Debt & Bankruptcy

Ability to pay refers to a borrower’s capacity to make good on his loan obligations. In banking, ability to pay is often called “financial capacity.”
Accounts receivable financing, also called factoring, is a method of selling receivables in order to obtain cash for company operations. Accounts receivable (A/R) are amounts owed by customers for goods
Acquisition debt is money that is borrowed in order to purchase a company or asset. A leveraged buyout (LBO) is a method of acquiring a company with money that is nearly all borrowed.
An acquisition loan is money borrowed specifically to purchase a company or asset.
An allowance for bad debt is essentially a reduction in a bank's accounts receivable. The allowance for bad debt equals the amount of the banks loans that it does not expect to collect.
Same as the effective annual interest rate, the annual equivalent (AER) rate is the rate of interest an investor earns in a year after accounting for the effects of compounding. The formula for AER is: (1
Annual Percentage Rate (APR) is the interest rate that reflects all the costs of the loan during a one year time period.
An assumed interest rate is used to calculate an annuity's periodic income payments.
Average balance is either the simple or the weighted average balance of a financial account during some period of time.
The average daily balance method is a way of calculating interest by considering the balance owed or invested at the end of each day of the period rather than the balance owed or invested at the end of
Back-to-back letters of credit occur when a buyer gives a letter of credit to a seller, who then obtains a letter of credit for a supplier.
With back-to-back loans two parties, each in a different country, lend money to each other in an effort to hedge against currency risk. They are also called parallel loans.
A backup line is a bank promise that a commercial paper issuer will repay the maturing debt.
In business, bad debt is the portion of a loan or portfolio of loans a lender considers to be uncollectable. In personal finance, bad debt generally refers to high-interest consumer debt.
A balloon payment is a large payment made at or near the end of a loan term.
A bank card association is a company owned by one or more financial institutions that licenses credit card programs.
Bank credit is an amount of funds that a person or business can borrow from a bank.
A bank guarantee is a promise from a bank or other lending institution that if a particular borrower defaults on a loan, the bank will cover the loss. Note that a bank guarantee is not the same as a
Also called the federal discount rate, the bank rate is the interest rate at which a bank can borrow from the Federal Reserve.  
A bridge loan is a short-term, high-interest loan that provides a quick source of cash for commercial or individual needs.  It is called a bridge loan because it serves as a bridge between one period of
A broker loan is a loan that the lender can obligate the borrower (a brokerage house) to repay at any time.
The broker loan rate is the interest rate on bank loans made to brokerage firms that are borrowing to fund transactions in their clients' margins accounts. Sometimes the broker loan rate is also called
Bullet is usually short for bullet payment, which is typically a large payment made near the end of a loan that does not amortize over time.
A bullet loan is a loan that does not amortize over time and must be repaid with a single large payment (also called a balloon payment) at the end of the term of the loan.
A call loan is a loan that the lender may force the borrower to repay at any time.
Call money is a very short-term bank loan that does not contain regular principal and interest payments. It is often used by brokerage firms to finance margin accounts.
The call money rate is the interest rate on the loans banks make to brokerage firms that are borrowing to fund transactions in their clients' margins accounts. Sometimes the call money rate is also called
CAMELS is a system used to rate banks.
Cancellation of debt occurs when a lender tells a borrower that he or she no longer must repay a loan.
A cash flow loan is a loan, usually to a company, intended to meet daily cash needs during times when cash flow is inconsistent. These loans are short-term in nature; borrowers usually must repay them in
Chapter 11 bankruptcy refers to the section of U.S. bankruptcy law under which companies and individuals can attempt to restructure their debts in order to repay them.
Chapter 13 refers to the section of U.S. bankruptcy law under which individuals may attempt to restructure their finances in order to repay their debts.
Chapter 7 refers to the section of U.S. bankruptcy law under which companies and individuals liquidate their assets in order to repay their debts.
Chapter X was a portion of the bankruptcy code that dictated bankruptcy processes and procedures for corporations. 1978 was the last year corporations were able to file bankruptcy under Chapter X.
A charge card is a plastic card issued by a financial institution that allows the user to make purchases with funds borrowed from that financial institution.
A closed end lease, also called a "walk away lease", is usually a kind of car lease that allows the lessee to return the car at the end of a lease period.
Collateral is an asset pledged by a borrower to a lender, usually in return for a loan. The lender has the right to seize the collateral if the borrower defaults on the obligation.
Collateralization occurs when a company pledges an asset to a lender (usually in return for a loan). The lender has the right to seize the collateral if the borrower defaults on the obligation.
