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A
APR (annual percentage rate)
The yearly cost of borrowing, including interest and any compulsory fees, shown as a percentage so you can compare credit products. A lower APR means cheaper borrowing. An advertised "representative APR" only has to be offered to at least 51% of successful applicants, so the rate you're offered may be higher.
Arrangement to pay
An agreement with a creditor to pay less than your contractual payment for a while. It is usually recorded on your credit file as an "arrangement to pay" (often shown as "AR" or "AP"). Accounts in a debt management plan are commonly marked this way, or as defaulted.
Arrears
Money you owe from missed payments. If you miss three £100 monthly payments, you are £300 in arrears. Arrears on priority debts such as rent, mortgage or council tax have more serious consequences than arrears on credit cards.
Attachment of earnings order (AEO)
An order telling your employer to take money from your wages to pay a debt. For a CCJ, the creditor applies to the court, which sets a "normal deduction rate" and a protected earnings rate. For council tax, the council can make one after a liability order without another court hearing, taking a fixed percentage of your net pay set by law. Your employer can add £1 per deduction for admin. It can't be used on self-employed income.
B
Bailiff
Someone authorised to collect certain debts by taking control of your goods. For most debts they must send a notice of enforcement at least 14 clear days before visiting, they can't enter between 9pm and 6am, and they can't take essential household items. For council tax and most magistrates' court debts they can't force entry on a first visit. Their fees are fixed by law.
Bankruptcy
A formal insolvency process for people who can't pay their debts. You apply online and the fee is £680. You are usually discharged after 12 months and most debts are written off, but your assets – including any home equity – may be used to pay creditors, and you may have to make income payments for up to 3 years. It stays on your credit file for 6 years.
Bankruptcy restrictions order (BRO)
An order that extends bankruptcy restrictions for between 2 and 15 years if you acted dishonestly or recklessly, for example by hiding assets or running up debts you knew you couldn't repay. While it lasts you can't act as a company director without permission and must tell lenders about it if you borrow more than £500.
Breathing Space
A scheme in England and Wales that pauses most enforcement action and freezes most interest and charges on your debts. Standard breathing space lasts up to 60 days and can be used once in any 12 months. Mental health crisis breathing space lasts for the length of your crisis treatment plus 30 days. You apply through an FCA-authorised debt adviser, and you must keep paying ongoing costs such as rent and council tax if you can.
C
Charging order
A court order that secures a debt (usually a CCJ) against your home or other property, so the creditor is paid when the property is sold. The creditor can later apply for an order for sale, though courts consider this carefully, especially for smaller debts.
Consolidation loan
A new loan used to pay off several existing debts, leaving one monthly payment. It doesn't reduce what you owe and only helps if the total cost is lower. A secured (homeowner) consolidation loan puts your home at risk if you can't keep up.
Controlled goods agreement
An agreement with an enforcement agent that lets you keep listed goods at home while you pay the debt in instalments. If you break the agreement, the enforcement agent can come back and remove the goods.
County court judgment (CCJ)
A court order saying you must pay a debt, made if you don't respond to a claim or the court decides against you. It goes on the Register of Judgments, Orders and Fines. If you pay in full within one calendar month of the judgment it is removed; if you pay later it is marked "satisfied" but stays on the register and your credit file for 6 years.
Creditor
Any person or organisation you owe money to – for example a bank, card provider, lender, utility company, HMRC, your council or a debt collection agency that has bought the debt.
D
Debt Arrangement Scheme (DAS)
A Scottish government scheme that lets you repay debts through a Debt Payment Programme. Interest and charges are frozen and creditors can't take action while you keep to it. It is roughly the Scottish equivalent of a DMP, but legally binding.
Debt management plan (DMP)
An informal agreement to repay your unsecured debts at a rate you can afford, with one monthly payment shared between creditors. There's no minimum debt. Creditors are asked to freeze interest and charges but don't have to, and nothing is written off – the plan lasts until the debts are repaid. Free providers include StepChange, PayPlan and National Debtline.
