Debt Consolidation Glossary

Accrued Interest:

The amount of interest that adds up for the length of time that a consolidation loan remains unpaid.

Arrears:

A debtor is “in arrears” when he or she misses a payment that is due.

Automatic Stay:

The automatic stay is one of the most important parts of a bankruptcy case. When a court enters the automatic stay, this injunction serves to stop all further collection efforts against the debtor.

Bankruptcy Estate:

Before the beginning of a bankruptcy case, the court will seek to collect information about the debtor’s assets. The judge will determine which assets make up the debtor’s “bankruptcy estate.” Assets within the bankruptcy estate may be subject to liquidation.

Budget:

A budget is a written document that indicates the cash flow of an individual. He or she lists all of the income and expenses that he or she has for the month. Then, the individual may allocate income funds into pre-determined and prioritized expenses. A budget assists an individual in retaining control over his or her financial affairs.

Chapter 7 Bankruptcy:

This is a form of bankruptcy in which the assets of the debtor are liquidated. Depending on one’s state law, a debtor may be able to retain certain forms of property as “exempt.” A Chapter 7 bankruptcy typically takes about three to six months to complete.

Chapter 13 Bankruptcy:

This is a form of bankruptcy in which the court orders a payment plan that a debtor must successfully complete. The payment plan takes about three to five years to complete. If the debtor completes the plan, then the court will forgive any remaining debts that he or she owes.

Debt consolidation loan:

The process of debt consolidation entails combining outstanding loans into one loan amount. The purpose of doing this is to decrease the monthly payment for all of the outstanding debts. The debtor may feel like he or she has more control over his or her financial situation.

Debt relief:

Debt relief refers to a process in which a debtor may work one-on-one with a debt relief professional. The debt relief professional tries to negotiate with credit card companies to eliminate the principal balance owed by the debtor.

Financial counseling:

Financial counseling is a required part of the bankruptcy filing process. The debtor must partake in a financial counseling course in order to proceed with a bankruptcy case.

Pre-Payment Penalty:

The pre-payment penalty refers to a fee that a debtor may owe for paying off a loan too soon. The pre-payment penalty fee must be listed in the contractual loan agreement.

Section 341 Meeting:

The 341 meeting is a required part of the bankruptcy process. A debtor must show up to court for the 341 meeting of the creditors. During this meeting, a judge may ask the debtor about any documents submitted in the case.

Trustee:

A trustee is an individual who is in charge of overseeing a person’s bankruptcy estate. The individual may be responsible for liquidating assets in a Chapter 7 bankruptcy case. In a Chapter 13 bankruptcy case, the trustee must collect funds from the debtor and repay creditors on a monthly basis.

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