Bankruptcy Definitions

Bankruptcy Definitions

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
Overdue payments. Usually refers to Domestic Support Orders or secured debt payments.
Assets

Assets are every form of property that the debtor owns. They include not just homes, cars, etc, but also such intangible things as business goodwill; the right to sue someone; or stock options. The debtor must disclose all of his assets in the bankruptcy schedules. Exemptions remove the exempt assets from property of the estate.

Automatic Stay
An injunction automatically issued by the bankruptcy court when a debtor files for bankruptcy. The automatic stay prohibits most creditor collection activities, such as foreclosures, repossessions, filing or continuing lawsuits, making written requests for payment, or notifying credit reporting bureaus of an unpaid debt.
Bankruptcy

A legal proceeding that relieves you of the responsibility of paying your debts or provides you with protection while attempting to repay your debts.

Bankruptcy Abuse
Bankruptcy Abuse was a law enacting several significant changes to the U.S. Bankruptcy Code. Most provisions of the act apply to cases filed on or after October 17, 2005. It attempts to, among other things, make it more difficult for some consumers to file bankruptcy under Chapter 7 ; some of these consumers may instead utilize Chapter 13.
Chapter 13
The reorganization bankruptcy for consumers, in which you partially or fully repay your debts. In Chapter 13 bankruptcy, you keep your property and use your income to pay all or a portion of the debts over three to five years. The minimum amount you must pay is roughly equal to the value of your nonexempt property. In addition, you must pledge your disposable net income–after subtracting reasonable expenses–for the period during which you are making payments. At the end of the three-to five-year period, the balance of what you owe on most debts is erased.
Chapter 7

The most familiar type of bankruptcy , in which many or all of your debts are wiped out completely in exchange for giving up your nonexempt property . Chapter 7 bankruptcy takes from three to six months, costs less than chapter 13, and commonly requires only one trip to the courthouse.

Co-Debtor Stay

The “Co-Debtor Stay,” also known as the “Co-Debtor Automatic Stay,” is a feature of a Chapter 13 Bankruptcy.

The policy behind the co-debtor stay in Chapter 13 is to prevent creditors from placing indirect pressure on the debtor by continuing collection activities against co-debtors, who are usually the debtor’s spouse, family members or friends. The Co-Debtor Stay stops all collection actions against any individual who is obligated on a consumer debt owed by the debtor. The Co-Debtor Stay continues until the Chapter 13 case has concluded.

Creditors can file a Motion for Relief from the Co-debtor Stay and ask the Court to terminate the Stay under any one of three appropriate circumstances.

First, under section 1301(c)(1) of the Bankruptcy Code, the co-debtor stay can be lifted if, as between the two parties on the account, the Co-debtor actually received the benefit from the account or debt.

Second, pursuant to section 1301(c)(2), the stay must be lifted if the debtor’s Chapter 13 Plan does not propose to pay 100 percent of the creditor’s claim.

Finally, under section 1301(c)(3), the stay must be lifted if the creditor would be irreparably harmed by continuation of the co-debtor stay.

Collateral

Property that guarantees payment of a secured debt.

Credit Counseling

Counseling that explores the possibility of repaying debts outside of bankruptcy and educates the debtor about credit, budgeting, and financial management. Under the new bankruptcy law, a debtor must undergo credit counseling with an approved provider before filing for bankruptcy.

Creditor

A person or entity (such as a bank) to whom a debt is owed.

Default
A failure to perform a legal duty. For example, a default on a mortgage or car loan happens when you fail to make the loan payments on time, fail to maintain adequate insurance or violate some other provision of the agreement. Default on a student loan occurs when you fail to repay a loan according to the terms you agreed to when you signed the promissory note, and the holder of your loan concludes that you do not intend to repay.
Discharge
A discharge is a court order which states that you do not have to pay most of your debts. There are some limits on the types of debt that can be discharged and how often that discharge is available.
Disposable Monthly Income

The difference between a debtor’s current monthly income and allowable expenses. This is the amount that the new bankruptcy law deems available to pay into a Chapter 13 plan.

Domestic Support Order

A debt or obligation to pay alimony, maintenance or support to a spouse, former spouse, parent, child, or someone on the child’s behalf, including a government entity, under a court order or separation agreement.

Exempt Property
The items of property you are allowed to keep if a creditor wins a lawsuit against you or if you file for Chapter 7 bankruptcy.
Exemptions

The state laws that determine the type and amount of property you are allowed to keep if a creditor wins a lawsuit against you or if you file for Chapter 7 bankruptcy. Each state determines its own exemptions.

