Debt Relief:Definitions

Definitions and Common Terms

Bankruptcy

• Bankruptcy occurs when the federal system of statues and courts authorize insolvent individuals or businesses the ability to place their financial affairs under the bankruptcy court's control. When the debtor's exceed his or her ability to pay, the debtor may file a petition with the bankruptcy court for voluntary bankruptcy.

The two most common types of bankruptcy filed by individuals and businesses are: Chapter 7 bankruptcy and Chapter 13 bankruptcy.

• Chapter 7 bankruptcy-involves the liquidation of all your assets that are not exempt from the bankruptcy settlement.
• Chapter 13 bankruptcy-is a court-ordered and approved repayment plan to your creditors.

Consolidation

• The process of combining all debt into one sum and having only one payment. This may be helpful when there are multiple credit cards with high interest rates. Consolidation is used in other circumstances as well.

Garnishee or Garnishment

• A creditor can legally take money from a debtor's paycheck.

Insolvent

• Unable to meet debts or discharge liabilities.

Liens

• The creditor can legally claim the property of the debtor by placing a lien on the property until the debt is paid.

Liquidation

• A debtor may be legally ordered to sell all assets in order to settle debts.

Sue or suit

• The creditor can take legal action to get the money owed

Beacon or Credit Score

• Points kept on file by credit reporting agencies that indicate how much debt a person has; higher scores are ideal. Low scores indicate an unfavorable credit history.

Debt

• Liability; money owed