A commercial bank is a financial institution that offers checking accounts, demand deposits, business and personal loans, savings vehicles and a variety of other related financial services.
Commercial paper is an unsecured and discounted promissory note issued to finance the short-term credit needs of large institutional buyers. Banks, corporations and foreign governments commonly use this
Credit is an agreement whereby a financial institution agrees to lend a borrower a maximum amount of money over a given time period. Interest is typically charged on the outstanding balance. In the
A credit bureau is an agency that collects, organizes, and disseminates credit information to creditors and potential creditors. Credit bureaus generally collect information on individuals and small
A credit card is issued by a financial institution that lets you borrow money to make a purchase. According to a recent Experian report, the average American holds 4 credit cards. Not only are credit
A credit crunch occurs when loans are very expensive and difficult to obtain.
A credit limit is the maximum amount that a person may charge on a credit card or borrow from a financial institution.
Credit quality is a measure of an individual's or company's creditworthiness, which is ability to repay debt.
In personal finance, the term credit rating commonly refers to a score issued by the Fair Isaac Corporation (a "FICO score"). A person's credit rating indicates how creditworthy he or she is. In corporate
A credit report is a report detailing a person's financial history specifically related to their ability to repay borrowed money.
Credit risk is the chance that a bond issuer will not make the coupon payments or principal repayment to its bondholders. In other words, it is the chance the issuer will default.
Credit score refers to the FICO score, which is created and calculated by the Fair Isaac Corporation and is a measure of an individual's creditworthiness. It is a mathematical summary of the information
The credit utilization rate is a calculation comparing an individual's total debt balances to total available credit.
Credit utilization, commonly referred to as the credit utilization ratio or credit utilization rate, is a calculation comparing an individual's total debt balances to total available credit.
A creditor is an individual or institution that lends money or services to another entity under a repayment agreement.
The current portion of long-term debt (CPLTD) is the portion of a company's long-term debt payments that are due in less than one year.  
In the business world, debt is an amount borrowed.
A debt discharge is a legal action that relieves a borrower from his or her obligations to a lender.  
Debt financing is the use of borrowing to pay for things.
Debt service is the act of making interest and principal payments on debt.
A debtor is a person or entity legally required to provide a payment, service or other benefit to another person or entity (the obligee). Debtors are often also called "borrowers" or "obligors" in
Debtor in possession (DIP) refers to the status of a business that retains control of its assets and continues to operate while under the Chapter 11 bankruptcy reorganization process.  
Debtor-in-possession (DIP) financing refers to financing for a business that retains control of its assets and continues to operate while under the Chapter 11 bankruptcy reorganization process.  
A default is a violation of a promise to pay debt in agreed amounts at agreed times.
Delinquent means “something or someone who fails to accomplish that which is required by law, duty, or contractual agreement, such as the failure to make a required payment or perform a particular action
A demand loan is a loan where the lender may require the borrower (a brokerage house) to repay at any time. These loans may also be called a broker loan or call loan,
Distressed securities are financial instruments of a company that are under price pressure due to bankruptcy (Chapter 7), reorganization (Chapter 11), financial turmoil, or other economic trauma.
Dun & Bradstreet provides information about businesses through a global commercial database.  
A DUNS number (DUNS stands for Data Universal Numbering System) identifies a company.  
An encumbrance is a limitation on the ownership of a property.
Euro LIBOR is the interest rate at which banks borrow euros from other banks in the London interbank market.
A facility is essentially a bank loan agreement that a company can use on and off for short-term borrowing purposes.
The Fair Credit Billing Act (FCBA) is an amendment to the Truth in Lending Act. The FCBA is meant to protect consumers from unfair or inaccurate billing practices by providing a system for consumers to
The Fair Credit Reporting Act (FCRA) is the principle legislation for consumer credit rights in the U.S. It regulates the collection, distribution, and use of consumer credit information.
The Fair Debt Collection Practices Act (FDCPA) is a section of the consumer credit protection act that aims to promote fairness in the collection of consumer debts and provide a way for clarifying and
The Federal Deposit Insurance Corporation (FDIC) is an agency of the U.S. government that insures deposits in banks and thrift institutions, supervises the risks associated with these insured funds, and
The Federal Farm Credit System (FFCS) is a group of lenders that provide loans and other credit services to farmers, ranchers, and producers or harvesters of aquatic products. 