Foreclosure
The forced sale of real estate to pay off a loan on which the owner of the property has defaulted.
Gross Income
An individual’s total personal income before taking taxes or deductions into account.
Head of Household
Missouri exemption similar to the wildcard exemption. The head of household exemption is only available to Debtors with minor children. The amount available depends on the number of minor children in the house.
Injunction

A court decision that is intended to prevent harm–often irreparable harm–as distinguished from most court decisions, which are designed to provide a remedy for harm that has already occurred. Injunctions are orders that one side refrain from or stop certain actions, such as an order that an abusive spouse stay away from the other spouse or that a logging company not cut down first-growth trees.

Judgment

A final court ruling resolving the key questions in a lawsuit and determining the rights and obligations of the opposing parties. For example, after a trial involving a vehicle accident, a court will issue a judgment determining which party was at fault and how much money that party must pay the other.

Lien

The right of a secured creditor to grab a specific item of property if you don’t pay a debt. Liens you agree to are called security interests, and include mortgages, home equity loans, car loans and personal loans for which you pledge property to guarantee repayment. Liens created without your consent are called nonconsensual liens, and include judgment liens (liens filed by a creditor who has sued you and obtained a judgment), tax liens and mechanics liens (liens filed by a contractor who worked on your house but wasn’t paid).

Means Test

A formula that uses predefined income and expense categories to determine whether a debtor whose current monthly income is higher than the median family income for his or her state should be allowed to file for 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. The Census Bureau publishes median family income figures for each state and for different family sizes. A debtor whose current monthly income is higher than the median family income in his or her state must pass the means test in order to file for Chapter 7 bankruptcy, and must commit all disposable income to a five-year repayment plan if filing for Chapter 13 bankruptcy.

Meeting of Creditors

A meeting held with the bankruptcy trustee about a month after you file for bankruptcy. You must attend. The trustee reviews your bankruptcy papers and asks a few questions. In a Chapter 7, the meeting of creditors lasts a few minutes and rarely do any creditors show up. In a Chapter 13 bankruptcy, one or two creditors may attend, especially if they disagree with some provision of your repayment plan. This meeting is often referred to as the “341 meeting” because it is required by section 341(a) of the bankruptcy code.

Mortgage
A loan in which the borrower puts up the title to real estate as security (collateral) for a loan. If the borrower doesn’t pay back the debt on time, the lender can foreclose on the real estate and have it sold to pay off the loan.
Net Income

An individual’s income after deductions, credits and taxes are deducted from the gross income.

Non-Exempt Property

The property you risk losing to your creditors when you file a Chapter 7 bankruptcy or when a creditor sues you and wins a judgment. Nonexempt property typically includes valuable clothing (furs) and electronic equipment, an expensive car that’s been paid off and most of the equity in your house.

Order

A decision issued by a court.

Payment Plan

Proposed payment plan required in a Chapter 13 Bankruptcy. A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.

Petition

A formal written request made to a court, asking for an order or ruling on a particular matter. For example, a bankruptcy case commences with the filing of a petition for relief under the bankruptcy code.

Qualified Retirement Account

A plan that meets requirements of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits.

Reaffirmation
An agreement that a debtor and a creditor enter into after a debtor has filed for bankruptcy, in which the debtor agrees to repay all or part of an existing debt after the bankruptcy case is over. For instance, a debtor might make a reaffirmation agreement with the holder of a car note that the debtor can keep the car and must continue to pay the debt after bankruptcy.
Real Estate

Land and the property permanently attached to it, such as buildings, houses, stationary mobile homes, fences and trees. In legalese, real estate is also called real property.

Repossession

A creditor’s taking property that has been pledged as collateral for a loan. Lenders will most often repossess cars when the owner has missed loan payments and has not attempted to work with the lender to resolve the problem. A repossessor can’t use force to get at your car, but he can legally hot-wire it and even drive it out of your unlocked garage.

Schedules

Summary of income, expenses, assets and debts that must be filed with the Court to commence a bankruptcy case.

Secured Debt

A debt on which a creditor has a lien. The creditor can institute a foreclosure or repossession to take the property identified by the lien, called the collateral , to satisfy the debt if you default.

Title

Evidence of ownership.

Tools of the Trade

Implements, professional books, or tools used primarily in the course of the Debtor’s business.

Trustee

A person appointed by the court to oversee the bankruptcy case of a person or business. In a consumer Chapter 7 case, the trustee’s role is to gather the debtor’s nonexempt property, liquidate it and distribute it proportionally to her creditors. In a Chapter 13 case, the trustee’s role is to receive the debtor’s monthly payments and distribute them proportionally to her creditors.

Unsecured Debt

A debt that is not tied to any item of property. A creditor doesn’t have the right to grab property to satisfy the debt if you default. The creditor’s only remedy is to sue you and get a judgment.

Wildcard Exemption

Protects any property you choose, though it’s not available in all states. If available, you can apply the exemption to nonexempt property, such as expensive jewelry or clothes, or use it to increase the amount for an already partially exempt item.

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