Paralegal Advanced Competency Exam (PACE) Practice Exam

Which term refers to a debt that accumulates when not paid on time?

1. Obligation

2. Arrearages

3. Instalments

4. Liabilities

The correct answer is: Arrearages

The term that accurately describes a debt that accumulates when not paid on time is "Arrearages." Arrearages specifically refer to amounts that are overdue and have not been paid by their due dates. This can occur in various contexts, such as with loans, rent payments, or invoice settlements, where failure to meet the payment schedule results in an accumulation of debt. By clearly identifying unpaid debts or obligations, arrearages emphasize the consequences of late payments, which can include additional fees or interest. This particular terminology is crucial for financial and legal contexts because it defines a specific situation where the responsibility to make payments has not been met, leading to a growing total owed. In contrast, other terms do not precisely convey this meaning. An obligation refers to a general duty or commitment to pay, but it does not indicate whether payments have been missed or are currently owed. Instalments represent the portion of a debt that is to be paid on specific dates, but they do not imply that payments are overdue. Liabilities are broader financial responsibilities or obligations but do not inherently suggest that those obligations are overdue or accumulating. Thus, "Arrearages" is the most accurate term for describing debts that grow due to non-payment.