Credit & Collection Terms

ARREARS: Funds that are unpaid although due to be paid. A debtor in arrears is behind on payment.

AUTOMATIC STAY: When a debtor files for bankruptcy the “automatic stay” goes into effect. Meaning creditors are automatically stopped from taking action against the debtor this means no communication between the creditor and debtor, prevents any creditor from continuing any lawsuit, collection action, wage garnishment, foreclosure, or any other action creditor may be using against the debtor.

BALANCE SHEET: A statement of financial conditions as of a specific date. It is different from a cash flow statement, which summarizes income and expenses.

BANKRUPT: insolvent, gone belly up, ruined, wiped out, broke, busted, penniless, in the red.

BANKRUPTCY CODE: The body of federal statutory law that governs the bankruptcy process.

BANKRUPTCY PETITION: The legal instrument filed with the bankruptcy court that commences a bankruptcy proceeding.

CHAPTER 7: In a case of Chapter 7 Proceeding, the debtor’s business is liquidated and its assets are distributed to creditors with allowed proofs of claims.

CHAPTER 11: Normally, a Chapter 11 proceeding is a reorganization proceeding. The debtor continues to operate its business after the bankruptcy is filed. Chapter 11 liquidations are commonplace and usually results from an unsuccessful reorganization attempt.

CHAPTER 11 PLAN: In a Chapter 11 proceeding, the reorganization plan sets forth the rights of all classes of creditors. It may also include various repayment schedules pertaining to the various creditors.

CHAPTER 13: May only be filed by an individual debtor with limited debt. In essence, it allows payment plan for individual’s financial and/or business debts.

CHARGE-OFFS: Are when the creditor writes off the account, instead of turning it over to collections. Debtors are still liable for charge-offs.

CLOSING: When a bankruptcy case is closed, it is no longer on the court’s docket.

COLLECTION ACCOUNTS: Accounts that have not had any activity for three to six months or longer.

COLLATERAL: Property a person places within legal control of the creditor for securing the debt.

COMPLAINT: A pleading that is filed to initiate a lawsuit or an adversary proceeding.

COMPOSITION: Out-of-court agreement to pay a percentage of a debt in full settlement.

CONSUMER CREDIT COUNSELING SERVICES: Non-profit organizations established to help debtors make payment arrangements with creditors.

CREDIT: Belief, trust, faith, honesty, credibility, praise, attribute, notice, commendation, debt on account, deferred payment, charge, time, installment plan.

CREDIT BUREAUS: Clearing houses for information. In the business of making money by selling information about a person or company to lending institutions, insurance companies, renters, employers and to others. These are some of the same sources they use to obtain data about a person. Whenever a person fills out a credit application, the information is reported to the credit bureaus.

CREDIT REPORTS: A file used to evaluate a person’s history of debt repayment. Also, referred to as a Credit Profile or Credit File.

CREDITOR: One to whom you owe money.

DEBT: Obligation, liability, bill, debit, arrears, deficit, pledge, due, burden, red ink.

DEBT RATIO: Total monthly payments divided by a gross monthly income. A creditor will add up total monthly payments on a credit report and any other monthly payments a person puts on their credit application. As a general guideline, a debt ratio of 38% or below is good and a debt ratio above 45% may indicate that the individual is over-extended.

DEBIT CARD: Using a debit card is like writing a check. When a person makes a purchase or takes out a cash advance, the money is automatically taken out of a person’s checking account.

DEBTOR: One owing a debt; one who uses credit card loans, owes money on a personal loan, or is paying on a home mortgage.

DEFAULT: Another word for the current situation on a debt that has never been paid on.

DEFICIENCY BALANCE: The result of a collateralized loan that was repossessed or foreclosed. A debt is still owed the creditor for the difference (what the collateral was sold for and what a person owed the creditor. In bankruptcy, deficiency balances can be discharged.

DELINQUENCIES: Payments made 30 to 180 days after the due dates. Delinquencies are the same as being late. They just sound worse.

DISCHARGE: Debt that is erased by the bankruptcy court.

DISCHARGEABLE DEBT: Debt that is erased by the bankruptcy court.

DUNNING: Letters that are sent from the collection agency on behalf of the creditor.

EARNINGS ATTACHMENT: When a judgment creditor asks the court to garnish earnings. The sheriff will deliver the orders to the employer. The employee risks losing a job if the employer receives two separate earning attachments. Most states limit how much of the earnings can be garnished.

EXEMPT PROPERTY: Property a person is allowed to keep if a creditor, business or individual obtains a judgment against a person by favor of a lawsuit, or property a person is allowed to keep if a person files bankruptcy. This property is known as state exemptions for exempt property. Exempt property is not protected from the Internal Revenue Services.

FAIR CREDIT REPORTING ACT: The privacy law regulating credit-reporting bureaus. This law protects consumers’ rights, such as the right to review and dispute information in their credit files.

