COMMON BANKRUPTCY TERMS

Arrears

The unpaid and overdue amount as of the date the bankruptcy case is filed. The word “arrears” refers  to the amount that is past due on mortgage payments (including interest and penalties),  back child support,  or back alimony owed.

 

Assets

Personal possessions of value including cash, real estate, vehicles and investments.

 

Automatic Stay

A court order that halts lawsuits, foreclosure, garnishments and all collection activity against the debtor by creditors. The order stops collection efforts from the date a bankruptcy petition is filed, allowing the individual to restructure or remove themselves of debts and liabilities.

 

Bankruptcy

A legal procedure for resolving debt problems of individuals and businesses (specifically, a case filed under one of the chapters of title 11 of the United States Code).

 

Bankruptcy Court

The bankruptcy judges in each district (a unit of the district court).

 

Bankruptcy Petition

A formal request for the protection of the federal bankruptcy laws.

 

Bankruptcy Proceeding

A bankruptcy case filed to a particular Chapter of the Bankruptcy Code. Bankruptcy proceedings are Chapter 7 liquidations and reorganization proceedings of  Chapters 9, 11, 12, and 13.

 

Bankruptcy Trustee

A private individual or corporation appointed in all Chapter 7 and Chapter 13 cases to represent the interests of the bankruptcy estate. The trustee manages funds, makes payments to creditors, and  gathers non-exempt property for liquidation.

 

Chapter

A specific  division of the Bankruptcy Code. Three Chapters contain general rules applicable in all bankruptcy proceedings. The remaining five Chapters comprise the specific types of bankruptcy proceedings (7, 9, 11, 12, 13).

 

Chapter 7

Chapter 7 bankruptcy may eliminate most unsecured debts by removal of debt or  liquidation of assets, usually used by someone without any assets.

 

Chapter 7 Trustee

A person appointed in a Chapter 7 case to represent the interests of the bankruptcy estate and the creditors. The trustee reviews petition and schedules, liquidates the property of the estate, and makes distributions of payment to creditors.

 

Chapter 13

A reorganization of funds in which an interest-free debt repayment plan which consolidate debts and allows for payments to be made over a 3 to 5 year period. This is often used to save a house from foreclosure or to save a car from repossession.

 

Chapter 13 Trustee

A person appointed to administer a Chapter 13 case. A Chapter 13 trustee’s responsibilities are overseeing the debtor’s plan, receiving payments from debtors, and disbursing plan payments to creditors.

 

Collateral

The property that is subject to a lien, as for payment of a debt or to satisfy a contract.

 

Consumer Bankruptcy

A bankruptcy case filed to reduce or eliminate debts that are primarily consumer debts.

 

Consumer Debt

A debt incurred by an individual primarily for personal purposes.

 

Consumer No Asset Bankruptcy

A Chapter 7 bankruptcy proceeding for an individual in which there are normally no assets available for distribution to creditors. It is the most common and simplest of all bankruptcy proceedings.

 

Court

Government entity authorized to resolve legal disputes. Judges sometimes use “court” to refer to themselves in the third person, as in “the court has read the briefs.”

 

Credit Report

A report that outlines an individual’s credit history.

 

Creditor

Any person or business that a debtor owes money to.

 

Credit Counseling

Refers to (1) the briefing from a nonprofit budget and credit counseling agency that individual debtors are required to attend prior to filing under any chapter of the Bankruptcy Code; and (2) the instructional course in personal financial management in chapters 7 and 13 that an individual debtor must complete before a discharge is entered.

 

Debtor

Any person who owes and is liable to another entity for money.

 

Debtor’s Equity

The debtor’s ownership interest in property.

 

Debtor’s Plan

A detailed description of repayment terms to creditors’ claims over a fixed period of time.

 

Deficiency

The loss that results when a debt is undersecured.  When the collateral securing the debt is worth less than the amount owed.

 

Delinquency

The debtor fails to make payments when payments are due. Payments are considered delinquent if they are more than 30 days late.

 

Discharge

The legal term for the elimination of a debt through a bankruptcy action. It renders the debt no longer enforceable against the debtor.

