Debt Glossary
Every debt term explained in plain English. Click a letter to jump to that section, or search for a specific term.
Terms Beginning with A
APR (Annual Percentage Rate)
The yearly cost of borrowing money, including interest and fees, expressed as a percentage. A credit card with 24% APR costs £240 per year for every £1,000 borrowed. Understanding APR helps compare different credit products — lower is always better.
Attachment of Earnings
A court order that instructs your employer to deduct money directly from your wages to pay a debt. The court sets a "protected earnings" amount you keep, and everything above goes to the creditor. Your employer must comply by law.
Arrears
Money you owe from missed payments. Being "in arrears" means you're behind on payments. For example, if you miss three £100 monthly payments, you're £300 in arrears. Priority arrears (rent, council tax) have more serious consequences than credit card arrears.
Terms Beginning with B
Bailiff
Court-appointed officers who collect debts by visiting your home and potentially taking goods to sell. They must give 7 days' notice before first visiting. They cannot force entry on a first visit for most debts, cannot enter through windows, and cannot use physical force against you.
Bankruptcy
A legal process where most of your debts are written off when you cannot pay them. You apply online (costs £680), and most debts are discharged after 12 months. However, you may lose assets including your home, and it severely impacts your credit for 6 years.
BRO (Bankruptcy Restrictions Order)
Extended bankruptcy restrictions lasting 2-15 years for people who acted irresponsibly (gambling away money, borrowing knowing you couldn't repay, hiding assets). During a BRO, you cannot be a company director or borrow over £500 without disclosure.
Breathing Space
A government scheme giving 60 days protection from creditor action while you get debt advice. Interest and charges are frozen, enforcement action pauses, and creditors cannot contact you. You must work with a debt advisor and keep paying ongoing bills.
Terms Beginning with C
CCJ (County Court Judgement)
A court order stating you must pay a debt. If you don't respond to court papers or lose the case, the court issues a CCJ. It stays on your credit file for 6 years unless paid in full within 1 month. CCJs make getting credit, mortgages, or even some jobs very difficult.
Charging Order
A court order securing a debt against your property. The debt becomes like a second mortgage — if you sell the property, the creditor gets paid from the proceeds. They can also apply for an "order for sale" to force the property sale, though courts rarely grant these for small debts.
Consolidation Loan
A new loan used to pay off multiple existing debts, leaving you with one monthly payment. Can simplify finances and potentially reduce interest, but requires good credit to qualify. Warning: turning unsecured debts into a secured loan puts your home at risk.
Controlled Goods Agreement
An agreement where bailiffs list your possessions but leave them at your property while you make payment arrangements. If you break the agreement, they can return and remove the listed items without further notice. Also called "walking possession."
Creditor
Any person or company you owe money to. This includes banks, credit card companies, loan providers, utility companies, HMRC, councils, and even individuals who've lent you money. In debt solutions, creditors vote on whether to accept proposals.
Terms Beginning with D
Default
When a creditor formally records that you've broken your credit agreement by missing payments. A default appears on your credit file for 6 years, severely impacting your credit score. Multiple defaults make obtaining any form of credit extremely difficult.
Debt Management Plan (DMP)
An informal arrangement where you pay creditors what you can afford each month. A DMP provider negotiates reduced payments and asks creditors to freeze interest. It's flexible but offers no legal protection, no guaranteed interest freeze, and no debt write-off — you repay everything eventually.
Debt Relief Order (DRO)
A form of insolvency for people with low income, few assets, and debts under £30,000. Costs £90 to apply, lasts 12 months, then debts are written off. You must have less than £75/month disposable income and assets worth less than £2,000 (car under £2,000 allowed).
Disposable Income
Money left after essential living costs: rent/mortgage, council tax, utilities, food, transport, clothing, and other necessities. This amount determines what you can afford in debt solutions. Calculated using standard guidelines like the Common Financial Statement.
Terms Beginning with E
Equity
The portion of your property you actually own — market value minus outstanding mortgage. If your house is worth £200,000 with a £150,000 mortgage, you have £50,000 equity. In IVAs and bankruptcy, equity may need to be released to pay creditors.
Enforcement Action
Legal steps creditors take to recover debts: sending bailiffs, applying for attachment of earnings, charging orders, or bankruptcy petitions. Most enforcement requires a CCJ first. Entering an IVA or bankruptcy stops most enforcement action immediately.
Terms Beginning with F
FCA (Financial Conduct Authority)
The UK regulator for financial services companies. The FCA sets rules for how lenders treat customers, especially those in financial difficulty. Debt management companies and debt advisors must be FCA-authorized or exempt. You can check authorization on the FCA register.
