Debt glossary

Abandonment - The voluntary relinquishment of ownership by failure to use the property, coupled with intent to abandon.

Adjusted Gross Income - An individual’s income that is taxable. Total income minus certain allowable adjustments such as contributions to a retirement plan or employee business expenses.

Add on Interest - A method of charging interest. Interest is computed on the total amount borrowed and added on to the principal. Each payment is then deducted from this total amount. Interest on real estate loans is usually figured based on the balance owing after each payment is made.

Appeal - As related to tax, requesting that the IRS review a decision or make an adjustment.

Arrears - A payment made after it is due is in arrears. Interest is said to be paid in arrears since it is paid to the date of payment rather than in advance, as is rent.

Budget - A list of all your income and expenditure is a budget.

Casualty - Property damage that results from a natural disaster or other common hazard. It may be tax deductible in the year of the damage. Also known as Loss. Debt glossary.

Collections - Actions taken to obtain payment from a taxpayer from whom taxes are past due.

Compulsory Payroll Tax - Tax that is collected automatically from employers and their workers to pay for federal programs.

Creditor - A creditor is an individual or a company that is owed money by another person.

Debt - Means any money that is owed or due to someone else. Debt glossary.

Debt consolidation - The replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period. It can also be called a consolidation loan.

Deficit - A financial situation in which expenses are greater than earnings. It can be incurred by individuals, businesses, or the government.

Direct debit - An instruction you give to your bank or building society to make regular payments from your account to a specific company. Unlike a standing order you agree that the creditor can vary this amount each month.

Direct Deposit - Funds are transferred automatically as payment into an individual’s account. Taxpayers may utilize this option to obtain their tax refunds.

Direct Tax - A tax that is paid from an individual directly to the government and cannot be transferred to another party, such as an income tax.

Disclaimer - A statement made to free oneself from responsibility.

Domestic Partnership - A couple who lives together as partners, but is not legally married or joined in a civil union. Status as such can have large implications for taxes and other financial obligations.

Earned Income - All money earned from employment including wages, salary, commissions, and tips, but not including investment income. Debt glossary.

Earned Income Credit - A refundable tax credit for certain individuals who meet the requirements of a low-income worker.

Earnings - Revenues minus expenses and taxes. Also called income.

Electronic Funds Transfer - A payment method whereby funds are transferred automatically from taxpayers to the IRS.

Endowment - A permanent fund bestowed upon an individual or institution, such as a university, museum, hospital, or foundation, to be used for a specific purpose.

Excise Tax - A tax that applies only to the manufacturing, selling or consuming of certain non-essential goods such as alcohol, gasoline and tobacco.

Exemptions - Claims that a taxpayer can make to keep certain assets from their creditors.

Final Salary - The basis of determining a person's pension entitlement in a final salary scheme and which normally refers to an occupational pension. Debt glossary.

Financial Hardship - Circumstances out of a taxpayer’s control, such as unemployment or disease, that make it difficult to pay one’s taxes.

Flat Tax - A type of tax that requires the same percentage be paid from every member of a given group, such as income taxes. Also known as a Proportional Tax.

Frozen account - A bank account whose funds may not be withdrawn until a lien is satisfied or an ownership dispute is resolved.

Grace period - The period, normally 30 days, during which an insurance policy remains in force even though the premium has not been paid. Debt glossary.

Gross Income - Total earnings before taxes, allowances, or other expenses are deducted.

Guarantee - A commitment made by a person to be answerable for the debts or liabilities of another.

Hidden asset - Asset not immediately apparent from a balance sheet.

Income Tax - Taxes imposed on both earned and unearned income that serve as the main revenue for the government. It is a flat tax, so the same percentage of income is taken from all taxpayers.

Indirect Tax - A tax that may be collected or handled by a third party to whom the tax is not owed. Tax payment is given from the taxpayer to an intermediate source before it is transferred to the government. Sales taxes are a common example.

Injured Spouse - A spouse who is held jointly liable for taxes that are the responsibility of the other spouse.

Interest - The fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal; the rate is dependent upon the time value of money, the credit risk of the borrower, and the inflation rate. Here, interest per year divided by principal amount, expressed as a percentage. also called interest rate. Debt glossary.

Interest Cap - The maximum interest rate increase of an Adjustable Mortgage Loan. For example: a 120% loan with a 5% interest rate cap would have maximum interest for the life of the loan which would not exceed 17%.

Internal Revenue Service (IRS) - The federal government agency that is responsible for determining, assessing, and enforcing the collection of taxes.

Joint - Pertaining to multiple parties on the same side of an agreement or transaction.

Joint Filing Status - A married couple files their taxes on one tax return, reporting combined income and combined deductions and allowances.

Late charge - A charge imposed by a lender to a borrower when the borrower fails to make payment on the due date. Debt glossary.

