A list of common terms when dealing with bankruptcy and debt.
Where a judge makes a decision on your suitability to become bankrupt.
A formal, legal debt solution which means it's approved by the court so your creditors must abide by its details.
There are certain criteria for getting one of these orders. You must have debts under £5000, an unpaid county court judgment (CCJ) and two or more debts. If your debts total more than this upper limit, you could try negotiating with your creditors to write off some of the debt to bring the total debt within the limit. A creditor may agree to this if they think they'll get more money back overall this way.
A separate lawsuit filed during the bankruptcy process at court, which involved opposing parties.
Property acquired by the debtor after entering bankruptcy, and before the discharge.
Annual Percentage Rate (APR)
The measurement of the yearly cost of a loan, expressed by the actual rate of interest paid.
A legal procedure, made available under the Insolvency Act, 1986, to cancel a bankruptcy order. This is only possible in few, special cases. Click the following link for a guide to bankruptcy annulments.
Used to describe a situation where one has failed to meet one or more repayments on a debt, or bill. If an arrear is apparent, then the creditor has the right to chase for payment.
Where money or goods held by another party are 'frozen'. Most commonly, an example is arrestment of your bank account funds.
Items that you own that can be considered for sale during the bankruptcy process; e.g. vehicle, house, high value jewellery, savings. Click the following link for a full guide on bankruptcy assets.
Save for certain bankruptcies, the discharge is automatic at the end of the agreed period – usually 1 year.
One who is unable to meet his or her financial liabilities, and is subject to a bankruptcy order.
An order made by the court, in which the debtor is declared bankrupt.
This is a public register that lists all court-approved insolvencies, including bankruptcies, Individual Voluntary Arrangements (IVAs) and Debt Relief Orders (DROs). People who enter into the protection of bankruptcy can expect to appear on the bankruptcy register for 15 months, whereupon their name is removed, three months after being discharged. This information is in the public domain but is unlikely to be viewed by anyone unless they were specifically searching for it.
Bankruptcy Restriction Order
If the court decides that you have been dishonest with your bankruptcy petition, a Bankruptcy Restriction Order may be made, whereby you are bound by certain additional restrictions.
An individual or organisation that borrows money from a lender. Repayments are usually made in instalments, over a specified period of time, and normally accrues interest, measured by an APR.
A short-term loan, taken out over a period of around 2 weeks to 6 months. This is designed to bridge the gap between the longer term asset selling during bankruptcy.
County Court Judgment – issued by a court as a demand to make payments to a debt when you fail to maintain repayments. This is usually witnessed when the debtor makes no attempt to pay, or to contact the lender.
Following the Charging Orders Act, 1979, this is an order from the court which provides a trustee an official legal charge over interest in your home. Since October 2012, this can now be made whether there are CCJs
or not. This charge can continue after the bankruptcy is over.
So, if your creditor has taken you to court for a debt, they may have a county court judgment (CCJ) or other court order against you. As a result, the court will order to repay monies owed. A court order means you must either make regular payments or pay the whole amount by a set date. If you fail on these commitments, then you could be subject to this charging order, which as mentioned means having your debt secured against your property, so it becomes imperative that debts are paid off, or else a property could be lost. Your creditor can then apply to the court for another order to force you to sell your home. This is called an order for sale.
A composition (order) is an agreement between a debtor and his creditors, whereby the compounding creditors agree with the debtor, and between themselves, to accept from the debtor payments of less than the amounts due to them in full satisfaction of their claim. It is part of an administration order, and may be considered if all an individual’s debts cannot be paid off in “reasonable time”. This is usually three years. The rest of the debt will be written off. Creditors can object to a composition order but the judge makes the final decision. If the creditors object, a hearing will be called.
A method of obtaining goods or services, based on obtaining such up-front, with the promise to pay later. Usually involved interest charges.
An individual, or organisation that is owed money by a debtor. For example a bank, credit card provider, catalogue business.
A file accessible by creditors, held by authorised companies that shows a person’s financial history in order to gauge credit-worthiness. Details include credit applications, searches, borrowings, and payment defaults.
The authorised companies that store your credit file each create a credit score. The actual score, or rating, may differ slightly from company to company, as different algorithms are used, but generally they all use the same base criteria of categories used on your credit file. Click the following link to discover some credit and finance myths debunked.
Monies owed to an individual or organisation from the delivery of a product or service.
A person, or organisation, that owes money to a creditor for a good or service they received before full repayment occurred.
Debt Management Plan (DMP)
An informal arrangement with creditors, to accept repayment of only what you can afford, based on the distribution of your disposable income. A debt management plan is only viable where you have around at least £100 per month left over after your essential spending. Such plans usually last a lot longer than bankruptcy. For more information on Debt Management plans and other debt alternatives, click here.
Debt Relief Orders (DROs)
A debt relief order (DRO) is generally aimed at people who owe less than £15000; similar to a DMP, it however favours those who have less than £50 left over each month after vital living cost expenditure. For more information, click here.
