in bankruptcy. A discharged debt cannot be legally enforced against a debtor, though any lien securing the debt might remain.
Dismissal:
The termination of a bankruptcy case without either discharge or denial of discharge. After dismissal, the debtor and creditor(s) have the same rights they had before the bankruptcy case was filed.
Domestic Support Obligation:
The bankruptcy amendments of 2005 introduced this term to refer to debts incurred from alimony or child/spouse support payments.
Exempt:
Exempt property is removed from the bankruptcy estate. It is not available to pay the creditors' claims. State laws mandate exemption lists, which help a debtor select specific exempted property from the bankruptcy estate.
Exemptions:
Lists of the values and types of property that can be chosen as exempt from the bankruptcy estate by a debtor in a bankruptcy case. Exemptions vary between states.
General, Unsecured Claim:
A creditor's claim that lacks both a payment priority and security/collateral. These claims are only paid if there are funds remaining in the estate after the secured claims are paid, and unsecured claims are paid in proportion to the claim's size as it stands among the total number of unsecured claims in the case.
Estate:
In bankruptcy, the estate is comprised of all legal and equitable interests held by the debtor at the beginning of the bankruptcy case.
Indemnity:
An amount paid by Person A to Person B that compensates for a particular loss suffered by Person B.
Hold Harmless Clause:
In bankruptcy, an amount paid by Person A to Person B that compensates for a particular loss suffered by Person B.
Means Test:
An examination that evaluates whether a person actually qualifies for Chapter 7 bankruptcy.
Meeting of Creditors:
A debtor is obligated to attend a meeting with the trustee and then examined, under oath, about his/her assets and liabilities. Creditors may also attend.
341 Meeting:
A debtor is obligated to attend a meeting with the trustee and then examined, under oath, about his/her assets and liabilities. Creditors may also attend.
Also referred to as "Meeting of Creditors" and "going to court."
Non-Dischargeable:
Debts that cannot be eliminated in bankruptcy are non-dischargeable, and remain legally enforceable despite the bankruptcy filing. The list of non-dischargeable debts differs between Chapter 13 bankruptcy and Chapter 7 bankruptcy.
Perfected Lien:
A debt protected from third-party claims by security interest in collateral. Pefecting a lien on personal property owned by the borrower occurs when the lender files a Financing Statement in a designated filing place.
Personal Property:
Assets such as cars, furniture, stock. Does not include real estate.
Petition:
The document that gets the bankruptcy case started. Filing the bankruptcy petition starts the automatic stay and constitutes an order for relief.
Pre-Petition:
Events that happened before the filing of a bankruptcy petition.
Post-Petition:
Events that happen after a bankruptcy petition is filed.
Order For Relief:
An order for relief marks the beginning of a bankruptcy case. The date of the order for relief affects what claims are administered in the bankruptcy case.
Priority:
The order in which claims must be paid from the bankruptcy estate. Priority is established by the Bankruptcy Code, and higher-priority claims must be paid in full before lower-priority claims can be paid.
Priority Claim:
Certain debts that must be paid by the bankruptcy estate before the general, unsecured claims. Priority claims include unpaid wages, taxes, and family support.
Bankruptcy Court:
One of 94 federal judicial districts that handles bankruptcy matters. Bankruptcy cases are filed in the bankruptcy court, not state court. Bankruptcy courts follow the Bankruptcy Code for all bankruptcy proceedings.
Property of the Estate:
Non-exempt property that belongs to the bankruptcy estate. This is usually sold/liquidated by the trustee, who distributes it among the claim holders in order of priority.
Reaffirm:
Choosing to repay a debt that was discharged in bankruptcy. This can help your credit rating.
Reaffirmation must be filed with the bankruptcy court. In order to be approved, it 1) should be voluntarily undertaken, 2) must be in your best interest and 3) must not put any undue burden on you or your family.
Schedules:
Lists of assets and liabilities that must be filed by a debtor, collectively called schedules, in order to begin a bankruptcy case.
Secured Debt:
Secured debts are liens created by a recognizable legal agreement between a debtor and a creditor, or an involuntary lien such as a judgment or tax lien.
Unsecured Debt:
Debt that has no collateral as its security. Most consumer debts are unsecured.
