Important Bankruptcy Terms
Bankruptcy lawyers, judges and trustees sometimes seem to be speaking a different language. There are many “terms of art” that you might be interested in learning which will help you understand what’s going on in your case. Here are some of the more common terms:
341 NOTICE: This is a notice announcing the date, time and place of the meeting of creditors.
ABANDON: The trustee abandons (doesn’t take, leaves) property that has little or no nonexempt value beyond the amount of the lien. For example, a house’s value barely exceeds the amount of the mortgage plus the debtor’s homestead exemption.
AFFIDAVIT: A written statement of facts signed under oath before a notary.
ARREARAGES: Amount you are behind in your payments. If your monthly mortgage payment is $1,500, and you’re three payments behind, your arrearages are $4,500.
ASSETS: Things that you own. Your house, car, bank accounts, cash, household goods and furnishings, are all considered assets, even if you owe money on them or are making payments on them.
AUTOMATIC STAY: As soon as a bankruptcy is filed, this is the order automatically issued by the Bankruptcy Court prohibiting most credit collection and related activities such as collection calls and letters, filing or continuing lawsuits, foreclosures, garnishments, attachments, enforcing judgments.
BANKRUPTCY: A proceeding in a federal court in which a debtor is relieved of the obligation to repay certain debts.
BANKRUPTCY ESTATE: The property you own when you file for bankruptcy.
BANKRUPTCY PETITION: Legal papers filed with the Court that start a bankruptcy case.
CHAPTER 7 BANKRUPTCY: In a Chapter 7 bankruptcy case, some or nearly all of a debtor’s unsecured debts (usually credit cards, doctors’ bills and personal loans) are wiped out. Most people can keep their home, car and all of their belongings.
CHAPTER 13 BANKRUPTCY: A typical Chapter 13 Bankruptcy sets up a five year payment plan for your debts. A Chapter 13 Bankruptcy usually saves your home and car, and you keep everything you have.
CLAIM: In bankruptcy cases, a creditor, someone you owe money to, files a Proof of Claim to tell the Court how much you owe them.
COLLATERAL: Property that is security for a loan. An example is a car loan—if you don’t make the monthly payments, your car can be repossessed-- because the car is collateral (backup) for the car loan.
COMPLAINT: A formal document that begins a lawsuit.
CONFIRMATION HEARING: This is a Court hearing for the Judge to approve your Chapter 13 Repayment Plan. In most cases, it is not necessary for you to appear for this meeting; your attorney works things out in advance with the Trustee.
CRAMDOWN: The act of reducing secured debt to the value of the collateral securing the debt.
CREDIT COUNSELING: Debtors are required to take a Pre-filing Credit Counseling course as well as a post-filing Financial Management course. You can complete each course—around 90 minutes each--for approximately $50-- online or by telephone.
CREDITOR: Someone you owe money to.
CURRENT MONTHLY INCOME: Gross income (whether taxable or not) averaged over the six-month period preceding the bankruptcy filing.
DEBTOR: Someone who owes money. This term is used to refer to someone who files for bankruptcy.
DEBTS: Money you owe.
DEBT RELIEF AGENCY: A person or agency—including lawyers—that provide bankruptcy assistance to a debtor.
DISCHARGE: This is a court order, issued at the end of the bankruptcy case, which legally relieves the debtor of personal liability for debts that can be discharged in that type of bankruptcy. The term is sometimes used as a verb, for example, the credit card debts were “discharged”.
DISMISSAL: The court throws out the case without giving the debtor what he wants (which is relief from his unsecured debts).
DISPOSABLE INCOME: The difference between the debtors “current monthly income” and allowable expenses. This is the amount available to pay unsecured creditors in a Chapter 13 Bankruptcy repayment plan.
EQUITY: The amount you get to keep if you sell property—typically the property’s market value less liens (such as a mortgage) and costs of sale.
EXEMPTIONS: Each state has different lists of assets you can keep in bankruptcy. These are called “Exemptions.” Examples are: part of the equity in your house and car, clothing, household furnishing, household appliances, pensions. In Kentucky we are allowed to use Federal Exemptions which are more generous than Kentucky’s.
FILING DATE. The date that the petition is filed.
FINANCIAL MANAGEMENT: See CREDIT COUNSELING.
FORECLOSURE: The process by which a creditor with a lien on real estate forces a sale of property in order to collect on the lien. Forecosure typically occurs when a homeowner defaults on a mortgage loan; the creditor (lender) forces the sale of the house or other real estate in order to collect on the mortgage loan debt.
FRAUD: Representation intended to mislead creditors or the bankruptcy trustee.
HOMESTEAD EXEMPTION:. Exemption for a home.
INSIDER CREDITOR: A creditor with whom the debtor has a personal relationship, such as a relative, friend or business partner.
JUDGMENT PROOF: A debtor who has no income or property for a creditor to take.
LEASE: A contract that governs the relationship between an owner of property and a person who uses the property for a period of time—as in car or real estate leases.
