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Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay its creditors. Creditors may file a bankruptcy petition against a business or corporate debtor ("involuntary bankruptcy") in an effort to recoup a portion of what they are owed or initiate a restructuring. In the majority of cases, however, bankruptcy is initiated by the debtor (a "voluntary bankruptcy" that is filed by the insolvent individual or organization). An involuntary bankruptcy petition may not be filed against an individual consumer debtor who is not engaged in business.
A collection agency is a business that pursues payments on debts owed by individuals or businesses. Most collection agencies operate as agents of creditors and collect debts for a fee or percentage of the total amount owed.
There are many types of collection agencies, beginning with first-party agencies who are often times subsidiaries of the original company the debt is owed. Third-party agencies are separate companies contracted by a company to then collect the debts on their behalf for a fee. Another growing industry is debt buyers in which the agency purchases the debt at a fraction of its initial value then collects upon it. Each country has their own rules and regulations regarding collection agencies and their practices which are quite often very aggressive.
When a consumer has been late on a payment, it is possible that other creditors, even creditors the consumer was not late in paying, may increase the interest rates the consumer is paying
Legal – used in the context of legal trial, to refer to a final finding, statement, or ruling, based on a considered weighing of evidence, called "adjudication".
Foreclosure is the legal process by which a mortgage, or other lien holder, usually a lender, obtains a court ordered termination of a mortgagor's equitable right of redemption. Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure the loan. If the borrower defaults and the lender tries to repossess the property, courts of equity can grant the borrower the equitable right of redemption if the borrower repays the debt. While this equitable right exists, the lender cannot be sure that it can successfully repossess the property, thus the lender seeks to foreclose the equitable right of redemption. Other lien holders can also foreclose the owner's right of redemption for other debts, such as for overdue taxes, unpaid contractors' bills or overdue homeowners' association dues or assessments.
The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that "the lender has foreclosed its mortgage or lien". If the promissory note was made with a recourse clause then if the sale does not bring enough to pay the existing balance of principal and fees the mortgagee can file a claim for a deficiency judgment.
A tax lien is a lien imposed by law upon a property to secure the payment of taxes. A tax lien may be imposed for delinquent taxes owed on real property or personal property, or as a result of failure to pay income taxes or other taxes.
A student loan is designed to help students pay for university tuition, books, and living expenses. It differs from other types of loans in that the interest rate is substantially lower and the repayment schedule is deferred while the student is still in education. Before accepting any kind of student loan one should be familiar with its basic attributes.
Repossession is generally used to refer to a financial institution taking back an object that was either used as collateral or rented or leased in a transaction. Note that repossession is a "self-help" type of action in which the party having right of ownership of the property in question takes the property back from the party having right of possession without invoking court proceedings. The property is then sold on by either the financial institution or 3rd party sellers. The extent to which repossession is authorized greatly varies in different jurisdictions (see below).
Repossession is usually carried out in accordance with a purchase contract or credit contract, in which the consumer agrees that the seller (the "lien holder") may repossess the object if the signers are past the grace period (generally for prime lenders the critical number is 30 days late making an installment payment but can vary based on how many payments have already been made, the length of the business relationship, reason why past due, etc.). Contracts that authorize repossession also usually specify additional fines that the consumer must pay to the seller, ostensibly to cover the seller's costs of the repossession and of depreciated value of the object, as the seller is now in possession of a "used" object. In some places self-help repossession is not permitted; the lien holder is required to go to court to obtain an order of replevin. However, in some states, repossession is mandatory and suits of replevin are not permitted.
If a lender finds itself in the situation of needing to repossess property while the borrower attempts to avoid this, the dealer may contract the work of repossession out to a repossession agent. Many things can be repossessed, but most repossession agencies focus on auto repossession.
The repo agent normally uses a tow truck or pickup truck with a special towing attachment called a boom, but sometimes they pick the lock or obtain the key from the car owner.
Usually the vehicle owner must be notified of repossession. The repossession agent will find the car and check the VIN to make sure they have the right car. They will then hook up the car to the tow truck and tow it away or pick the lock and drive it away.
A charge-off or charge off is the declaration by a creditor (usually a credit card account) that an amount of debt is unlikely to be collected. This occurs when a consumer becomes severely delinquent on a debt. Traditionally, creditors will make this declaration at the point of six months without payment.
The purpose of making such a declaration is to give the bank a tax exemption on the debt. Bad debts and even fraud are simply part of the cost of doing business. The charge-off, though, does not free the debtor of having to pay the debt.
A charge-off is one of the most adverse factors that can be listed on a credit report. It will then be listed as such on the debtor's credit bureau reports (Equifax, for instance, lists "R9" in the "status" column to denote a charge-off.) The item will include relevant dates, and the amount of the bad debt.
While a charge-off is considered to be "written off as uncollectable" by the bank, the debt is still legally valid, and remains as such after the fact. The creditor legally has the right to collect the full amount for a time periods permitted the laws of places of the location of the bank and where the consumer resides. Depending on the location, this amount of time may be a certain number of years (e.g. 3 to 7 years), or in some places, indefinitely. Methods of collection that can be used include contacts from internal collections staff, outside collection agencies, or if the amount is large (generally over $1500–$2000), there is the possibility of a lawsuit or arbitration.
In the US, as the charge off number climbs or becomes erratic, officials from the Federal Reserve take a close look at the finances of the bank and may impose various operating strictures on the bank, and in the most extreme cases, may close the bank entirely.
A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.
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