Forbearance
When a creditor gives you temporary relief due to financial hardship: reduced payments, payment holidays, or frozen interest. FCA rules require lenders to treat customers in financial difficulty with forbearance. Not a long-term solution but provides breathing space.
Terms Beginning with H
Hire Purchase (HP)
A type of secured credit where you hire goods (usually cars) and pay in installments. You don't own the item until the final payment. HP agreements aren't included in IVAs — you keep paying separately or return the goods. Missing payments risks repossession.
Terms Beginning with I
Individual Voluntary Arrangement (IVA)
A legally binding agreement between you and creditors to pay back a portion of your debts over 5-6 years. Typically writes off 50-70% of debt. Requires approval from creditors holding 75% of your debt value. Must be set up by a licensed Insolvency Practitioner.
Insolvency
The state of being unable to pay your debts as they fall due. Formal insolvency includes IVAs, bankruptcy, and DROs. Being insolvent doesn't automatically mean bankruptcy — there are several ways to resolve insolvency.
Insolvency Practitioner (IP)
A licensed professional authorized to administer IVAs and bankruptcies. IPs must be licensed by a recognized professional body and follow strict rules. They act as intermediaries between you and creditors, ensuring legal compliance and fair treatment.
Insolvency Register
A public database listing everyone in an IVA, bankruptcy, or DRO in England and Wales. Searchable online by anyone. Entries include name, address, date of birth, and insolvency details. Removed 3 months after completion/discharge.
IPA (Income Payments Agreement)
In bankruptcy, if you have surplus income, you agree to pay it to creditors for 3 years. Even after bankruptcy discharge at 12 months, IPA payments continue. The amount is based on your disposable income above reasonable living costs.
Terms Beginning with L
Limitation Act 1980
The law stating creditors have 6 years (5 in Scotland) to take court action for most debts. After this, debt becomes "statute barred." However, the debt still exists — creditors can still ask for payment but cannot enforce through courts.
Terms Beginning with M
Moratorium
A temporary suspension of creditor action. The Breathing Space scheme provides a 60-day moratorium. During this time, creditors cannot add interest, charges, or take enforcement action while you seek debt advice.
Terms Beginning with O
Official Receiver
A government officer who handles bankruptcy cases. They investigate your financial affairs, sell assets to pay creditors, and report any wrongdoing. You must cooperate fully with the Official Receiver or face extended bankruptcy restrictions.
Terms Beginning with P
PCP (Personal Contract Purchase)
Car finance where you pay monthly for depreciation, not the full value. At the end, you can pay a "balloon payment" to own the car, return it, or trade it in. Not included in IVAs — you continue payments separately or return the vehicle.
Priority Debt
Debts with the most serious consequences if unpaid: rent/mortgage (eviction), council tax (imprisonment), utilities (disconnection), child maintenance (enforcement action), court fines (imprisonment). Always pay priority debts before credit cards or loans.
Protected Earnings
In an attachment of earnings order, the minimum amount you're allowed to keep from your wages for essential living costs. The court sets this based on your circumstances. Everything above the protected amount goes to creditors.
Terms Beginning with S
Secured Debt
Debt tied to an asset like your home (mortgage) or car (HP/PCP). If you don't pay, the creditor can repossess the asset. Secured debts aren't included in IVAs or written off in bankruptcy — you must keep paying or lose the asset.
Statute Barred Debt
Debt that's too old for creditors to enforce through courts — typically 6 years since last payment or acknowledgment. The debt still exists, and creditors can ask for payment, but they cannot take legal action. Any payment or written acknowledgment restarts the 6-year clock.
Terms Beginning with T
The Gazette
The official public record where bankruptcies and other legal notices are published. All bankruptcies appear here with your name and address. It's publicly searchable online. IVAs don't appear in The Gazette but are on the Insolvency Register.
Token Payment
A small payment (often £1 per month) made to creditors to show goodwill while you sort out finances or negotiate a solution. Shows you're not ignoring the debt but acknowledges you cannot afford full payments currently.
Terms Beginning with U
Unsecured Debt
Debt not tied to any asset: credit cards, personal loans, overdrafts, store cards, payday loans, catalogue debts. These debts can be included in IVAs, DMPs, and are typically written off in bankruptcy. Creditors cannot repossess items but can take legal action for payment.
Terms Beginning with W
Windfall Clause
An IVA provision requiring any unexpected money (inheritance, lottery wins, PPI refunds, compensation) to go to creditors. Applies during the IVA term and sometimes for assets you're expecting to receive. Standard in all IVAs to ensure fairness to creditors.
Write-Off
When debt is legally cancelled and you no longer owe it. IVAs typically write off 50-70% after completion. Bankruptcy writes off most unsecured debts after discharge. DMPs and consolidation loans don't write off any debt — you repay in full.
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