A Glossary of Bankruptcy Terms

ABANDONMENT: A bankruptcy trustee may abandon property back to you because of low value. I’ve seen this happen a few times where a client has a piece of land that was not a homestead and was not marketable. It was not exempt property, and after the trustee was unsuccessful at selling the land, the trustee abandoned the property and it went back to my client in each case.

ADVERSARY PROCEEDING: A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court.

ARREARS: The amount of money that is unpaid and overdue when a bankruptcy is filed. This is commonly used to describe past due mortgage (“mortgage arrears”) or child support payments (“child support arrears”).

 

ASSETS: Things that you own or have a legal interest in that have value. This can be anything from Socks to Stocks.

 

ASSUME: An agreement to continue performing duties under a contract or lease.

 

AUTOMATIC STAY: A powerful bankruptcy tool that stops all debt collection against the debtor. The automatic stay goes into effect at the moment you file a bankruptcy case.

 

BANKRUPTCY: A legal procedure for dealing with debt problems of individuals and businesses.

 

BANKRUPTCY CODE: The informal name for title 11 of the United States Code, the federal bankruptcy law.

 

BANKRUPTCY ESTATE: All legal or equitable interests of the debtor in property at the time of the bankruptcy filing. This is largely a theoretical term referring to assets that can be taken from you to distribute to creditors.

 

CHAPTER 7 BANRUPTCY: (Liquidation) Chapter 7 bankruptcy is a federal court procedure in which debtors are able to eliminate most types of unsecured debt. Although it is also known as the liquidation bankruptcy, there is typically no asset to liquidate. As a practical matter, if there is non-exempt that would have to be liquidated in a Chapter 7, then the attorney would recommend the filing of a Chapter 13 bankruptcy in order to protect the non-exempt property.

 

CHAPTER 7 TRUSTEE: The trustee appointed in a Chapter 7 case. The role of the trustee is to conduct a meeting of creditors, although in most cases no creditors appear. In most cases, the meeting of creditors is used by the Chapter 7 trustee to identify the person that filed bankruptcy and make sure that the paperwork is true and correct. In the event that the person who filed bankruptcy has non-exempt property, then the Chapter 7 trustee is responsible for gathering the non-exempt property, selling it and then distributing it to creditors.

 

CHAPTER 13 BANKRUPTCY: (Reorganization) Chapter 13 bankruptcy is a federal court procedure in which most debtors are able to repay all or some of their debts through an interest-free payment plan over a period of 3 to 5 years.

 

CHAPTER 13 TRUSTEE: The trustee assigned to Chapter 13 cases is responsible for receiving payments from the person who filed bankruptcy, and then distributes payments to creditors, according to the provisions of the Chapter 13 plan.

 

CHAPTER 11 BANKRUPTCY: Chapter 11 is a federal court procedure for businesses to reorganize their affairs. This is also available for individuals with very large amounts of debts.

 

CHAPTER 12 BANKRUPTCY: Chapter 12 is a chapter in the bankruptcy code providing adjustment of debts of a “family Farmer” or a “family fisherman”.

 

COLLATERAL: Property that is security for a loan. In regard to a car loan, the car is collateral for the loan. If you don’t make the payments on a car, then the creditor can take the car because it is collateral for the loan.

 

CONFIRMATION: The approval by the Bankruptcy Court of a repayment plan in a Chapter 13 bankruptcy.

 

CONFIRMATION HEARING: In a Chapter 13 case, the court hearing is for the Judge to approve your Chapter 13 Plan. In many cases, it is not necessary for you to attend this hearing because your attorney works things out with the Trustee in advance of the hearing.

 

CONSUMER DEBTOR: A debtor whose debts are primarily personal debts.

 

CREDITOR: Any person or business to which a debtor owes money.

 

CREDITOR MEETING: The one hearing you attend, also referred to as the “Meeting of Creditors” or “341 Meeting.” Normally, it is very short and creditors typically do not attend.

 

CREDIT COUNSELING: Refers to the “individual or group briefing” from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code. Debtors must also complete after the filing of the bankruptcy case, and that is the “instructional course in personal financial management” in chapters 7 an 13 that an individual debtor must complete before a discharge is entered.

 

CREDIT REPAIR: Actively working to make sure that an individual’s credit report is accurate and up-to-date. Normally done after a bankruptcy cases is over.

 

CURRENT MONTHLY INCOME: The average monthly income received by the debtor over the six months before commencement of the bankruptcy case, including regular contributions to household expenses from non-debtors and joint debtors, retirement income and disability income.

 

DEBTOR: Any person that has filed a bankruptcy petition.

 

DEFAULT: The failure to make payments in a timely manner as agreed in a contract.

 

DISCHARGE: The order in a bankruptcy case that eliminates the debtor’s personal liability for a debt. When a debt is discharged, it is no longer legally enforceable against the debtor. However, if a lien exists that secures the debt, then it may survive the bankruptcy.

 

DISCHARGEABLE DEBT: A debt for which the Bankruptcy Code allows the debtor’s personal liability to be eliminated.

 

EQUITY: The value of a debtor’s interest in property after all liens have been considered. For example, if you have a car valued at $10,000, and you have a loan against it for $7,000, then you have $3,000 equity in the car. Owing more than the value of the car is often called being “upside down.”

