Arrears

Arrears

Arrears is a legal term for a type of debt which is overdue after missing an expected payment. It is also used (in the form in arrears) for payments that occur at the end of a period.

Arrears accrue from the date on the first missed payment was due. The term is often used to describe being late with rent, royalties (or other contractual payments), child support, or other legal financial obligation.

An obligation is said to be in arrears if it is past due. "Arrears" is, further, not a late payment or charge for late rent, but the state of being late for rent. Charges such as this are impermissible under most Landlord/Tenant agreements.

In arrears vs. In advance

The term in arrears is "also" used in many contexts to refer to payments made at the "end" of a period, and is contrasted with in advance, which are payments made at the "start" of a period. [ [http://www.annuity-bureau.co.uk/Your+Retirement+Options/Conventional+Annuities/Annuity+Options/Income+paid+in+advance+or+in+arrears/ Income paid in advance or in arrears] ] For instance, one generally pays rent in advance (the month's rent is due at the beginning of the month), but mortgages in arrears (the interest for the period is due at the end of the period). Likewise, job wages and salary are typically paid in arrears.

In other contexts, payments at the end of a period is referred to by the singular arrear, to distinguish from past due payments. For example, a housing tenant who is obliged to pay rent at the end of each month, is said to pay rent "in arrear," while a tenant who has not paid rental due for 90 days is said to be three months "in arrears."

Accounting

Dividends

In accounting, arrears is used in at least two situations. One use involves the past, omitted dividends on cumulative preferred stock. If a corporation fails to declare the preferred dividend, those dividends are said to be in arrears. The dividends in arrears must be disclosed in the notes (footnotes) to the financial statements. (Cumulative preferred stock requires that any past, omitted dividends must be paid to the preferred stockholders before the common stockholders will be paid any dividend.)

This is the "past due" sense.

Annuities

Another use of the word arrears occurs with annuities (an annuity is a series of equal amounts occurring at equal time intervals, such as $1,000 per month for 20 years). If the recurring amount comes at the end of each period, the annuity is described as an annuity in arrears or as an ordinary annuity. A loan repayment schedule is usually an annuity in arrears. For example, you borrow $10,000 on September 30 and your first monthly payment will be due on October 31, the second payment will be due on November 30, and so on.

This is the "end of period" sense.

Finance

A LIBOR-in-arrears swap is an interest rate swap that sets and pays interest in arrears. In a normal swap, the interest rate is set in advance, and paid in arrears. In a LIBOR-in-arrears swap, the interest rate and payment both happen in arrears. As a consequence, the payment amount cannot be predicted ahead of time.

Notes


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Look at other dictionaries:

  • arrears — I noun arrearage, back payments, balance due, debit, debt, debt unpaid though due, default, deferred payment, deficit, delinquency, indebtedness, indebtment, liability, obligation, outstanding debt, overdue bill, overdue payment, payments past… …   Law dictionary

  • arrears — [ə rirz′] pl.n. 〚ME arrers < arrere, backward < OFr ariere < VL aretro < L ad, to + retro, behind〛 1. unpaid and overdue debts 2. unfinished business, work, etc. in arrears or in arrear behind in paying a debt, doing one s work, etc. * * *… …   Universalium

  • arrears — ► PLURAL NOUN ▪ money owed that should already have been paid. ● in arrears Cf. ↑in arrears ORIGIN Old French arere, from Latin retro backwards …   English terms dictionary

  • arrears — mid 14c., in times past, from O.Fr. ariere behind, backward, from V.L. *ad retro, from L. ad to (see AD (Cf. ad )) + retro behind (see RETRO (Cf. retro )). Meaning balance due dates from early 15c.; phrase in arrears first …   Etymology dictionary

  • arrears — [ə rirz′] pl.n. [ME arrers < arrere, backward < OFr ariere < VL aretro < L ad, to + retro, behind] 1. unpaid and overdue debts 2. unfinished business, work, etc. in arrears or in arrear behind in paying a debt, doing one s work, etc …   English World dictionary

  • arrears — The amount of money by which a contract or obligation is in default. (Dictionary of Canadian Bankruptcy Terms) United Glossary of Bankruptcy Terms 2012 …   Glossary of Bankruptcy

  • arrears — [n] debt back payment, balance due, claim, debit, deficiency, deficit, liability, obligation, unpaid bill; concepts 332,335 …   New thesaurus

  • arrears — or arrearages Money which is overdue and unpaid; e.g. overdue mortgage or rent payments. Term used to describe cumulative preferred stock dividends that have not been declared on time …   Black's law dictionary

  • arrears — or arrearages Money which is overdue and unpaid; e.g. overdue mortgage or rent payments. Term used to describe cumulative preferred stock dividends that have not been declared on time …   Black's law dictionary

  • arrears — Unpaid dividends or bond interest that a corporation owes its stockholders or bond holders after the payable or due date on which the dividends or interest should have been paid. American Banker Glossary * * * arrears ar‧rears [əˈrɪəz ǁ əˈrɪrz]… …   Financial and business terms

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