Debt relief order (DRO)
A form of insolvency for people with low income and few assets. Your debts must be £50,000 or less, your spare income £75 a month or less, your assets £2,000 or less and any vehicle worth £4,000 or less. There's no application fee. It lasts 12 months, after which the included debts are written off. You apply through an approved debt adviser.
Default
When a lender formally records that you have broken a credit agreement, usually after several missed payments and a default notice. A default stays on your credit file for 6 years from the default date and then drops off, even if some of the debt is still unpaid.
Default notice
A formal letter a lender must send under the Consumer Credit Act before it can end a regulated credit agreement or demand the full balance. It tells you how much you need to pay to bring the account up to date and gives you at least 14 days to do so.
Disposable income
What's left from your income after essential living costs such as housing, council tax, energy, food and travel. Debt advisers work it out using the Standard Financial Statement, and it decides how much you can offer creditors.
E
Enforcement action
Steps a creditor takes to recover a debt, such as sending enforcement agents, an attachment of earnings order, a charging order or a bankruptcy petition. For most consumer debts the creditor needs a CCJ first; councils (after a liability order) and HMRC have their own powers. Breathing Space and formal insolvency pause or stop most enforcement.
Enforcement agent
The official term for a bailiff who takes control of goods under the Taking Control of Goods rules. They must be certificated and follow set rules on notice, visiting hours, what they can take and the fees they charge.
Equity
The part of your home's value that you own outright: its market value minus any mortgage or secured loans. If your home is worth £200,000 and you owe £150,000, you have £50,000 equity. Equity can be used to pay creditors in bankruptcy, and you may be asked to release some in an IVA.
F
FCA (Financial Conduct Authority)
The UK regulator for financial services firms, including lenders, debt collectors and debt advice firms. Its rules (in the CONC sourcebook) require firms to treat customers in financial difficulty fairly. You can check whether a firm is authorised on the FCA register.
Forbearance
Help a lender gives you when you're in financial difficulty, such as accepting reduced or token payments, freezing or reducing interest and charges, or pausing collection. FCA rules require lenders to consider forbearance for customers in arrears.
Full and final settlement
An offer to pay a lump sum that is less than the full balance, in return for the creditor writing off the rest. Creditors don't have to accept. Always get the agreement in writing before you pay. Your credit file will usually show the debt as "partially settled".
H
Hire purchase (HP)
A type of credit, often used for cars, where you hire goods and own them only after the final payment. Because the lender owns the goods until then, missing payments can lead to them being taken back (after you have paid a third, the lender needs a court order). HP you want to keep is usually left out of a DMP or IVA and paid separately.
I
Income payments agreement (IPA)
In bankruptcy, an agreement (or a court order, if you don't agree) to pay some of your spare income to creditors. It can last for 3 years, so payments may continue after you are discharged from bankruptcy at 12 months.
Individual Insolvency Register
A free public online register of people in England and Wales who are bankrupt or have an IVA or a debt relief order. It shows your name, address and the type of insolvency. Entries are removed after the insolvency ends (for example 3 months after a DRO ends), or later if there's a restrictions order. A DMP is not on it.
Individual voluntary arrangement (IVA)
A legally binding agreement with your creditors, set up by an insolvency practitioner, to pay what you can afford, usually for 5–6 years. It is approved if creditors owed 75% of the debt (by value, of those voting) agree. Interest is frozen and included creditors can't take action. Whatever is unpaid at the end is written off – the amount varies and isn't guaranteed.
Insolvency
Being unable to pay your debts when they are due. Formal personal insolvency solutions in England and Wales are bankruptcy, IVAs and debt relief orders. A DMP is not insolvency.
Insolvency practitioner (IP)
A licensed professional who sets up and supervises IVAs and can act as a trustee in bankruptcy. IPs must be authorised by a recognised professional body. Their fees in an IVA come out of your monthly payments.
L
Letter before claim
A letter a creditor should send before starting court action for a debt, under the Pre-Action Protocol for Debt Claims. It gives you 30 days to respond, for example to agree a payment plan, dispute the debt or ask for more information.
Liability order
An order a magistrates' court gives a council when you haven't paid council tax. Court costs are added to what you owe. It lets the council use enforcement agents, take money from your wages or benefits, or apply for a charging order, without going back to court.
