Debt Settlement Key Terms

Build a vocabulary to help you get out of debt

Debt settlement is the process of negotiating how debts too large to be repaid will be handled. In this case, an ounce of prevention is worth a pound of cure, but sometimes debt just can't be avoided. Once you're in dept too deep, it's time to settle. You can do this on your own or you may wish to seek the aid of a consumer or business credit-counseling association. Most credit counselors will give you an initial assessment for free so don't be afraid to shop around after reading up on the following terms.

Bankruptcy

Bankruptcy is a debt settlement initiated through a branch of court that exists specifically to handle financial settlements for consumers and businesses. Depending on which sort of bankruptcy you file for, some of your assets may be seized and sold to pay for part or all of the debt, so consider your options carefully.

Debt relief

Debt relief is, in short, anything that gets you out of debt. It may come in the form of bankruptcy, adopting a budget and sticking to it, or reaching a debt settlement on your own or with the aid of a debt settlement negotiator.

Secured and unsecured debt

Secured debt is a debt that's backed by specific goods or other sources of revenue, also known as collateral. For example, a car loan is a secured debt because if you forfeit the loan payments, the bank can take possession of the car. Unsecured debt is a debt not backed by any sort of collateral. Collateral might be seized or forfeited as part of a debt settlement.

Debtors and creditors

A debtor is a person or business entity that owes money to another person or business entity, which is the creditor. Creditors also may be referred to as lenders and would be considered the aggrieved parties in most types of debt settlement.
Cornell University Law School gives an overview of the different types of creditors and how debtor-creditor law applies to them.

Commercial or business credit counseling

Commercial or business credit counseling is designed specifically to meet the needs of a business, as opposed to a consumer's needs. Business credit counselors work with you not just to pay off your business debt in a debt settlement, but also to maintain the financial viability of the business and establish a functioning financial model.
Commercial Debt Counseling gives an overview of how business credit counseling works.

Cash flow

Cash flow or cash earnings is the term for the net income left over after business expenses have been paid. Increasing cash flow is often critical for avoiding the need to enter a debt settlement plan or, once in the plan, is a stated goal.
The FXC Newsletter investment glossary gives a detailed definition of cash flow and how it is calculated.

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