Lender - A person or company that offers to lend money to a borrower for a given period of time. The borrower is obliged to repay the loan either by instalments or single payment together with specified interest.

Levy - A legal procedure by which personal assets, including bank accounts, can be seized as payment for debts. The IRS utilizes asset seizure in rare, serious cases of tax debt.

Lien - A legal claim that attaches to one’s property as security for repayment of a debt. It can make property transfer very difficult.

Liquid Assets - Cash plus assets which can readily be converted into cash. Debt glossary.

Lump Sum - A sum of money paid in a single instalment.

Luxury Tax - A tax attached to certain products and services that are not considered to be essential for daily life, such as sports cars.

Mass Tax - A widespread tax that must be paid by the majority of taxpayers.

Money adviser - Someone who is trained to offer advice both on debt and on increasing your income. A money adviser can help you work out what your options are and, where needed, negotiate affordable payments and set up repayment plans with your creditors. Debt glossary.

Notary Public - A person authorized to notarize certain documents.

Ownership - Rights to the use, enjoyment, and alienation of property, to the exclusion of others. Concerning real property, absolute rights are rare, being restricted by zoning laws, restrictions, liens, etc.

Payment Plan - A tax payment option by which a taxpayer makes monthly payments on due taxes rather than paying the lump sum. Sometimes periodic smaller payments are more manageable for taxpayers, however late fees and interest (compounded daily) will be added to the balance throughout the agreement, so such taxpayers end up paying more in the long run.

Payroll Taxes - Taxes that are required to be withheld from employees’ paychecks by their employers for submission to the federal government. Such taxes include Social Security tax, income tax, and Medicare tax. Some employers may be required to withhold state or city taxes as well.

Penalty Abatement - Taking measures to remove IRS penalties from a taxpayer’s balance. The taxpayer (or his or her representative) must explain either in writing, at a verbal interview, or on Form 843 that is was impossible to pay the taxes at the time they were due. Debt glossary.

Personal Identification Number (PIN) - As related to taxes, a confidential five-digit number that taxpayers select to be able to submit their tax returns online. It is for authentication purposes.

Personal Income - A person's total income which includes salary, transfer payments, dividend and interest income.

Personal possessions - The personal possessions of a deceased person which pass to the beneficiary or beneficiaries of the residue of estate unless otherwise stated in the will.

Power of Attorney - Written documentation that authorizes a person to act on behalf of another person in certain specified situations or in general.

Property Taxes - Taxes owed on privately owned property, often paid annually or semi-annually. Debt glossary.

Quick assets - Cash and other assets which can or will be converted into cash fairly soon, such as accounts receivable and marketable securities; or equivalently, current assets minus inventory.

Real Asset - An asset that is valuable because of its utility, such as real estate or physical equipment.

Refund - Reimbursement given to taxpayers who have paid more in taxes than is necessary. If one qualifies, it is provided after the filing of a tax return.

Salary - Wages received on a regular basis, usually weekly or monthly. Sometimes the term is used to include other benefits, including insurance and a retirement plan.

Secured loan - A loan which is backed up by assets belonging to the borrower (normally property) in order to decrease the risk taken on by the lender.

Single Filing Status - Filing a tax return as an individual who is unmarried or legally separated.

Tax Avoidance - Attempts to minimize tax liability through legal means. Not to be confused with Tax Evasion.

Tax - A fee assessed on a product, service or population that must be paid for city, state, or federal government support.

Tax Gap - The difference between the amount of taxes owed and the amount voluntarily paid by the taxpayer. Debt glossary.

Tax Evasion - Attempts to minimize tax liability through illegal means. Not to be confused with Tax Avoidance.

Tax Liability - The amount of tax for which you are held responsible by the IRS, after any credits or advance payments are taken into consideration.

Tax Return - An official form that taxpayers must file with the IRS. It contains income and expense information in order to determine one’s tax liability.

Trustor - The borrower under a deed of trust is a trustor. Debt glossary.

Trustee - Usually an accountant (a qualified insolvency practitioner), a trustee acts for the creditors by managing the trust deed when a debtor agrees to sign over their assets into a trust deed or when they are declared bankrupt.

Unsecured creditor - A creditor who does not hold security (such as a mortgage) for money owed.

Unsecured Loan - An unsecured loan is a loan where the lender has no entitlement to any of the borrower's assets in the event of the borrower failing to make the loan repayments. Such a loan normally carries a higher interest rate than a secured loan.

Value - The worth or desirability of something expressed as an amount of money.

Voluntary Compliance - As related to tax, the situation in which taxpayers file tax returns voluntarily and accurately to the best of their knowledge. Debt glossary.

W-4 - A form filled out by employees so that their employers can withhold the correct amount of federal income tax from their wages.

Wages - Earnings made by a worker before any payroll tax deductions.

Withholding - Portion of an employee’s earnings held by the employer as payroll taxes, to be transferred to the federal, state, or city governments.

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