Limitation Act 1980
The law that sets time limits for court action. For most unsecured debts the limit is 6 years, after which the debt becomes statute-barred. In Scotland, a different 5-year rule (prescription) applies and usually cancels the debt altogether.
M
Moratorium
A legal pause on creditor action. Breathing Space is a moratorium: for up to 60 days most creditors can't add interest or charges or take enforcement action on the included debts.
O
Official Receiver
A civil servant at the Insolvency Service who deals with bankruptcies. They look into your finances, can sell assets to pay creditors, and report any misconduct. You must co-operate, or your restrictions could be extended.
P
PCP (personal contract purchase)
A type of car finance where your monthly payments cover part of the car's value, with an optional final "balloon" payment to own it. If you want to keep the car, PCP is usually paid separately from a DMP or IVA.
Priority debts
Debts with the most serious consequences if you don't pay: rent and mortgage (eviction or repossession), council tax (enforcement agents, wage deductions), energy (disconnection or a prepayment meter), court fines, child maintenance, TV licence and tax owed to HMRC. Deal with these before non-priority debts such as credit cards and loans.
Pro rata
Sharing a payment between creditors in proportion to how much you owe each one. If one creditor is owed 40% of your total debt, they get 40% of each payment. DMPs and IVAs pay creditors pro rata, and it's the fair way to split any spare money between non-priority creditors.
Protected earnings rate
In an attachment of earnings order for a CCJ, the amount of your pay the court says you must be left with for living costs. If your pay falls below it, nothing is deducted that pay period.
Protected Trust Deed
A formal, legally binding arrangement in Scotland, broadly similar to an IVA in England and Wales, where you pay what you can afford for a set period and the rest is written off.
S
Secured debt
Debt linked to an asset, such as a mortgage or a secured loan on your home. If you don't pay, the lender can take the asset. Secured debts aren't normally included in DMPs or IVAs, and the lender's security isn't removed by bankruptcy.
Set aside
Asking the court to cancel a judgment, such as a CCJ. You might apply if you never received the claim form or you have a real defence. You use form N244 and pay a court fee. Act quickly – delay makes success less likely.
Standard Financial Statement (SFS)
The budget format used by debt advisers and accepted by most creditors to show your income, spending and how much you can afford to pay. It includes spending guidelines for things like food and travel. It replaced the Common Financial Statement in 2017.
Statute-barred debt
A debt that is too old for the creditor to take you to court for. For most unsecured debts in England and Wales this is 6 years from the date of the default or your last payment or written acknowledgement, as long as no CCJ was obtained. The debt still exists and creditors can ask for it, but they can't threaten court. If you think a debt is statute-barred, get advice before paying or writing to the creditor.
T
The Gazette
The UK's official public record, where legal notices are published. Bankruptcy orders are usually advertised in it. IVAs and DROs are not normally advertised there but are on the Individual Insolvency Register.
Time to Pay arrangement
A payment plan with HMRC for tax you can't pay in full. Self Assessment debts up to £30,000 can often be set up online; otherwise you contact HMRC's Payment Support Service.
Token payment
A small payment, often £1 a month, to each creditor when you can't afford more. It shows you aren't ignoring the debt while you sort out your finances or get advice. Creditors don't have to accept it, but many will for a period if you send an income and expenditure statement.
U
Unsecured debt
Debt not linked to an asset, such as credit cards, personal loans, overdrafts, store cards, catalogues, buy now pay later and payday loans. These can usually be included in a DMP, IVA, DRO or bankruptcy.
W
Warrant of control
A court document that lets enforcement agents visit your home to take control of goods to pay a county court judgment. You can ask the court to suspend it by offering affordable payments on form N245.
Windfall clause
A term in an IVA that requires you to pay unexpected money – such as an inheritance, a large bonus or compensation – into the IVA during its term. In bankruptcy, windfalls received before discharge usually go to creditors too.
Write-off
When you are no longer legally required to pay a debt. A DRO writes off included debts after 12 months, bankruptcy writes off most debts on discharge, and an IVA writes off whatever is unpaid when it is completed. DMPs and consolidation loans don't write anything off.
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