Debt Terms

Debtor
You are debtor if you owe money to someone.

Creditor                                                                                                                                     The creditor is the person (or company) to whom you owe money. This person is known as the judgment creditor if judgment is awarded against you in court.

Interest
Interest is the fee charged by the creditor to the debtor. Interest is generally calculated as a percentage of the principal sum (borrowed amount) per year, and is generally paid periodically at intervals, such as monthly or semi-annually.

Interest rates may be fixed or floating.

In floating-rate structures, the rate of interest that the borrower pays during each time period is tied to a pre-established benchmark such as London Interbank Offered Rate or, in the case of inflation-indexed bonds, inflation.

                             

 

Repayment
Loans may be structured so that the entire principal balance is due at the maturity of the loan; so that the entire principal balance is paid slowly or amortized (written off) over the term of the loan; or so that the loan is partially written off during the term of the loan and a larger “balloon payment” is due at maturity. Amortization structures (writing off structures) are common in mortgages and credit cards.

Collateral and recourse
A debt obligation is considered secured if creditors have recourse to specific collateral. Collateral may include claims on tax receipts (in the case of a government), specific assets (in the case of a company) or a home (in the case of a consumer). Unsecured debt comprises financial obligations for which creditors do not have recourse to the assets of the borrower to satisfy their claims.

Debt forbearance and forgiveness
Debt forbearance is the term which is sometimes used by creditors when they agree to allow you to change the manner in which your debt will be repaid, for example, by postponing some payments or by restructuring the manner in which repayments are made. You continue to owe all the money and you will eventually have to repay it all.
Debt forgiveness or cancellation occurs when your creditor decides not to pursue the debt. Permanent debt forgiveness is rare. Some creditors may cease to pursue the debt because they recognise that you will never be able to repay it but that does not mean that the debt is forgiven or cancelled. If your circumstances change, you may still be pursued for it.

Simple contract debt
This is a debt which arises because you have not paid for goods or services which are not covered by any special rules. For example, if you buy goods using a cheque and the cheque is not honoured, there is a simple contract debt to the seller. If you avail of the services of an electrcian and do not pay him, there is a simple contract debt to the electrician. The seller or the electrician can go to court to get judgment against you and then enforce that judgment.
A range of legislation provides that various fees and levies which have not been paid may be dealt with in court in the same way as simple contract debts.

Debt management agencies
There are a number of private commercial debt management agencies which help you to manage your debts for a fee. They are not usually regulated.