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 filed
Bankruptcy: By filing bankruptcy in
federal 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 bankruptcy.
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 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.
No Asset Case
A debt that cannot be eliminated
in bankruptcy. Non dischargeable
debts remain legally enforceable
despite the bankruptcy discharge.
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.