 

Dischargeable

Debts that can be eliminated in bankruptcy. Certain debts cannot be discharged through a bankruptcy action. Family support payments and criminal restitution payments are examples of debts which cannot be discharged.

 

Dismissal

The act of terminating a bankruptcy proceeding.

 

Disposable Income

All income that is not essential for the maintenance or support of the debtor or family.

 

Equity

A person’s financial interest in their property. Equity is equal to the difference between the value of the property and the amount owed on the property.

 

Exempt

Property that is exempt is not part of the bankruptcy estate and cannot be used to pay the claims of creditors. The laws of each state outline the various items of property that are exempt. The debtor gets to keep exempt property following dismissal from bankruptcy.

 

Exemptions

Exemptions are the lists of the property that are protected from liquidation by creditors or the bankruptcy trustee. Each state outlines the various exemptions allowed under its bankruptcy code.

 

Foreclosure

The legal process by which a forced sale of the property at public auction with the proceeds of the sale being applied to the debt.

 

Garnishment

A court-ordered method of debt collection in which a portion of a person’s salary is paid directly to a creditor.

 

Home Equity Loan

A consumer loan secured by a second mortgage, allowing home owners to borrow against their equity in the home.  A home-equity loan is basically a line of credit secured by using your home as collateral.

 

Homestead

A type of exemption prohibiting an individual’s home from being seized and liquidated. State law provides for a homestead exemption.(522(d)(1) of the Bankruptcy Code provides a federal homestead exemption)

 

Household Expenses

Refers to general living expenses including the rent or mortgage,  food consumed within the home, and utilities.

 

Lien

A charge upon property for the purposes of satisfying  a debt.

 

Liquidation

A process by which a debtor’s assets are sold to satisfy the debt to creditors.

 

Means Test

A test used to determine eligibility for filing Chapter 7 bankruptcy. If the debtor’s median income is below a threshold, they are eligible for Chapter 7. If an individual debtor’s chapter 7 filing is presumed to be an abuse of the Bankruptcy Code, the case will be dismissed (generally to chapter 13). 

 

Non-Dischargeable

A debt that cannot be eliminated in bankruptcy.

 

Nonexempt Assets

Property of a debtor that can be liquidated to satisfy debts to creditors.

 

Personal Property

Property that is not real property, such as cars, stock, furniture, etc.

 

Petition

The initiating document in a bankruptcy case. The filing of the petition represents an order for relief and implements the automatic stay.

 

Regular Income

Income sufficient and stable enough to support performance of a Chapter 13 plan by an individual. Regular income includes wages or salary, pension, social security, and commission.

 

Reorganization

A bankruptcy proceeding where a debtor draw up a plan to  repay creditors while allowing the debtor to retain their assets.

 

Repossession

Once in default, the creditor can repossess the collateral, retain the collateral in order to satisfy the debt, terminate the debtor’s right of reclaiming the collateral, add the costs of repossession and foreclosure to the unpaid balance of the debt, and pursue collection efforts of the debtor for any remaining unpaid balance.

 

Schedules

Documents that detail the assets and liabilities to initiate a bankruptcy case.

 

Secured Debt

A secured debt is one where the creditor takes personal or real property as collateral in the event of default. In default, the creditor whose debt is secured has a right to take property to satisfy a debt.

 

Statement of Financial Affairs

A fundamental bankruptcy pleading consisting of a questionnaire concerning a debtor’s financial transactions.

 

Statement of Intention

A notice given to advise any affected creditor of the debtor’s intention regarding the collateral. The notice must be given within 30 days after a filing.  The debtor may reaffirm the contact, redeem or return the collateral, or avoid the lien under specific defined circumstances.

 

Trustee

A private individual or corporation appointed in bankruptcy filings who represents the interests of the creditors in the bankruptcy estate, manages money and takes possession of non-exempt assets.

 

Unsecured Debt

A debt is unsecured if you have simply promised to pay a creditor a sum of money without putting  up any real or personal property as collateral.

 

Wage Garnishment

A nonbankruptcy legal proceeding whereby a creditor seeks to claim the future wages of a debtor.