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Glossary of debt terms

Introduction

This glossary contains some of the main terms used in connection with problem debt and personal insolvency. The following organisations also publish collections of terms related to debt:

  • Insolvency Service of Ireland (ISI) - glossary
  • Money Advice and Budgeting Service (MABS) – jargon buster
  • Competition and Consumer Protection Commission - jargon buster

Approved Intermediary

This is a person or class of persons authorised by the Insolvency Service of Ireland (ISI) to support a debtor to make an application for a Debt Relief Notice (DRN).

Bankruptcy

Bankruptcy is a settlement of the debts of someone who is wholly or partially unable to repay their debts. It deals with both secured and unsecured debt.

The purpose of the bankruptcy is to distribute your assets fairly among your creditors and protect you from these creditors. The distribution is done through a court official, the Official Assignee in Bankruptcy. Read more in our document on bankruptcy.

Code of Conduct on Mortgage Arrears (CCMA)

The CCMA is a statutory code, issued by the Central Bank of Ireland, which requires mortgage lenders to adopt specific procedures when dealing with borrowers who are facing mortgage arrears. Under this Code, each lender must have a Mortgage Arrears Resolution Process (MARP). Read more in our document on Consumer protection codes and mortgages.

Consumer credit agreements

The rules on consumer credit agreements apply to almost all credit agreements, hire-purchase agreements and consumer-hire agreements to which a consumer is a party. So, they apply to agreements to borrow money which you make with banks, building societies, moneylenders and certain other finance companies. They do not apply to agreements to borrow money from credit unions, pawnbrokers and utility service providers nor do they apply to agreements entered into by businesses.

Agreements covered by the consumer credit legislation must be in writing. If they are not in writing, they are not enforceable. The legislation provides that it is an offence for a creditor to demand payment if the agreement is not enforceable.

The Central Bank’s Consumer Protection Code applies to most consumer credit agreements. The Consumer Protection Code for Licensed Moneylenders applies to moneylenders.

Contracts

In a debt context, a contract is an agreement by one party to provide goods or services for another in return for payment. In general, contracts do not have to be in writing in order to be enforceable. However, contracts for the sale of land and contracts governed by the Consumer Credit Act 1995 must be in writing in order to be enforceable.

Failure to pay is a breach of the contract. Contracts may include penalty clauses for failure to meet the terms of the contract. So, for example, the contract may provide that you must pay an extra charge or you must pay interest if you fail to pay on time.

Court judgment

In this context, a Court judgment states that you owe a debt. That judgment can then be enforced in various ways.

Credit rating

Your credit rating or credit score is based on whether your credit repayment record is good or poor. It is used to help lenders to assess the ability of borrowers to repay any future debts.

Banks and other lenders generally send information about borrowers to a central database that is operated by a credit reference agency or credit register. This information includes what credit agreements you have made and your history of repaying them. Your credit rating is based on this information. Read more in our document on credit ratings.

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.

Debt forbearance and forgiveness

Debt forbearance is the term that 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.

Debt management agencies

A debt management firm is one that charges for the provision of debt management services. The Central Bank (Supervision and Enforcement) Act 2013 defines debt management services as:

  • Giving advice about the discharge of debts (in whole or in part), including advice about budgeting in connection with the discharge of debts
  • Negotiating with a person’s creditors for the discharge of the person’s debts (in whole or in part), or
  • Any similar activity associated with the discharge of debts

There are a number of private commercial debt management firms, which are regulated by the Central Bank. The Bank has published its Authorisation Requirements and Standards for Debt Management Firms (pdf).

The Money Advice and Budgeting Service (MABS) is a non-commercial body providing debt management services and it does not charge fees.

Debt Relief Notice (DRN)

Under the Personal Insolvency Act 2012, the Debt Relief Notice is designed for people who have very low disposable income or assets. It allows for the write-off of qualifying debt up to €20,000, subject to a 3-year supervision period. Under the Personal Insolvency (Amendment) Act 2015, the limit has increased to €35,000 with effect from 29 September 2015. Read more in our document on Debt Relief Notices.

