Debt: A Glossary of Terms
Bankruptcy – Having been legally declared bankrupt. There are two types of bankruptcy: liquidation, in which your debts are discharged (discharged), and reorganization, in which you provide the court with a plan for how you plan to pay off your debts.
Collateral – Property acceptable as security for a loan or other obligation.
agency collection – A company hired by a creditor to collect a debt owed to it.
contract – An agreement between two or more parties, usually in writing and enforceable by law.
co-sign – To endorse (signature of another), as a loan, lease or credit application. If the primary debtor defaults, the cosigner is fully responsible for the loan or debt.
Credit bureau – An organization from which business enterprises request credit information on potential customers.
credit report -An account of your credit history, prepared by a credit bureau. A credit report will contain your credit history, such as what you owe to whom and whether you make payments on time, as well as your personal history, such as your previous addresses, employment record, and any lawsuits you may have been involved in.
Creditor – A person or entity (such as a bank) to whom a debt is owed.
debtor – A person or entity (such as a bank) that owes money.
Debt-to-income ratio – Most mortgage lenders use this ratio to analyze your financial health. It is calculated using your monthly debt divided by your monthly income. The lower the percentage, the better your financial picture. This is often known as solvency.
Default – Do not pay the money when due. A default on a mortgage or loan occurs when you fail to make loan payments on time, maintain adequate insurance, or violate some other provision of your agreement with the mortgage company/lender.
Discharge (of debts) – The cancellation by a court of the debts of a person or company that has declared bankruptcy.
dischargeable debts – Debts that can be erased through bankruptcy.
Deposit – A cash payment made by a buyer when purchasing a property.
Equity – An increase in the value of your home or a decrease in the amount of the loan on your home creates equity. Equity is the difference between what is owed on your home and the sale value. Most home equity lenders will allow you to borrow up to 80% of that value.
Isaac and Company Fair – Fair Isaac is the company responsible for creating the popular FICO score. This three-digit score is created using information from your credit report and ranges from 300 to 850.
Mortgage’s trial – The forced sale of a property to pay off a loan that the owner of the property has defaulted on.
Garnish – A court order ordering a third party who possesses money or property belonging to a defendant to withhold it and appear in court to answer questions.
Grace period – A period of time during which you are not obligated to make payments on a debt.
Guarantor – A person who makes a legally binding promise to pay another person’s debt or perform another person’s duty if that person defaults or defaults.
interest – A fee you pay to a bank or other creditor for lending you money or extending credit to you. It is generally calculated as a percentage of the mortgage or loan.
Link – The right to take and possess or sell a debtor’s property as security or payment of a debt or duty.
loan consolidation – The combination of a series of loans in a single new loan. This is usually done to get more favorable terms, such as lower-cost refunds or more time to pay.
Important – A sum of money owed as debt, on which interest is calculated. If you bought an item for $100 on your credit card, that would be the principal balance.
recovery – The taking by a creditor of the property that has been given as security for a loan.
secured debt – A debt on which a creditor has a bond. A car loan would be an example of a secured debt.
Term – The time required to repay a loan.
unsecured debt – A debt that is not tied to any item of property. Credit card debt is an example of unsecured debt.