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Glossary of Terms

Amortization - the time period of a loan or debt or the number of years over which you'll repay the loan or debt

APR - Annual Percentage Rate - a standard calculation by lenders to show what the interest rate and fees are on a credit product (e.g. loan, credit card, etc.); allows borrowers to compare different loan products.

Arrears - the past due amount owing

Assets - things you own, even if you still owe money against them

Bankruptcy - a legal process performed under the Bankruptcy and Insolvency Act. This process relieves consumers of most debts and legal proceedings by creditors will stop.

Bankruptcy and Insolvency Act - the Act, or laws, in Canada which govern all bankruptcies.

Bankruptcy Trustee - an individual licensed by the Superintendent of Bankruptcy to administer bankruptcies and consumer proposals. A bankruptcy trustee must follow the Bankruptcy and Insolvency Act.

Beacon / FICO Score - this is the credit score that creditors look at when determining your credit worthiness. It ranges from 300 - 900 points and incorporates a variety of factors about your financial behaviour. This helps lenders assess the likelihood that you will pay them back the money you are borrowing from them.

Borrower - a person who incurs a loan or debt

Budget - a spending plan that accounts for your sources of income, all of your monthly and annual expenses as well as your future needs and possibilities. Budgeting is the process of forecasting your future income and expenses and making a spending plan to ensure your expenses do not exceed your income.

Co-borrower - the secondary person on a loan / debt - this person is still 100 percent responsible for repaying the debt at any time

Collateral - an asset pledged as security on a debt so that if the debt isn't repaid as agreed, a lender can collect the collateral and sell it to recover any money owing on the debt

Collection Agency - a company that recovers funds owed on a debt that is past due

Compound Interest - interest earned on previously accumulated interest as well as the principal

Co-signer - someone who signs on a loan as a guarantor for the primary borrower to the application

Consolidated Credit Counseling Services of Canada - a credit counselling agency registered with the Canadian Revenue Agency as a charitable organization. They opened their first office in Canada in 2005 and operate in Canada under the name Consolidated Credit Counseling Services of Canada. Their Canadian operations are run from their office in Toronto, Ontario.

Consolidation Loan - a loan obtained for the purpose of paying out other debts

Consumer Proposal - under the Bankruptcy and Insolvency Act you may make a legal proposal to your creditors to reduce the amount of your debts, extend the time you have to pay off the debt, or provide some combination of both.

Cost of Borrowing - the cost to you to borrow money - includes interest, fees and any other costs associated with the loan

Conditional Discharge - part of the bankruptcy process. For those who reach the end of their bankruptcy process and the Court reviews their application to be released from their obligations, some people must still fulfill additional obligations. The Court imposes these extra requirements as part of the discharge process. Once the Court is satisfied that someone has met the extra conditions, they are granted an (absolute) discharge.

Credit - the purchase of goods or services in the present with a promise to pay in the future, with money you still plan to earn

Credit Bureau - a company that is licensed to collect and compile information about your financial behaviour. The information comes from a variety of credit granting sources as well as public records information. In turn, they sell the information, in the form of a credit report, to those authorized to obtain it.

Credit Counselling - professional counselling provided by organizations that help consumers find ways to repay their debt - through careful budgeting and management of money

Credit Rating - an evaluation of the likelihood of a borrower to default on a loan. Credit reporting companies provide information about your financial behaviour to lenders to help them decide whether or not to lend you money. The information may include your payment history, a list of current and past credit accounts and their balances, employment and personal information and a history of past credit problems.

Credit Report - a summary that provides information to potential lenders of the risk involved in extending credit and the probability of repayment. It is created when you start to apply for credit. Contains personal information, to whom and how often you apply for credit, how regularly you make payments and public records (court judgements). Each lender gives you a rating depending on your "performance" with them. Equifax and TransUnion are the two largest credit reporting agencies in Canada.

Creditor - someone you owe money to.

Debt Management Program - a repayment program that helps you get out of debt within a reasonable amount of time. After working out a budget, your creditors would be asked to reduce your monthly payment to match the repayment plan. Creditors will often eliminate or reduce further interest charges.

Debtor - the person who owes money to someone.

Demand for Payment - a letter from a creditor or collection agency outlining an amount of time in which to pay a debt. The letter may also outline what further action will be taken if payment is not made, e.g. legal action.