The Federal Financial Institutions Examination Council (FFIEC) is an interagency body of the U.S. government that provides standardized methods for examining financial institutions in accordance with
Federal funds are monies held by banks at the Federal Reserve to meet reserve requirements. Funds in excess of reserve requirements can be loaned to other banks in order for those banks to meet reserve
A finance charge is the fee charged to a borrower for the use of credit extended by the lender. Broadly defined, finance charges can include interest, late fees, transaction fees, and maintenance fees and
Firewall refers to the strict separation between banking and brokerage activities within full-service banks, and between depository and brokerage institutions as stipulated by the Glass-Steagall Act of
A fixed interest rate is a type of loan or mortgage for which the rate of interest does not fluctuate over the life of the loan.
A floating interest rate is an interest rate that can change from time to time.
Forbearance, which literally means "holding back," is a temporary suspension of loan payments agreed to by both lender and borrower as an alternative to defaulting on the loan (or foreclosure in the case
Foreign debt, otherwise known as external debt, is the part of total debt held by creditors of foreign countries, i.e. non-residents of the debtor's country.
A fully indexed interest rate equals an adjustable-rate mortgage's (ARM) interest rate benchmark plus a spread. 
A grace period is a period of time, usually about 10 days, during which a past due amount can be paid with little or no penalty.
With a guaranteed loan, a party other than the borrower has promised to take responsibility if the borrower cannot make the payments. The entity assuming this responsibility is called the guarantor.  
In general, a financial guarantee is a promise to take responsibility for another company's financial obligation if that company cannot meet its obligation. The entity assuming this responsibility is the
In the investing world, a half-life is the halfway point of mortgage repayment.
A home mortgage is a loan secured for a house. The borrower is usually obligated to make a predetermined series of payments on the loan.
In most usages, insolvency is the inability of a company or individual to meet its financial obligations as they come due. In the legal sense of the word, an entity is considered insolvent if its total
Installment debt refers to any loan that is repaid by the borrower in periodic (usually monthly) installments that include principal and interest.
An installment loan is a type of loan that is repaid in periodic installments (usually monthly payments) that include principal and interest.
LIBOR is one of the most widely used benchmarks for short-term interest rates and is unlike the prime rate in the United States, which is somewhat arbitrarily based on certain banks' lending costs plus a
The term interchange fees, also known as swipe fees, refers to the hidden cost paid by merchants to card-issuing banks and credit card companies for processing credit card and debit card transactions.
Without interchanges, there would be no electronic banking. The advent of the Internet has increased its use and prevalence, and card issuers get a considerable portion of their revenues from interchange
Interest is the cost of borrowing money for a certain period of time.
The term IOU is the phonetic spelling of the phrase "I Owe You." In bookkeeping, it signifies an outstanding debt.
The Japan Credit Rating Agency (JCR) is a credit rating agency in Japan.
Jingle mail occurs when a property owner sends his/her keys to the mortgage lender because he/she is unable to continue to make payments.
JIBAR is a market indicator and a benchmark for various interest rates in South Africa.
A judgment lien allows a creditor to take possession of a piece of a debtor's property if the debtor does not pay his or her debts.
Judgmental credit analysis occurs when a banker approves or denies a credit application based on his or her experience with similar projects rather than the applicant's creditworthiness.  
In the event of a borrower’s bankruptcy, junior debt is debt that is repaid after the obligations to senior lenders or creditors have been fulfilled. Usually, it also has no collateral.
A junior mortgage is a loan secured by the equity in a house. Equity equals the value of the house less the balance owed on the homeowner's first (or in some cases, preceding) mortgages. Junior mortgages
A bank or other institution uses the key rate to determine the interest rate on debt. In the United States, there are two key rates: the discount rate and the Fed Funds rate.
A lame duck is a person who has gone bankrupt or is in default. In politics, a lame duck is a politician whose tenure is about to end.
A lender is a creditor or any entity to which you owe money for services provided.
A letter of credit is a bank's written promise that it will make a customer's (the holder) payment to a vendor (called the beneficiary) if the customer does not.
*/ Leverage is any technique that amplifies investor profits or losses. It's most commonly used to describe the use of borrowed money to magnify profit potential (financial leverage), but it can also
A leverage ratio is meant to evaluate a company’s debt levels. The most common leverage ratios are the debt ratio and the debt-to-equity ratio.
In finance and investing, a liability is a claim on a company's assets.
A lien is a lender's claim against a collateral asset that may be legally sold should the borrower fail to repay a loan.
A lien sale is the sale of a lien by a relevant authority to a third party in an effort to recoup money owed.
A line of credit (sometimes called revolving credit) is a pre-arranged amount of money lent by a financial institution. Unlike a traditional loan – which is usually a lump sum payment that is repaid on a
Liquidation refers to the selling of assets in return for cash. 