Debt Settlement Arrangement (DSA)

Under the Personal Insolvency Act 2012, the Debt Settlement Arrangement applies to the agreed settlement of unsecured debts, usually over a period of 5 years. (See Secured loan below for definition.) The limit of 5 years can increase to 6 years in some situations. When the DSA concludes successfully, the debts that it covers will be fully discharged and the debtor will be solvent again. Read more in our document on Debt Settlement Arrangements.

Debtor

You are a debtor if you owe money to someone. If a court judgment is awarded against you, you are now a judgment debtor.

Debts and criminal offences

Most debts arise because you have failed to meet the terms of a contract. For example, you borrow money from the bank or credit union and you fail to pay it back, or you enter into an agreement to buy equipment by instalments and you fail to pay. It is a breach of contract to fail to pay such debts - it is not generally a criminal offence.

However, it is a criminal offence to fail to pay certain debts. For example, it is an offence not to pay your taxes or your TV licence fee. You may be charged and convicted for failure to pay such debts. Even if you are charged, convicted and fined, you still owe the debt and can be sued for it in the normal way.

Excluded and excludable debts

The Personal Insolvency Act 2012 specifies certain types of debt that cannot be written off by a Debt Relief Notice, a Debt Settlement Arrangement or a Personal Insolvency Arrangement. These are called excluded debts and are:

  • Debts under family law orders, such as maintenance orders for spouses and children
  • Debts due under court awards for personal injury or death
  • Debts arising from a loan (or forbearance of a loan) obtained through fraud or similar wrongdoing
  • Debts arising under court orders made under the Proceeds of Crime Acts or fines imposed by the courts for criminal offences

The types of debt that may be written off are called excludable debts and are:

  • Taxes, duties or levies owed to the State, such as income tax, the Local Property Tax, VAT, capital taxes
  • Service charges owed to local authorities
  • Household Charge
  • Rates
  • Money owed under the Nursing Homes Support Scheme (in respect of a loan advanced by the HSE to a nursing home resident to cover the amount due from the principal private residence)
  • Money owed to the Department of Social Protection
  • Debts due to owners’ management companies in respect of annual service charges or contributions due for multi-unit developments (this is the only non-State debt in this category)

Mortgage Arrears Resolution Process (MARP)

Under the Central Bank's Code of Conduct on Mortgage Arrears (CCMA) (pdf) mortgage lenders must operate a Mortgage Arrears Resolution Process (MARP) when dealing with borrowers in mortgage arrears or in pre-arrears. The 4 steps of the MARP are: communication; financial information; assessment; and resolution. Read more in our document on the Mortgage Arrears Resolution Process.

Personal insolvency

The Personal Insolvency Act 2012 states that:

  • “insolvent”, in relation to a debtor, shall be construed as meaning that the debtor is unable to pay his or her debts in full as they fall due

The Personal Insolvency Act 2012 introduced 3 debt resolution mechanisms for people who cannot afford to pay their personal debts. These arrangements offer different solutions to people in different situations. Read more in our document on these personal insolvency options.

Personal Insolvency Arrangement (PIA)

Under the Personal Insolvency Act 2012, the Personal Insolvency Arrangement applies to the agreed settlement and/or restructuring of secured debts up to a total of €3 million (as well as unsecured debts) over a period of 6 years. The cap of €3 million can be increased by agreement with your secured creditors and the limit of 6 years can increase to 7 years in some situations. Read more in our document on Personal Insolvency Arrangements .

Personal Insolvency Practitioner (PIP)

A Personal Insolvency Practitioner (PIP) is a professional who is authorised by the Insolvency Service of Ireland (ISI) and will act on your behalf throughout a Debt Settlement Arrangement or a Personal Insolvency Arrangement.

Prescribed Financial Statement

A Prescribed Financial Statement (PFS) is a written statement of a debtor’s financial affairs. Every applicant must complete a PFS with the help of an Approved Intermediary (for a Debt Relief Notice) or a Personal Insolvency Practitioner (for a Debt Settlement Arrangement or a Personal Insolvency Arrangement).