Discharge - also known as "absolute discharge." Part of the bankruptcy process. After someone who declares bankruptcy meets all of the requirements to legally resolve their debt problems, they are released from their obligations. This is what "discharged from bankruptcy" means.

Equity - the difference between the price for which a property could be sold and the total debts registered against it.

Foreclosure - the forced sale of property pledged as security for a debt that is in default.

Garnishment - a legal order to withhold money from your pay cheque and remit it to another party, such as a creditor.

Gross Income - how much your pay cheque is before taxes are deducted.

Guarantor - a person who pledges collateral for the contract of another or who guarantees to pay a certain debt if the original borrower defaults.

Identification Theft - when someone collects and steals people's personal information for the purpose of pretending to be someone else in a fraudulent financial transaction. This type of theft often takes the form of a thief using people's personal information to apply for credit cards in the victim's name. The thief then profits from this crime by racking up large bills on these new credit cards.

Interest Rate - the cost of borrowing money, expressed as a percentage, usually over a period of one year.

Joint Debt - a debt that is agreed to by two individuals. Each debtor is fully responsible for 100 percent of any amount owing.

Judgement - the formal decision made by a court following legal proceedings.

Layaway - a method of paying for merchandise through several installments; the merchandise is set aside for the client until it is paid for in full.

Lease - a contract granting the use of property for a specified length of time in exchange for a specified rental price.

Liabilities - the debts and other financial obligations of a person or company; the opposite of assets.

Lien - a claim against an item by another party which utilizes that item as security for repayment of a loan or other claim. A lien affects the ability to transfer ownership.

Line of Credit - also known as a demand loan or operating line. An agreement by a lender to extend credit up to a certain limit whenever the borrower needs to use it.

Liquid Assets - assets which can be turned into cash easily, e.g. term deposits.

Loan - a sum of money lent at a specified interest rate.

Net Income - how much your pay cheque is after taxes have been deducted.

Notice of Claim - the notice that you receive if you are being sued in Small Claims Court.

Orderly Payment of Debts - a legal proceeding that will consolidate your debts into one payment which must be paid to the court on a periodic basis. Upon receiving payments the court will disburse payments to creditors on a debtor's behalf.

Overdraft - the extension of credit by a lending institution which allows withdrawals to exceed deposits in a bank account.

Payday Loan - usually a small, short-term loan that is secured by the borrower's next paycheque. The interest charged on these loans is often substantial.

Payment Hearing - a hearing held before a judge or justice of the peace to assess a debtor's ability to pay and / or to determine how the debtor will pay the judgement against them.

Principal - the amount you've borrowed.

Recidivism Rate - the percentage of people who repeat a debt repayment program or declare bankruptcy for a second or third time because they didn't learn how to effectively manage their personal finances and debt the first time.

Refused Discharge - part of the bankruptcy process. When the Court reviews someone's application to be discharged (released) from their obligations, the Court has the option to refuse someone's discharge.

Repossession / Seizure - to take back possession of collateral for failure to pay as agreed. A repossession can be involuntary, or it can be voluntary, meaning that the debtor chooses to return the collateral to the lender.

Right of Offset - a financial institution's legal right to seize deposited funds to cover a debt that is in default with them

RRSP - Register Retirement Savings Plan - a savings product that allows individuals to save for their retirement while gaining some income tax benefits

Security - property which is pledged as collateral for a loan, which can be taken back by the lender if the borrower defaults on the loan

Settlement (Debt Settlement) - when a creditor agrees to accept a reduced payment on a debt, giving up their right to the remainder that is outstanding.

Suspended Discharge - part of the bankruptcy process. This is an (absolute) discharge that doesn't come into effect until a future date.

Statute of Limitation - the maximum period of time after certain events that legal proceedings, based on those events, may be initiated. e.g. the length of time that a creditor has the right to start legal action for a debt that has become due

Term - the number of months for the current period of the loan

Trustee - a person licensed by the Superintendent of Bankruptcy to administer consumer proposals and bankruptcies

Writ of Summons - that notice that you receive if you are being sued in Supreme Court

Please note: our glossary terms and explanations have been simplified for ease of understanding and are intended to provide general information only.