Glossary of Bankruptcy Terms
Adversary Proceeding
A lawsuit filed in the bankruptcy court which is related
to the debtor's bankruptcy case. Examples are complaints to determine the dischargeability
of a debt and complaints to determine the extent and validity of liens.
Arrears
The amount that is unpaid and overdue as of the date the bankruptcy case
is filed. The word "arrears" is usually used when referring
to back child support, back alimony owed, or the amount that is past due
on mortgage payments (including interest and penalties).
Assets
Personal possessions
of value, including cash, real estate, vehicles
and investments.
Automatic Stay
An injunction that stops lawsuits, foreclosure,
garnishments and all collection activity against the debtor the exact date
a bankruptcy
petition is filedBankruptcy: By filing in federal bankruptcy court, an
individual or individuals can restructure or relieve themselves of debts
and liabilities.
Avoidance
The Bankruptcy Code permits the debtor to eliminate
(avoid) some kinds of liens that interfere with (or impair) an exemption
claimed in
the bankruptcy. Most judgment liens that have attached to the debtor's
home can
be avoided if the total of the liens (mortgages, judgment liens and
statutory liens) is greater than the value of the property in which the exemption
is claimed. This is sometimes called "lien stripping."
Avoidance
Powers
Rights given to the bankruptcy trustee or the debtor in possession
to recover certain transfers of property such as preferences
or fraudulent
transfers or to void liens created before the commencement of a bankruptcy
case.
Bankruptcy
Code Title 11 of the United States Code governs bankruptcy
proceedings. Bankruptcy is a matter of federal law and is, with the
exception of exemptions,
the same in every state. When federal bankruptcy law conflicts with
state law, federal law controls.
Bankruptcy Estate
The estate is all
of the legal and equitable interests of the debtor as of the commencement
of the case. From the estate,
an individual debtor can claim certain property exempt; the balance
of the
estate is
liquidated in a Chapter 7 to pay the administrative costs of the
proceeding and the
claims
of creditors according to their priority.
Chapter 7
Chapter 7 bankruptcy
is a process provided for under United States federal law by which you are
entitled to a fresh start. Chapter
7 may eliminate
most kinds of unsecured debt. It is usually designed for someone
with no assets.
Chapter 11
A reorganization proceeding in which
the debtor may continue in business or in possession of its property as a
fiduciary. A confirmed
Chapter
11 plan provides for the manner in which the claims of creditors
will be paid in whole or in part by the debtor.
Chapter 12
A
simplified reorganization plan for family farmers whose debts fall within
certain limits. Chapter 12 was not renewed
when
it expired
this session of Congress.
Chapter 13
Chapter 13 is an interest-free
debt repayment plan through which you consolidate your debts and make a payment
on your debt
over a 3 to
5 year period. This type of bankruptcy is often used to save
a house from foreclosure
or to save a car from repossession.
Collateral
The property
that is subject to a lien as for payment of a debt or performance of a contract.
A creditor
with rights
in collateral
is a
secured creditor and has additional protections in the
Bankruptcy Code for the claim
secured by collateral.
Confirmation
The process by which
the Bankruptcy Judge approves a plan of reorganization of a debtor in a Chapter
13 case.
Conversion
Cases under the Bankruptcy Code may
be converted from one chapter to another chapter; for example, a Chapter
7 case
may be converted
to a
case under Chapter 13 if the debtor is eligible for
Chapter 13. Even though the
Chapter of the Code that governs it changes, it remains
the same case as originally filed.
Credit Report
A report
outlining an individuals credit history, public records and credit
worthiness.
Creditor
Any person or business that a debtor owes money to.
Debtor
Any person
who is liable to another for money.
Default
Failure to make payments within
a specified period of time governed by the original contract.
Delinquency
Failure to make payments when payments are due. For most mortgages, payments
are due on
the first
day of
the month.
Even though
they may not
charge a "late fee" for a number of days,
the payment is still considered to be late and
the loan delinquent. When a loan payment is more
than
30 days
late, most lenders report the late payment to one
or more of the credit bureaus.
Denial of Discharge
Penalty for debtor misconduct with respect to the
bankruptcy case or creditors
as a whole.