A loan is a sum of money that is borrowed by an individual or business from a lender (typically a financial institution or another party with money).
A loan loss provision is an expense that is reserved for defaulted loans or credits.  It is an amount set aside in the event that the loan defaults.
Loan loss reserves are accounting entries banks make to cover estimated losses on loans due to defaults and nonpayment.
Loan sharking refers to predatory lending practices by individuals or organizations (aka loan sharks) that charge extraordinarily-high interest rates.
Loan syndication is a lending process in which a group of lenders provide funds to a single borrower.
The London Interbank Offered Rate (LIBOR) is the base lending rate banks charge each other in the London wholesale money market.
Long-term debt is debt due in one year or more. It is a key item that appears on a company's balance sheet.
Margin debt is debt obtained from buying on margin.
A negative gap occurs when a bank's interest-bearing liabilities exceed its interest-earning assets.
A negative pledge clause is lending agreement language designed to prevent borrowers from pledging the same collateral to multiple lenders or otherwise taking actions that might jeopardize the security of
Negative watch is a status that credit-ratings agencies assign to companies that might receive a lower credit rating in the future.
Negatively amortizing loans are loans in which the loan's principal balance (usually a mortgage) increases even though the borrower is making payments on the loan.
A net borrower (also called a "net debtor") is a company, person, country, or other entity that borrows more than it saves or lends. Borrowing can take the form of traditional bank lending, but it also
In banking, net settlement is simply the sum of the day's credits and debits.
Nonperforming assets are a bank's nonperforming loans plus the real estate owned by the bank due to foreclosures.
A nonperforming loan is a loan that is close to defaulting or is in default.
In the finance world, a note is debt.
The notice to creditors is a way to inform creditors of their opportunity to make claims against a bankrupt company, an estate or other entity.
An offset mortgage is a mortgage held in the same bank as the borrower's deposit accounts, savings accounts or other accounts. The mortgage payments are calculated based on the borrower's combined balance
Parallel loans are loans in which two parties, each in a different country, lend money to each other in an effort to hedge against currency risk. They are also called back-to-back loans.
Past due means overdue. Typically, a bill is past due if the borrower is 30 days past the payment deadline.
The past-due balance method is a system for calculating interest charges based on loan or credit balances not paid prior to a specified due date.
A payday loan is an advance on one’s paycheck. Independent lenders and some large banks offer the service.
A pledged asset is collateral pledged by a borrower to a lender (usually in return for a loan). The lender has the right to seize the collateral if the borrower defaults on the obligation. In some cases,
Prepackaged bankruptcy refers to a plan for reorganization under Chapter 11 that a company drafts in cooperation with its lenders.
In the finance world, prime is short for prime rate, which is the interest rate commercial banks charge their most creditworthy customers, which are usually corporations.
The prime rate is the interest rate commercial banks charge their most creditworthy customers, which are usually corporations.
In finance,  principal refers to the face amount of a debt instrument or an amount of money borrowed.
A qualification ratio is actually two ratios that banks use to determine whether a borrower is eligible for a mortgage. The two ratios generally are: Total Borrower Debt/Monthly Income Borrower's Total
A qualified mortgage insurance premium is a payment to insure a homeowner’s mortgage payments.
Qualifying ratios are ratios banks use to determine whether a borrower is eligible for a mortgage. 
A quick-rinse bankruptcy moves through the courts especially quickly.
In personal finance, the term rating commonly refers to a credit rating score issued by the Fair Isaac Corporation (a "FICO score"). A person's credit rating indicates how creditworthy he or she is. In
Ratings Service is provided by companies that evaluate the risks associated with debt securities. 
Reaffirmation occurs when a lender agrees to forgive a borrower's debt and then the borrower agrees to repay the debt anyway.
Receivership is a form of bankruptcy in which a court-appointed trustee reorganizes the bankrupt entity.  
A reference rate is an interest rate that determines another interest rate.
Refinance refers to the replacement of a debt with new debt bearing different terms.
Repayment usually refers to the payments on a debt. 
A repurchase agreement is the sale of a security combined with an agreement to repurchase the same security at a higher price at a future date.  It is also referred to as a "repo." 
A restrictive covenant is a promise a company makes to not exceed certain financial ratios or not conduct certain activities, usually in return for a loan or bond issue.    
Revolving credit is a line of credit individuals and corporations can borrow from and pay back as needed.
The Student Loan Marketing Association (SLM, or "Sallie Mae") is the largest originator, funder and servicer of student loans in the United States. It also provides counseling about student loans to
Also called a home equity loan, a second mortgage is secured by the equity in a house. Equity equals the value of the house less the balance owed on the homeowner's mortgage. Second mortgages are not the
Secured creditor is a lender that provides collateralized debt.