 

EVICTION: The legal process where a tenant is forced out of his/her residence.

 

EXEMPT: Refers to assets that you get to keep when you file bankruptcy. As a practical matter, most people keep all their assets when they file bankruptcy.

 

EXEMPTIONS: The various kinds and values of property that is legally beyond the reach of the creditors or bankruptcy trustee.

 

EXECUTORY CONTRACT/LEASE: Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed.

 

FAIR CREDIT REPORTING ACT (FCRA): A federal law that is designed to prevent inaccurate or outdated information from entering or remaining in a credit report.

 

FAIR DEBT COLLECTION & PRACTICES ACT (FDCPA): A federal law that prohibits unfair debt collection practices, such as lying, harassing, misleading and otherwise abusing debtors, by debt collectors working for collection agencies.

 

FORECLOSURE: The legal process by which the buyer is in default under a mortgage note and is deprived of his/her interest in the mortgaged property.

 

FRAUDULENT TRANSFER: A transfer of a debtor’s property made with intent to defraud or for which the debtor received less than the transferred property’s value.

 

FROZEN ACCOUNT: An account that cannot be accessed due to a judgment that has been executed through a court order.

 

GARNISHMENT: A type of debt collection ordered by a court in which a portion of a person’s salary is seized and paid to a creditor.

 

INSIDER: Any friend or relative of the debtor or of a general partner of the debtor.

 

JOINT PETITION: One bankruptcy petition filed by husband and wife together.

 

LEVY: The confiscation or seizure of property or money in accordance with a legal judgment.

 

LIEN: The charge placed upon real or personal property for the satisfaction of the debt or discharge of the obligation.

 

LIQUIDATION: A sale of a debtor’s property with the proceeds to be used for the benefit of creditors

 

MEANS TEST: Section 707(b)(2) of the Bankruptcy Code applies a “means test” to determine whether an individual debtor’s Chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to a chapter 13).

 

MEETING OF CREDITORS: Also known as a 341 Meeting. The meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors and/or trustee. In most cases, no creditors show up for the meeting of creditors.

 

MOTION TO LIFT THE AUTOMATIC STAY: A request by a creditor to allow the creditor to take action against the debtor or the debtor’s property that would otherwise be prohibited by the automatic stay.

 

NO-ASSET CASE: A term used in a chapter 7 case where there are no non-exempt assets available to pay creditors. This term refers to a bankruptcy case in which the debtor (you) will not lose any assets to the bankruptcy estate. Most cases are No Asset cases.

 

NONDISCHARGEABLE DEBT: A debt that cannot be eliminated in bankruptcy. Examples include alimony, child support, student loans, certain taxes, overpayment of benefits, debts arising from death or personal injury caused by driving while intoxicated, debts incurred under false pretenses.

 

OBJECTION TO DISCHARGE: A trustee’s or creditor’s objection to the debtor being released from personal liability for certain dischargeable debts.

 

OBJECTION TO EXEMPTIONS: A trustee’s or creditor’s objection to the debtor’s attempt to claim certain property as exempt from liquidation by the trustee to creditors.

PERSONAL PROPERTY: Anything you own that is not real estate.

PETITION: The document that identifies who is filing bankruptcy. The filing of the petition in a U.S. Bankruptcy Court starts a bankruptcy case.

 

PLAN: A debtor’s detailed description of how the debtor proposes to pay creditor’s claims over a fixed period of time.

 

PRE -PETITION: Anything that arises before the filing of a bankruptcy petition. The filing of the bankruptcy petition starts the bankruptcy case. Only pre-petition debts can be discharged in a bankruptcy proceeding.

 

PRIORITY CLAIM: An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. An example of a priority claim would be a debt to the IRS.

PROOF OF CLAIM: The document in which the creditor files to show how much money is owed to them by the debtor.

 

PROPERTY OF THE ESTATE: All legal or equitable interests of the debtor in property as of the commencement of the case.

 

REAFFIRMATION AGREEMENT: An agreement by a Chapter 7 debtor to continue paying a dischargeable debt after bankruptcy, usually for the purpose of keeping the collateral, such as a vehicle.

 

REAL PROPERTY: Anything permanently attached to land.

 

RELIEF FROM STAY: Request from a creditor to lift the automatic stay so that the creditor can act against the debtor or the property of the bankruptcy estate.

 

REPOSSESSION: When a creditor takes property that is listed as collateral for a loan.

 

SECURED DEBT: A debt that is secured when the creditor takes real or personal property as collateral.

 

SHERIFF’S SALE: The forced sale of a property at public auction with the proceeds of the sale being applied to the mortgage debt.

 

STATEMENT OF FINANCIAL AFFAIRS: A series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc.

 

STATEMENT OF INTENTION: A declaration made by a Chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate.

 

SURRENDER: Giving a home, car or other secured property back to the creditor instead of reaffirming.

 

TRANSFER: Any mode or means by which a debtor disposes of, or parts with, his/her property. This would include any gift or payment of money, gift or sale of a car title, gift or sale of land.

TRUSTEE: A private individual who represents the interests of the creditors in the bankruptcy proceeding.

 

UNSECURED DEBT: A debt is unsecured if it is not backed by any real or personal property as collateral or if it has not been recorded as a lien.

 

US TRUSTEE: An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees.

 

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