The grounds
on which
the debtor's
discharge
may be denied are found in 11 U.S.C. 727. When
the debtor's discharge is denied,
the debts that could have been discharged in that
case cannot be discharged in any subsequent bankruptcy.
The administration
of
the case, the liquidation
of assets and the recovery of avoidable transfers,
continues for the benefit of creditors.
Dischargable
Debts that can be eliminated in bankruptcy. Certain debts are not dischargeable;
that it, they
may not be discharged
through
bankruptcy or may only be discharged through
Chapter 13. Family support and criminal
restitution
are examples of debts which cannot be discharged.
Debts incurred by fraud can only be discharged
in Chapter
13.
Discharge
The legal term for the order eliminating
a debt through a bankruptcy case. When a debt
is discharged, it
is no longer
legally enforceable
against the debtor, though any lien that secures
the debt may survive the bankruptcy
case.
Equity
A homeowner's financial interest
in a property. Equity is the difference between the
value of the
property and the
amount still owed
on its mortgage
and other liens.
Exempt
Property that is exempt
is removed from the bankruptcy estate and is not available
to pay the
claims of creditors.
The debtor
selects the
property to be exempted from the statutory
lists of exemptions available under the
law
of his state. The debtor gets to keep exempt
property for use in making a fresh start
after bankruptcy.
Exemptions
Exemptions are the lists of the
kinds and values of property that is legally
beyond
the reach
of creditors
or the
bankruptcy trustee.
What
property may be exempted is determined by
state and federal statutes, and varies from
state to state.
Fiduciary
One who is entrusted
with duties on behalf of another. The law requires the
highest
level
of good faith,
loyalty
and diligence of a fiduciary,
higher
than the common duty of care that we all
owe one another. The debtor in possession
in a
Chapter 11 is a fiduciary
for the
creditors, owing loyalty
to the creditors
and not the shareholders of the debtor.
Fair Market Value
The highest price that a buyer, willing but not compelled
to buy,
would
pay,
and the lowest
a seller, willing
but
not compelled
to sell, would accept. Foreclosure: The
legal process by which a borrower in
default under a mortgage is deprived of his or
her
interest in the mortgaged property.
This usually involves a forced sale of
the property at public auction with the
proceeds
of the sale
being applied
to the
mortgage debt.
Garnishment
A court-ordered method of debt collection
in which a portion of a person's salary
is paid
to a creditor.
The
process
by which a
judgment
creditor
seizes money, which is owed to his judgment
debtor, from a third party known as
a garnishee.
General Unsecured Claim
Creditor's claim without a priority for
payment for which the creditor holds
no security
(or collateral). If the
available funds in the
estate extend
to payment of unsecured claims, the
claims are paid
in proportion to the size
of the claim relative to the total
of claims in the class of
unsecured claims.
Lien
A charge upon
real or personal property for the satisfaction of a
debt or discharge
of an obligation.
Examples would
include: judgments,
taxes,
mortgages, deeds of trust, etc.
Liquidated
A debt that is for a known number of dollars is liquidated.
An unliquidated debt is
one where
the debtor has liability, but
the exact monetary
measure
of that liability is unknown. Tort
claims are usually unliquidated
until a trial
fixes the
amount of
the liability of the
tort
feasor.
Non-dischargable
A debt that cannot be eliminated in bankruptcy. Non-dischargeable debts remain
legally enforceable despite the bankruptcy discharge.
No Asset Case
A Chapter
7 case in which the trustee determines,
after
the applicable
exemptions,
that
there are no significant
assets to liquidate.
The
debtor retains all of their real
and personal property.
Perfection
When a secured
creditor has taken the required steps to
perfect his
lien, the
lien is
senior to any
liens that arise
after
perfection.
A mortgage is perfected by recording
it with the county recorder;
a lien in personal property
is perfected by filing a financing
statement with the secretary
of state. An unperfected
lien is
valid between
the debtor
and the secured
creditor,
but
may be behind liens created later
in time,
but perfected earlier than the
lien in question. An unperfected
lien can be avoided
by the trustee.
Personal Property
Property that is not real property or affixed
to real
property,
such
as cars, stock,
furniture, etc.
