Debt: a glossary of terms
Bankruptcy – Have been legally declared insolvent. There are two types of bankruptcy: liquidation, in which your debts are discharged, and reorganization, in which you provide the court with a plan for how you intend to pay off your debts.
Collateral – Property acceptable as collateral 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), such as a loan agreement, lease or credit application. If the primary borrower defaults, the cosigner is fully responsible for the loan or debt.
Credit bureau – An organization from which business firms request credit information about 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’ve 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 well-being. It is calculated using your monthly debt divided by your monthly income. The lower the percentage, the better your financial picture. This is often referred to as solvency.
Flaw – Do not pay the money when due. A mortgage or loan default occurs when you fail to make loan payments on time, maintain adequate insurance, or violate any 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 by going through bankruptcy.
Deposit – A cash payment made by a buyer when purchasing a property.
Capital – An increase in the value of your home or a decrease in the amount of your home loan creates equity. Equity is the difference between what is owed on your home and its sale value. Most home equity lenders will let you 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 property owner has defaulted on.
Decorate – A court order directing a third party who possesses money or property belonging to a defendant to hold it and appear in court to answer questions.
Grace period – A period of time during which you are not required 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. It is usually calculated as a percentage of the mortgage or loan.
Link – The right to take and possess or sell the property of a debtor as security or payment of a debt or duty.
loan consolidation – The combination of a series of loans into a single new loan. It is usually done to obtain more favorable terms, for example lower cost reimbursements or more time to pay.
Major – 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 main balance.
Recovery – The taking by a creditor of the property that has been given as collateral 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.
Finished – 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.