Glossary Of Bankruptcy Terms

Abandonment: When the property placed in your estate during bankruptcy is of little resale value, it can be and usually is released back to the debtor. Abandonment is also likely where your house has an outstanding mortgage equal to or more than the resale price because of a second mortgage or declining house values.
Adequate Protection or Relief of Stay: If the court feels that a secured asset in estate may decrease in value during the bankruptcy proceedings, the court can order you to make regular payments or at least interest payments to the lien holder. The bankruptcy court has wide latitude in this area.
Chapter 7: Chapter 7 of the bankruptcy code relates to liquidation of a debtor's assets. In Chapter 7, a trustee is appointed to collect and sell your unprotected assets and give the money to your creditors. It is used most often by those with little in the line of assets.
Chapter 12: Chapter 12 for family farmers. It is very similar to Chapter 13.
Chapter 13: Chapter 13 is for wage earners with assets they want to protect. In this chapter you submit a plan for reorganization of their debts. The bankruptcy filing gives you protection from your creditors while you are paying off the debts listed in the plan either in full or in part. Chapter 13 provides for a more favorable discharge than Chapter 7 when there are assets.
Confirmation: The official act of the court in approving your reorganization plan or the sale of your assets.
Conversion: Converting of a bankruptcy filing from one chapter to another. Usually seen where Chapter 7 filings are moved to Chapter 13 filings because there are enough earnings or other resources to make repayment possible. This will be happening more often with the means test under the new bankruptcy laws. Conversion is also seen when a debtor in Chapter 11 or 13 decides to liquidate instead of accepting the reorganization plan.
Discharge: Discharge of debts is the freeing of you from any further payment on the debts discharged. Once a bankruptcy judge rules a debt is discharged the creditor can not force you to make any more payments.
Estate: The estate is all your non-exempt assets from which your creditors will be paid after sale of the assets. Where property of the estate is held by others, the court has the power to compel that person to turn the property over to the trustee for sale. I.E. a bank can be forced by the court to turn over the contents of a safety deposit box.
Exemptions: Property that may be kept by you and not included in the estate for sale. Exemptions are contained in both state and federal law and you will have to choose whether you use the federal or state exemptions. Exemptions include equity in your home, car, and other personal items. Dollar figures that can be claimed for each item vary by state and federal law as does the total in exemptions that can be claimed.
Fraudulent Transfer: A fraudulent transfer is the giving or sale of an asset for less than fair market value with the intent of keeping it out of your estate so it can't be sold to pay your creditors. These fraudulent transfers may be reversed by the the bankruptcy judge and the asset placed in your estate.
Involuntary Case: Creditors may ask the court to place you into a bankruptcy proceeding. The rules vary by how many creditors you have but if you are deep in debt, over $11,000 in debt and missing most payments this action is likely to happen. You can contest the filing but if the judge rules for the creditors, an order of relief is given your creditors and the case proceeds under Chapter 7.
Lien: A claim against or interest in the property of a debtor. A lien prevents the sale of the property without the permission of, or payment to, the lien holder. A judicial lien is one obtained through a court action. A statutory lien is one given by law, think IRS or a real estate tax lien.
Meeting of Creditors: This may be referred to as a Section 341 meeting and it gives your creditors and the trustee an opportunity to question the you about yourself and your assets and debts. You have to appear in person.
No Asset Case: If there is no property that can be sold to pay your creditors, the case is said to be a no asset case. Although you may have assets such as a house or car, if those assets have liens against them equal to or exceeding the resale value, or they are fully exempt, your case is a no asset case.
Non-Dischargeable Debt: Some debts can not be discharged. Alimony, child support are two debts that probably will be non-dischargeable. Creditors can seek to have the bankruptcy judge rule other debts non-dischargeable such as a loan gotten by a fraudulent claim by you.
Objection of claim: Anyone can object to a claim by filing that objection with the court. A hearing will be scheduled and the arguments given so the judge may rule on the objection.
Order of Relief: The court order stating the debtor is under bankruptcy protection. In a voluntary filing, the stay is automatic. In an involuntary case, the order of relief is made after the judge decides that the debtor should be in bankruptcy.
Plan: In Chapter 12 and 13 filings, you must submit to the judge a plan on how you will pay your creditors from your disposable income during the time that the plan is in place, usually from 3 - 5 years. The plan will have in it any concessions you want from the creditors such as lowered interest rates, forms showing disposable income, and the creditors you wish to pay. Your creditors will vote on the plan, probably ask for changes, and state whether they want to be included in the plan. The judge has final say, including how much disposable income you actually have to pay your creditors. The plan may be modified by you before or after confirmation. If the modification is made after the plan has been confirmed, the modification must still meet the approval of the judge and creditors.
Preferential Lien: A lien that is a preferential transfer and can be cancelled by the bankruptcy judge.
Preferential Transfer: Payments to creditors within 90 days of filing for bankruptcy can be voided by the judge and recovered and placed in you estate for distribution to other creditors. If the payment is made to a relative or friend within the last year before filing it can also be recovered. In other words, paying off your lowest credit card so you can continue using it after filing will not work.
Priority: Claims against you by any governmental agency have priority for payment from your assets before any unsecured creditors. If you owe taxes, they will be paid first. Some other creditors such a lien holders also can establish a right to payment before unsecured creditors.
Proof of Claim: Any creditor whether listed by you or not can file a proof of claim to make sure that creditor is included in any potential distribution of your assets and to be included on voting for or against any plan you submit for reorganization of your debts.
Reaffirmation Agreement: If you want to keep an item in the estate such as a car or engagement ring, reaffirmation releases the item from the estate and from any discharge. You work out whatever kind of agreement you can with the creditor and agree to re-assume the debt.
Redemption of Collateral: A creditor may have a lien where the value of the item is less than the amount due. The bankruptcy rules give you the chance to pay the creditor the actual value of the item and eliminate the lien from the property.
Relief from Stay: Creditors may obtain an court order ending the stay and allowing them to foreclose on a mortgage or enforce other liens. If adequate protection is given the item, the creditor normally will not be granted the relief from stay.
Schedules of Assets and Liabilities: Every debtor must file a list of assets and liabilities. These lists are part of the bankruptcy forms and divide assets and liabilities into various categories.
Secured Debt: When there is a lien such as a mortgage, car loan, or for such things as car repairs, that is considered a secured debt. The lien holder is entitled to the value of the property less any higher priority liens before payment to unsecured creditors. A first mortgage where the property is worth more than the balance due is a secured claim.
Statement of Financial Affairs: A detailed set of questions on all your financial affairs including income that again is part of the bankruptcy packet.
Stay: The filing of a bankruptcy petition automatically stops most collection and enforcement actions by creditors. Among other actions, the stay stops any forced sale of your property by court action. Co-signers are also protected by this automatic stay. Remember that any debts not listed in the filing are not part of the stay and collection actions can start or continue on those debts.
Substantial Abuse: The court can dismiss a Chapter 7 bankruptcy of an individual whose debts are primarily consumer oriented, when it believes the filing is a substantial abuse of the provisions of the bankruptcy code. You may ask the court to convert to Chapter 13 as an alternative to dismissal.
Unsecured Claim: Any debt where there is no lien. Unsecured claims are your credit card, personal loan, and retail loan debts.