Petition
The
document that initiates a bankruptcy case.
The filing
of the petition
constitutes
an order for
relief and
institutes
the automatic
stay.
Events are
frequently described as "prepetition",
happening before the bankruptcy
petition was filed, and "post
petition", after the bankruptcy.
Preference
A transfer to a creditor
in payment of an existing debt
made within
certain time
periods before
the commencement
of the
case. Preferences
may
be recovered by the trustee
for the benefit of all
creditors of the estate.
Pre-petition
Claims or events arising before the commencement
of the
bankruptcy case,
that is, before
the filing
of the bankruptcy petition.
Generally
only pre petition debts
may be discharged in a bankruptcy
proceeding.
Priority
The
Bankruptcy Code establishes the order in
which claims are paid
from the bankruptcy
estate.
All
claims
in a higher priority
must
be paid
in full before claims with
a lower priority receive
anything. All
claims with
the same priority share
pro rata.
Claims are paid in this
order: 1) costs of
administration 2) priority
claims and
3) general
unsecured claims.
Secured claims are paid
from the proceeds of
liquidating the collateral
which secured the claim.
Priority Claims
Certain debts, such as unpaid wages,
spousal
or child
support, and taxes
are elevated
in the payment
hierarchy under the
Code. Priority
claims must be paid in
full before general
unsecured claims are
paid.
Proof of Claim
Document
a creditor files showing
how
much money
is owed to them
by the debtor,
together with all
supporting evidence
of such claim. There is
usually a
deadline in which to
file a Proof of
Claim.
Property of the
Estate
The property that is
not exempt
and belongs
to the bankruptcy
estate.
Property of
the estate is usually
sold by the
trustee
and the claims
of creditors paid
from the proceeds.
Reaffirm
The debtor
can choose to reaffirm
debts
that would
otherwise be discharged
by the bankruptcy.
Generally,
when
a debt is reaffirmed,
the
parties to the
reaffirmed debt
have the same rights and
liabilities that
each had prior
to the
bankruptcy filing:
the debtor is
obligated to pay
and the creditor
can
sue or repossess
if the debtor doesn't
pay.
Relief from
Stay
A creditor can
ask the
judge to
lift the automatic
stay
and
permit some
action against
the debtor
or the property
of the estate.
If the
motion is granted,
the moving party
(but no
one else) is
free to take
whatever action
the court
permits.
Relief can be
absolute, for example,
permitting
the creditor
to foreclose on property,
or limited,
as for
example, allowing
the recordation
of a notice
of default.
Repossession
Once in default,
as defined
by the creditor
in the
security
agreement, occurs, the
creditor
can: repossess the
collateral
by self-help
(depending
on state law) or
with the
aid of a
court order, dispose
of the collateral
by public
or private foreclosure
sale,
retain
the collateral
in satisfaction
of
the debt,
terminate the debtor's
right of
redemption, add
the
costs
of repossession
and
foreclosure
to the unpaid balance
of
the
debt,
and pursue
the debtor for any
remaining
unpaid balance
or deficiency.
Schedules
The debtor
must
file the
required lists
of assets
and liabilities
to commence
a bankruptcy
case,
collectively
called
the schedules.
Secured Debt
A secured
debt is
one where
the creditor
takes personal
or real
property
as
collateral.
A creditor
whose debt
is secured
has a
right
to take
property
to satisfy
a debt
in
default.
For example,
most
homes are
burdened
by a secured
debt
in
the
form of
a mortgage.
This means
that the
lender
has the
right to take the
home
if
the borrower
fails to
make payments
on the
loan.
Trustee
A private
individual
or corporation
appointed
in bankruptcy
filings
who represents
the interests
of the
creditors
in
the bankruptcy
estate.
Unsecured
A claim
or debt
is unsecured
if
there
is no collateral
that
is security
for
the debt.
Most
consumer
debts
are unsecured.
Unsecured
Debt
A debt
is
unsecured
if
you have
simply
promised
to
pay a
creditor
a sum
of
money at
a particular
time,
and
you have
not
pledged any real
or
personal
property
as
collateral for that
debt.
Generally,
credit
cards
and
medical bills
are
unsecured debts.
|
