Definitions and Common Terms

Bankruptcy

Bankruptcy is a court case. It is used when a person cannot pay his or her bills. It helps a person get a fresh financial start. All bankruptcy cases are handled in a federal court. When the debtor exceeds his or her ability to pay, the debtor may file a petition with the bankruptcy court for voluntary bankruptcy. It is wise to have an attorney help you decide whether bankruptcy is the best way for you to handle your situation.

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.

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.

Credit Re

ports Credit reports contain information about where you work, live, and your bill paying habits. Credit Reporting Agencies are companies that gather and sell information concerning your credit history to various businesses. This credit history is sold in the form of a credit report. The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission, is designed to promote accuracy and ensure the privacy of the information used in credit reports. Under this act, Credit Reporting Agencies must furnish correct and complete information to businesses to use in evaluating your applications for credit, insurance or a job.

Debt

Liability; money owed

Debt 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. In most cases payments are lowered and interest rates are reduced.

Frozen Assets

When someone can no longer have access to funds in a bank or other holding company. Selling of personal items is not permitted at this time either.

Frozen Interest

When interest fees are no longer able to accrue on an account.

Frozen Interest Rate

When an interest rate is no longer fluctuating between variable numbers.

Garnishee or Garnishment

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

Insolvent

Unable to meet debts or discharge liabilities.

Liens

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

Liquidation

When a debtor may be legally ordered to sell all assets in order to settle debts.

Secured Credit

Where a deposit is made to the credit supplying company to cover any expenses or purchases made with the credit. Often times calling it a savings account for credit. A limit is then placed on the credit issued for the amount of the deposit paid.

Sue or suit

The creditor can take legal action to get the money owed

Unsecured Credit Card

A credit card where a security deposit is not required to open the credit account.