Once you are discharged from a bankruptcy order; normally after 1 year, you are free from debt, and are no longer recorded on the bankruptcy register. You may face certain restrictions, and will find it hard to obtain credit. Whilst a year is the standard time from bankruptcy to discharge, the period is not set in stone, and can be extended if the bankrupt has not acted as instructed during the year and has broken regulations or failed to disclose assets.
The calculation of available money each month, once you minus all of your essential spending (no luxury items can be included such as satellite television), from your monthly income after tax.
A government collated list of names and address of people registered to vote in elections. By registering on the electoral roll, your credit score will likely be boosted.
A calculation made to assess how much money is 'available' in a mortgaged house. Simply, it is the difference between the market value of the property and the current value of the mortgage. A negative figure would result in 'negative equity'.
The property belonging to the individual declaring bankruptcy – to be considered by the trustee for sale in order to pay creditors.
The official document provided to the bankrupt individual, to prove the end of the bankruptcy order, and to show creditors that the debt is no more.
A fixed charge is a form of security granted over specific assets, preventing the debtor dealing with those assets without the consent of the secured creditor. It gives the secured creditor a first claim on the proceeds of sale, and the creditor can usually appoint a receiver to realise the assets in the event of default.
The total income of a person before deductions (e.g. income tax, national insurance).
Hire Purchase (HP)
An agreement whereby an asset is paid for over a period of time. Not until the overall value of the asset, plus any associated interest, is paid, does the asset become the property of the buyer.
Income Payments Order
An order by a court against bankruptcy; meaning the individual in question must make payments from his or her income to the trustee.
Money paid to the government, based on an individual’s income. In the UK, there are different bands, in which you pay a higher percentage of your gross income, the higher the band you fall in to. Each band has a tax free allowance, and you only pay the relevant percentage on the amount above the threshold for each band.
Individual Voluntary Arrangement (IVA)
A legally binding agreement with an individuals' creditors to repay a percentage of the debt, based on disposable income. This is generally an option for debts over £10,000, where the disposable income is over £100. For more information on Debt Management plans and other debt alternatives, click here.
The inability of an individual or organisation to repay debts.
The method of calculating the cost of borrowing money; normally as a percentage of the amount borrowed.
Typically a bank account, or similar, that is registered in two individuals’ names; often a husband and wife. Both signatories can be recorded on the account to enable cash transactions.
Otherwise known as a County Court Judgement (CCJ). A court order to ensure an individual continuously ignoring requests to make debt repayments does so.
A monetary charge imposed on debtor once payment has been deferred.
Security listed against a debt to ensure payment; e.g. mortgage.
An individual or organisation that lends money to another individual or organisation for an agreed period of time. The borrower is usually obliged to repay the loan in instalments, with relevant interest applied.
A loan provided for the purpose of purchasing a property. The period of repayment is typically long; normally 25 years, and is repaid monthly with an agreed interest rate. Mortgages in bankruptcy are classed as a priority debt.
A position where a property owner's home value is lower than the current mortgage value.
An individual’s total assets, less his or her total liabilities.
An official appointed by the court; responsible for representing the bankrupt with all aspects of the case, including the estate.
This term in regards to bankruptcies refers to a property that is difficult or not possible to sell, or that might be seen as a liability. Such a property can be disclaimed, either by a liquidator or a trustee.
A report by a lender to show that the debt on an individuals’ account is included in the discharged bankruptcy.
Proof of Debt
A proof of debt document is submitted by an individual creditor to the insolvency practitioner assigned to a case in order to provide evidence of a debt amount. It is only used in cases of compulsory liquidations.
Information gathered from either public or court records to show an individuals’ history regarding such situations as electoral roll registration, bankruptcy filings, and judgements against you. Available to any person or organisation upon request.
The situation whereby a creditor regains possession of an asset sold to them. Normally a last resort whereby repayment has been missed for a long period of time.
A creditor with specific rights over the assets of a debtor – this may be some or all of those assets. Because of this right, a secured creditor will get paid first out of the proceeds of sales, which will often be a property.
A sum of money that is borrowed using an asset as security; e.g. a house or a car. If repayment continues to not be paid, the lender has the right to demand the asset back by sale or return.
This is a formal notice/demand requiring payment of a debt exceeding £750 within three weeks, in default of which bankruptcy or liquidation proceedings may be started. This notice cannot be used if the debt is disputed.
Alternatively known as disposable income – monies left over each month, after all essential bills and living costs have been paid.
A time order (or Judgment Instalment Order) is a method of asking the Court to give an individual more time to pay a loan agreement if that person has fallen behind with payments. It is of particular use for someone with a secure loan who is under threat of losing their home.
An individual appointed by the court who holds a property in trust for the creditors.
An individual who has been granted bankruptcy, but whom has not been discharged.
A loan provided to an individual or organisation with no security attached (e.g. mortgage or car).