ADVERSARY PROCEEDING: A lawsuit filed in the bankruptcy court related to the debtor’s bankruptcy case such as complaints filed to determine whether the debtor should get a discharge or to determine the value of a lien.
ARREARAGES: The amount you are behind on in making payments. If your monthly payment is $400, and you’re four payments behind, your arrearages are $1,600.
ASSETS: Stuff that you own or have an interest in that have value. Your car, house, accounts, cash, household furnishings and goods, are all considered assets, even if you are making monthly payments on them.
AUTOMATIC STAY: As soon as a bankruptcy is filed, the Court enters an Order that immediately stops all collection actions against you. This means that garnishments, foreclosures, lawsuits, calls and letters, and even regular monthly bills are illegal.
AVOIDANCE: The Bankruptcy Code permits the debtor to eliminate some liens that devalue an exemption the debtor has claimed. The trustee may also eliminate some transfers to creditors made before the bankruptcy case was filed.
BANKRUPTCY ESTATE: The sum total of the debtor’s interests at the start of the case. This is the collection of assets that a trustee administers for the benefit of creditors.
BANKRUPTCY PETITION: The actual papers filed with the Court that start a bankruptcy case.
CHAPTER 7: In a typical Chapter 7, a Debtor’s unsecured debts (usually credit cards, personal loans and medical bills) are wiped out. Most people can keep their car, home and all of their belongings.
CHAPTER 13: A typical Chapter 13 bankruptcy sets up a three to five year payment plan for your Debts. A Chapter 13 usually saves your home and car, and you keep everything you have. Though you will have to make good on your car and house payments, often through the plan, you will likely only have to pay back a fraction of what you owe to your unsecured creditors, usually interest free.
CHAPTER 13 PLAN: When you file for Chapter 13, you propose a plan to the Court to repay your creditors some or all of the money you owe. This is the Chapter 13 Plan, which is approved by the Court at a Chapter 13 Confirmation Hearing.
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 secures a loan. An example is a mortgage: If you don’t make the monthly payments, they can foreclose on the house which is the collateral for the loan.
CONFIRMATION HEARING: In a Chapter 13 case, this is a Court hearing for the Judge to approve your Chapter 13 Plan. It is rarely necessary for you to appear for this meeting as your lawyer resolves things out in advance with the Chapter 13 Trustee.
CONSUMER DEBTS: Obligations incurred for family, personal or household purposes.
CREDITOR: Someone you owe money to.
CREDIT COUNSELING: Generally refers to two events in individual bankruptcy cases: (1) the briefing from a nonprofit budget and credit counseling agency that individual debtors must 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: What the Court calls someone who files for bankruptcy.
DEBTS: Money you owe.
DISCHARGE: The legal term for wiping out your debt via bankruptcy. When a debt is discharged, it cannot be legally collected.
EQUITY: If an asset of yours would sell for more than it costs to pay any Liens and costs of sale, it probably has Equity. Example: If your car would sell for $20,000, you have a car loan of $8,000, and it would cost $1,000 to sell the car, you have $11,000 in Equity.
EXEMPTIONS: Each state has different lists of assets that you can keep in bankruptcy. These are called “Exemptions.” In a Chapter 7 case, you generally need to exempt assets that have equity in them in order to keep them.
FORECLOSURE: When your home is auctioned off because you get behind on your mortgage.
LIQUIDATED: A debt for a known number of dollars is a liquidated debt; whereas, an unliquidated debt is one where the exact amount owed has not been determined, such as an insurance claim before trial.
MEANS TEST The Bankruptcy Code applies a “means test” to determine whether an individual debtor’s chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor’s aggregate current monthly income over 5 years, net of certain statutorily allowed expenses is more than (i) $10,000, or (ii) 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $6,000. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.
NON-DISCHARGEABLE DEBT: Debt that cannot be discharged through a bankruptcy. Non-dischargeable debts can be collected on after the bankruptcy case is over. Examples of non-dischargeable debts include child support, student loans (in most cases), alimony, and in most cases taxes
MEETING OF CREDITORS: A hearing all Debtors are required to attend, usually a month or so after a case is filed. A better name for this hearing (which is also called the “341 Meeting”) would be the Trustee’s Meeting, since creditors very rarely show up.
Most 341’s last a few minutes, and consist of the Trustee verifying you are who you say you are, asking a series of standard questions, and asking about anything unusual that appears on your Schedules.
PERSONAL PROPERTY: Everything that isn’t real estate—cash, cars, furniture and the like.
PETITION: The document that, when filed with the Bankruptcy Court, starts the bankruptcy case.
PREFERENCE: A transfer to a creditor in payment of an existing debt made within certain periods prior to the filing of a bankruptcy case. The trustee can avoid certain preferential payments for the benefit of all creditors.
PREPETITION: Claims or events arising before the filing of a bankruptcy case.
PRIORITY DEBT:A debt that must be paid in full through a Chapter 13 Plan. Some taxes and domestic support obligations are priority debts. Priority debts are not dischargeable unless they are paid in full.
PROOF OF CLAIM: The document that creditors file with the Bankruptcy Court stating how much they are owed. If a creditor doesn’t file a Proof of Claim, it generally doesn’t get paid through the bankruptcy.
REAFFIRM: To assume personal liability after bankruptcy for a debt that would otherwise be discharged in the bankruptcy case.
REINSTATEMENT: An agreement with your mortgage lender letting you pay off your Arrearages over time.
SCHEDULES: The documents filed with your Bankruptcy Petition that list your assets, debts, income and expenses.
SECURED CREDITOR: A creditor whose loan is secured by collateral. If you don’t pay, the Creditor can take the Collateral. Most car loans and mortgages are secured: If you don’t make the payment, they can repossess the car or foreclose on the house.
TRUSTEE: In a Chapter 7 case, the Trustee is the person who conducts the Meeting of Creditors and is responsible for recovering any assets that aren’t exempt. In a Chapter 13 case, in addition to conducting the Meeting of Creditors, the Trustee receives payments under the Chapter 13 Plan and distributes the payments to your creditors.
UNSECURED CREDITOR: A Creditor whose loan isn’t secured by any collateral. Most
doctors’ bills, pay day loans, credit cards and personal loans are unsecured.