The PFS is used to establish the applicant’s eligibility for a debt resolution mechanism; to form the basis for calculating a sustainable contribution to be paid to the applicant’s creditors over the period of a DSA or PIA and to identify the liabilities from which the applicant will be discharged at the end of an arrangement.

Priority debt

The term priority debt can be used in a general sense but it can also have a specific legal meaning. If you owe money to a number of creditors, you have your own view of which of these debts take priority. Most people would regard the repayments on their home as taking priority over the repayment of other loans.

The legal meaning of priority debt may be different. For example, in receiverships, liquidations and bankruptcy, the law sets out the order in which the debts must be paid.

Protective certificate

This is a certificate issued by a court to protect the debtor against legal proceedings by a creditor in respect of debts while a Personal Insolvency Arrangement (PIA) or a Debt Settlement Arrangement (DSA) is being put in place.

The protective certificate gives you 70 days during which your creditors may not:

  • Start or continue legal proceedings in respect of the debt
  • Take or continue any steps to enforce a judgment or contact you about the debt unless you agree to this
  • Start or continue bankruptcy proceedings against you

Reasonable living expenses

Reasonable living expenses are the expenses that an insolvent debtor will necessarily incur in achieving a ‘reasonable standard of living’ while engaging in one of the arrangements introduced by the Personal Insolvency Act 2012. This minimum standard of living allows for expenses such as food, clothing, health, education, transport, childcare and insurance.

The ISI has prepared detailed guidelines on what constitutes reasonable living expenses. These guidelines are regularly updated, as required under the Act. There is also an online calculator.

Secured loan

This is a loan on which property or goods are available as security against non-payment. Mortgages are the most common secured loans. Sometimes, business loans and other loans are also secured against property.

In general, debts such as bank loans and credit card debt are unsecured. However, if you decide to roll up such loans into your mortgage, they now become secured loans.

If the property or goods on which the security is based are subsequently sold, the secured loan must be paid off before the proceeds can be used for any other purposes.

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 use the services of a plumber and do not pay him, there is a simple contract debt to the plumber. The seller or the plumber 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.

Sheriff

Sheriffs are self-employed people who enforce debt judgments in counties Cork and Dublin. County Registrars enforce debt judgments in all other places. Sheriffs are paid for their enforcement work on a commission basis.

As well as County Sheriffs in Cork and Dublin, Revenue Sheriffs enforce debts owed to the Revenue Commissioners. They have the power to collect tax debts. They can do this on the basis of a certificate of liability issued by the Collector General and do not need a court order. Revenue debts can also be collected in the normal way if there is a court order.

Standard Financial Statement

A Standard Financial Statement (SFS) is a written statement of financial affairs on an industry standard format (pdf), which a borrower in mortgage difficulty must complete as part of the Mortgage Arrears Resolution Process (MARP). The lender must give the borrower an SFS form and must ensure that the borrower understands the MARP process. It must offer help with completing the SFS and mention sources of independent advice, such as MABS.

It then uses the financial information on the form to assess the borrower’s financial position and identify the best course of action. The Central Bank has a consumer guide (pdf) to completing an SFS. MABS has also published a detailed guide to the SFS (pdf).

Time limits/Statute of Limitations

There are time limits (limitation periods) for taking most types of court action. These time limits are set either in the Statute of Limitations 1957, as amended, or in specific legislation dealing with the court issue involved.

The law in relation to time limits is complex but, in general, the time limit for taking actions for breach of contract (for example, failure to pay for goods or services provided), for debt judgments and for non-payment of charges such as rent is 6 years. This means that if your creditor does not start the court action within 6 years of the debt being due, the action is statute-barred. Effectively, that means that you cannot be forced to pay the debt.

If your creditor gets a judgment, then, in general, they have 12 years in which to enforce that judgment.

The general rules do not apply to taxes. There is a 4-year time limit on the Revenue Commissioners seeking tax from you and there is a 4-year time limit on you seeking repayment of taxes that you were not due to pay. However, if there is any fraud or neglect, there is no time limit.

Page edited: 2 October 2015