The world of debt collections is fraught with unfamiliar terms and phrases. Reading up on common debt collection terminology will help you communicate with your attorney more efficiently.
Businesses often turn to a debt collection attorney to help collect on outstanding accounts receivable. If your business needs help with out-of-control unpaid invoices, do not let unfamiliar terminology paralyze you. This debt collection glossary will help you understand the most important terms and phrases that you and your debt collection attorney may discuss:
Bankruptcy Code– A set of Federal laws that allow individuals and corporations to request relief from debts they cannot repay. The most common forms of bankruptcy include:
- Chapter 7– Under court supervision, the debtor must sell his or her non-exempt assets to pay the debt.
- Chapter 11– This procedure allows companies and wealthy individuals to reorganize their businesses to more easily repay the debt. This often involves promising the creditor a portion of future profits.
- Chapter 12– Created for fishers and farmers, this procedure lets debtors maintain control of their property while promising future income to their creditors.
- Chapter 13– Under this procedure, debtors may keep their property but must agree to hand over future income for a certain time. To qualify for this, an individual must owe less than $1,010,650 in secured debts and less than $336,900 in debt that is not secured.
Capacity– A measure of credit worthiness. To determine a borrower’s capacity, creditors consider the amount of debt already owed, the borrower’s income, and the likelihood that they will maintain that income.
Charge-Off– When a creditor determines that a debt is unlikely to be recovered. Collections agencies will still try to recover the debt, but a charge-off marks it as a lower priority.
Delinquent Account– An account on which payments are overdue. Most creditors divide delinquent accounts into 30-, 60-, 90-, and 120-days overdue.
Fair Credit Reporting Act– Often abbreviated FCRA; this act requires credit bureaus to provide consumers with accurate credit reports once a year, to keep those reports private, and to remove negative information from those reports after a specified amount of time.
First Party Debt Collector – Many larger businesses retain their own debt collection departments in-house that work fundamentally with their company’s mission statement and code of conduct. These entities are known as “first party” debt collectors. An outside source like a collection agency or a debt collection attorney is a “third party” debt collector.
Lien- Property that a consumer uses to secure a debt. If the consumer defaults, creditors can then collect the lien and liquidate it to pay off the debt.
Pre-Collection– A service that includes consumer notifications for accounts that are not quite ready to be collected. Pre-collection helps debt collectors differentiate between collections that can be made with minimal efforts and those that will require more elaborate, long-term efforts.
Primary Collections– A delinquent account that no debt collection attorney or agency has yet attempted to collect. This is distinct from secondary accounts, from which other agencies or attorneys have already tried to collect.
Tradeline– Information from a consumer’s credit history that creditors can access. Tradelines typically include the consumer’s credit limit, the balance he or she owes, payment history, and the names of all the companies where he or she has accounts.
Victim Statement– A warning to creditors that a consumer’s identification information has been used to gain fraudulent credit. Creditors are encouraged to call the consumer to confirm their identity before providing further credit. Consumers may keep victim statements in their credit reports for up to 7 years.
Wage Assignment– An agreement allowing a creditor to collect part of the borrower’s wages if the borrower defaults on his or her debt. Sometimes referred to as wage garnishment.
This is not a comprehensive debt collection glossary, but it should give you a general understanding of the basics you will discuss with your debt collection attorney.
For more information about debt collections or debt collection terminology, contact McHughes Law Firm at (501) 376-9131 to speak with one of our experienced debt collection attorneys.