LIEN: A legal claim against property that can be collected through repossession (your car) or foreclosure (your house).
MEANS TEST: A formula for determining whether a debtor is eligible to file a Chapter 7 Bankruptcy.
MEDIAN FAMILY INCOME: An annual income figure for which there are as many families with incomes below that level as there are above that level.
MEETING OF CREDITORS (often called a “341 Meeting”): A hearing the debtor must attend in a bankruptcy proceeding, at which creditors and the Trustee ask questions about the debtor’s property, amount of debts, information on the documents and forms that were filed. Most 341’s last less than 15 minutes. Creditors rarely attend so all questions asked are those of the Trustee.
MORTGAGE: A contract in which a loan to purchase real estate is secured by the real estate as collateral. If the borrower doesn’t repay the loan then the lender can foreclose on the property--he can force the sale of the property to collect on the debt.
MOTION: A formal legal procedure whereby one party asks a bankruptcy judge to rule on a disputed matter.
NON-DISCHARGEABLE DEBT: Debt that cannot be discharged through a bankruptcy. Some examples of non-dischargeable debts are alimony, child support, most student loans.
NONEXEMPT PROPERTY: Property not protected by an exemption and therefore available for the Trustee to sell in order to pay unsecured creditors.
NON-PRIORITY UNSECURED CLAIM: A claim that is not for a priority debt (such as child support) and is not secured by collateral or other property. Examples are credit cards and medical bills.
PARTIALLY SECURED DEBT: A debt secured by collateral that is worth less than the debt itself—for example, when a person owes $15,000 on a car that is worth $10,000.
PERSONAL PROPERTY: Everything that isn’t real estate—cars, cash, furniture, etc.
PETITION: The document that, when filed with the Bankruptcy Court, starts the bankruptcy case. Events that happen before the Petition is filed are called “Pre-Petition,” and events that happen after the Petition is filed are called “Post-Petition.”
POST-PETITION: SEE PETITION
PREFERENCE: A payment by a debtor to a creditor within a defined time period prior to filing bankruptcy—this allows the trustee to recover the preference and distribute it to creditors.
PRE-PETITION: SEE PETITION.
PRIORITY DEBT: A debt that has to be paid in full or it is not discharged in bankruptcy. Some taxes and domestic support obligations are typical priority debts. These debts are sometimes called “unsecured priority debts” since there is no security (collateral) behind the debt.
PROOF OF CLAIM: The document that creditors file with the Bankruptcy Court stating how much the creditor is owed. If a creditor doesn’t file a Proof of Claim she doesn’t get paid through the bankruptcy.
REAFFIRMATION AGREEMENT: An agreement, usually with your auto lender, treating your car loan as if you never filed for bankruptcy.
REDEMPTION: In a Chapter 7 Bankruptcy, when the debtor obtains legal title to collateral for a secured debt by paying the secured debtor the replacement value of the collateral in a lump sum; typically the debtor redeems a car note by paying the creditor the replacement value of the car.
REPAYMENT PLAN: Three to five--year monthly payment plan under which a Chapter 13 Bankruptcy debtor pays unsecured creditors.
REPOSSESSION: This is when a secured creditor takes property used as collateral because the debtor has not paid the debt which is secured by the collateral; for example, the car buyer doesn’t make payments on the loan which is secured (backed up) by the collateral (which is the car).
SCHEDULES: The documents filed with your Bankruptcy Petition that list your assets, debts, income and expenses.
SECURED CREDITOR: This is a creditor whose loan is secured (backed up) by collateral (property). Usually applies to home and car.
SECURED PROPERTY: Property that is collateral for a secured debt. Usually a car or home.
STATEMENT OF AFFAIRS: The official bankruptcy form that a debtor must file to describe the debtor’s legal, economic, and business transactions.
STATEMENT OF INTENTION: The official bankruptcy form a debtor must file in a Chapter 7 Bankruptcy to tell the court and secured creditors how the debtor plans to treat secured debts—that is, reaffirm the debt, redeem the debt, or surrender the property and discharge the debt.
STAY: SEE AUTOMATIC STAY.
STRIPDOWN OF LIEN: In a Chapter 13 Bankruptcy when the amount of the lien on collateral is reduced to the value of the collateral’s replacement value. See CRAMDOWN.
SURRENDER: In a Chapter 7 or Chapter 13 Bankruptcy, the act of returning collateral to a secured creditor in order to discharge the underlying debt—for example, returning the car to discharge a car note.
TRUSTEE: This is the official that runs the bankruptcy proceedings and attempts to get property/money from you to pay unsecured creditors (credit cards, medical bills etc).
UNSECURED CREDITOR: A creditor whose loan/bill isn’t secured by collateral (property) and therefore has no right to seize a particular item of the debtor’s property if the debtor doesn’t pay; examples are credit cards, doctors’ bills, rent, payday loans.
UNSECURED DEBT: Debt that isn’t secured by collateral.
WILDCARD EXEMPTION: A dollar value that the debtor can apply to any piece of property to make it exempt.
