Glossary of 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 discharge ability
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 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 individual’s 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 is, 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 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.
Preference 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.