Secured debt is debt that is collateralized.
Senior debt is debt that is first to be repaid, ahead of all other lenders or creditors, in the event of a borrower’s bankruptcy.
A signature loan is a loan offered by banks or other financial institutions that does not require collateral. Signature loans are also known as personal or unsecured loans since they are not secured by
Solvency is a company’s ability to pay its debts as they become due.
Sovereign debt refers to the amount of money a country owes to the holders of its government bond. In the United States, sovereign debt is issued by the Department of Treasury and the bonds are referred
Structured finance is a complex financial instrument offered to borrowers with unique and sophisticated needs. Generally, a simple loan will not suffice for the borrower so these more complex and risky
A student loan allows someone to borrow money to pay for the costs of education as they attend a college or university. A student loan is typically expected to be paid back over a 10-year period, but can
The Student Loan Marketing Association (commonly referred to as "Sallie Mae") is the largest originator, funder and servicer of student loans in the United States. It also provides counseling about
Subordinate means "ranks beneath." In finance, the term usually refers to the claims a creditor has on a company's assets relative to other creditors.
Subordinated debt is any outstanding loan that, should the borrowing company fail, it will be repaid only after all other debt and loans have been settled. It is the opposite of unsubordinated debt.
A syndicated loan is a loan made by a group of lenders who share or participate in a specific loan given to a project.
A take-out lender is a lender whose loan replaces another loan.
A take-out loan is a loan that replaces another loan.
A tax refund anticipation loan (TRAL) is a short-term loan from a third party. The loan is collateralized by the borrower's pending tax refund.
A teaser loan is usually an adjustable-rate mortgage (ARM) with an artificially low initial interest rate.
A teaser rate is usually an artificially low initial interest rate on an adjustable-rate mortgage (ARM).
In the finance world, a term is the length of time until a debt matures. A term can also be a condition of a deal, as evidenced by the phrase term sheet, which describes the terms of a deal.
A term loan has a set maturity date and usually has a fixed interest rate.
The Truth in Lending Act (TILA) was implemented to protect consumers when they borrow money. TILA requires the disclosure of certain credit terms so that consumers are not deceived.
The U.S. League of Savings Institutions was a national organization of savings banks.
A UCC-1 statement is a written list and description of assets that serve as collateral for a loan.  
Uncollected funds refer to the balance of uncleared checks in a bank account.
An uncommitted facility is a borrowing agreement that allows the lender to determine how much it will lend to the borrower at a given time.
In the real estate world, underwater means that a property is worth less than what is owed on it.
An underwater mortgage is a mortgage on a property that is worth less than what is owed on it.
An encumbrance is a limitation on the ownership of a property. When an asset is unencumbered, there are no limitations on its ownership.
In the finance world, a lender or piece of debt is unsecured if it does not have collateral.
An unsecured creditor is a lender or any entity to which a company or individual owes money for services provided. That creditor, however, does not have any collateral from the borrower.
Unsecured debt is debt that does not have any collateral attached.
An unsecured loan is debt that does not have any collateral attached.
In the finance world, an unsecured note is corporate debt that does not have any collateral attached. Unsecured notes are not the same as debentures, which are also unsecured corporate debt (but
Unsubordinated debt refers to loans and debt securities (e.g., bonds, CDs, collateralized securities, etc.) for which the repayment priority outranks other debts owed by the same individual entity (called
The utilization ratio compares an individual's total debt balances to total available credit. It helps determine part of a person's credit score.
A variable interest rate is an interest rate that can change from time to time.
A wage assignment refers to a forced payment of a financial obligation via automatic withholding from an employee's pay.
A wage earner plan, subsequently known as Chapter 13, is a bankruptcy protection scheme that allows income earners to satisfy outstanding debts -- in whole or in part -- within a specific time frame.
A wage garnishment is an obligatory payment of a debt where a portion of an employee's paycheck is automatically withheld to pay the debt.
Warehouse financing occurs when a lender lends to a borrower who uses inventory as collateral.
A waterfall payment is a repayment system by which senior lenders receive principal and interest payments from a borrower first, and subordinate lenders receive principal and interest payments after.
A working capital loan is a loan used by companies to cover day-to-day operational expenses.
The Z-score is a financial statistic that measures the probability of bankruptcy. 
A zombie bank is a bank with liabilities that exceed its assets (in other words, it has a net worth of zero). They do not die (hence the nickname) because they receive government support or bailouts.
Zombie debt is debt that won't die.