FIRST PAYMENT DEFAULT: When a customer has made one payment towards the debt and then has not paid a payment since.

FORECLOSURE: A debt-collection procedure whereby property of the debtor is sold on the courthouse steps to stratify debts. Foreclosure often involves real estate of the debtor.

FORWARDING: The process of transferring a debtor's account from one collection agency to another agency in a different part of the country. Forwarding occurs when an agency is not licensed to do business in the state where a debtor is located.

GENERAL, UNSECURED CLAIM: A claim that is neither secured nor granted a priority by the Bankruptcy Code. Most trade debts are general, unsecured claims.

INVOLUNTARY BANKRUPTCY PROCEEDING: In a involuntary bankruptcy proceeding the debtor is forced into bankruptcy by creditors. Involuntary bankruptcies are relatively rare.

INQUIRIES: Companies (usually creditors but sometimes employers and insurance companies) who requested a copy of a credit report during the previous two years. Every time anyone applies for credit it will add an inquiry to a credit report.

JUDGMENT: A judgment is the final ruling of the court. If a person loses a lawsuit, a judgment is placed against that person until they pay off the business or individual that was awarded the judgment. A judgment can cause wages to be garnished or it can create a lien against any property owned by the individual or business that lost the lawsuit.

LEIN: A claim on the property for a business or individual as security for a debt. Amongst the most common liens are a property lien, judgment lien, tax lien, and mechanics lien.

MOTION: A request for the court to act. A motion may be filed within a lawsuit, adversary proceedings, or bankruptcy case.

PERSONAL PROPERTY: Moveable property.

PETITION: A serious written request for a certain thing to be done. A bankruptcy petition is a written two-page request asking the bankruptcy court for relief from the creditors. Along with the bankruptcy petition, the debtor will have to file schedules describing the debtor’s background, property, finances, and any assets.

PRIORITY: Certain categories of claims and designated as priority claims by the Bankruptcy Code, such as claims for lost wages or taxes. Each classification of claims must be paid in order of priority (claims in one class must be paid in full before the next class receives any payment.)

PRIORITY PROOF OF CLAIM or PRIORITY CLAIM: A proof of claim of the type granted priority by the Bankruptcy Code.

PROOF OF CLAIM: The document filed in a bankruptcy case that establishes a creditor’s claim for payment against the debtor.

PUBLIC RECORD INFORMATION: Obtained from the public records office or a County Court House where dependent on the terms of the county may include criminal records, birth and death certificates, deeds, property tax records, lawsuits, judgments, bankruptcy, liens, child support delinquencies, and items of this nature. This is information that goes through the courts and is open to the public.

REAFFIRM: In bankruptcy the debt is not discharged. If a debtor desires to keep secured property the debtor reaffirms to the creditor in writing. After the debt is affirmed, it survives the bankruptcy and is collectable under ordinary state law after the bankruptcy is over. If the debtor does not pay the remaining unpaid balance, the creditor can repossess upon default.

REALTY OR REAL PROPERTY: Immovable property, such as land and/or buildings attached to land.

SECURED CREDITOR: A creditor whose debt is secured by a lien on property of the debtor.

SECURED CREDIT CARD: A credit card guaranteed by money (usually a savings account is used as a security deposit). If not paid as agreed the bank will take the money from the savings account. A secured credit card is one of the easiest and most common ways to reestablish credit.

SECURED DEBT: Money loaned for a specific item. That item will be known as collateral. Such loans include car loans or home mortgages. The creditor may repossess the collateral if the loan is not repaid.

SECURED PROOF OF CLAIM: A proof of claim for a debt that is secured by a lien, a judgment, or other security interest.

SECURITY INTEREST: A lien on the property in the possession of the debtor that acts as security or the debt owed to the creditor.

SKIPTRACING: A method the collection agency uses to find debtors who have moved or can no longer be reached at their billing addresses or phone numbers.

SKIP: A term we used to describe an account that we are trying to get information on.

STATUTORY LIEN: A lien created by operation law, such as a mechanic’s lien of a tax lien. A statutory lien does not require the consent of the parties or a court order.

STATUE OF LIMITATION: A legal limit on the amount of time a creditor has to sue a person if the debt goes unpaid. Almost every type of action under civil or criminal law has a statute of limitations.

TRUSTEE: One who holds legal title to property for the benefit of another. In bankruptcy, the “bankruptcy trustee” is appointed to take legal title of the debtor’s property or money and distribute it equally among the creditors.

UNSECURED CREDITOR: A creditor without security for its debt.

UNSECURED DEBT: Includes credit card debt, medical bills, personal loans, or any loan that require just a signature and that is not a priority debt. These loans require no collateral and are the easiest to negotiate or discharge. In bankruptcy, unsecured debt – including credit card debt can be dischargeable debt. In bankruptcy unsecured debt can be erased or discharged by the bankruptcy court.