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Glossary of Bankruptcy Terms


Adversary Proceeding
A legal matter in a bankruptcy case that can be an impediment to you case. The most common example is a complaint to determine whether a debt may be legally discharged.

Arrears
The unpaid or late payment that are due at the time of the bankruptcy filing.

Assets
The items owned by the debtor including personal belongings such as clothing, furniture, cars, real estate, stocks, bonds or anything over which the debtor has a property interest.

Automatic Stay
The injunction that stops creditors from taking any further action against you such as lawsuits, judgments, garnishments or even phone calls or letters.

Avoidance Power
Strong powers delegated under the Bankruptcy Code to avoid or undue certain transactions or liens that occurred prior to the bankruptcy filing.

Avoidance Powers
Rights given to the bankruptcy trustee or the debtor in possession to recover certain transfers of property such as preferences or fraudulent transfers or to void liens created before the commencement of a bankruptcy case.

WHAT TYPES OF DEBT COLLECTION PRACTICES ARE PROHIBITED?

Bankruptcy Code
The section of the U.S. Law that allows debtors to file bankruptcy and outlines the format and ways in which the process is governed.

Bankruptcy Estate
The estate is all of the legal and equitable interests of the debtor as of the commencement of the case. From the estate, an individual debtor can claim certain property exempt; the balance of the estate is liquidated in a Chapter 7 to pay the administrative costs of the proceeding and the claims of creditors according to their priority.

Chapter 7
Chapter 7 bankruptcy is a process provided for under United States federal law by which you are entitled to a fresh start. Chapter 7 may eliminate most kinds of unsecured debt. It is usually designed for someone with no assets.

Chapter 11
A reorganization proceeding in which the debtor may continue in business or in possession of its property as a fiduciary. A confirmed Chapter 11 plan provides for the manner in which the claims of creditors will be paid in whole or in part by the debtor.

Chapter 12
A simplified reorganization plan for family farmers whose debts fall within certain limits. Chapter 12 was not renewed when it expired this session of Congress.

Chapter 13
Chapter 13 is an interest-free debt repayment plan through which you consolidate your debts and make a payment on your debt over a 3 to 5 year period. This type of bankruptcy is often used to save a house from foreclosure or to save a car from repossession.

Collateral
The property that is subject to a lien as for payment of a debt or performance of a contract. A creditor with rights in collateral is a secured creditor and has additional protections in the Bankruptcy Code for the claim secured by collateral.

Confirmation
The process by which the Bankruptcy Judge approves a plan of reorganization of a debtor in a Chapter 13 case.

Conversion
Cases under the Bankruptcy Code may be converted from one chapter to another chapter; for example, a Chapter 7 case may be converted to a case under Chapter 13 if the debtor is eligible for Chapter 13. Even though the Chapter of the Code that governs it changes, it remains the same case as originally filed.

Credit Report
A report outlining an individual’s credit history, public records and credit worthiness.

Creditor
Any person or business that a debtor owes money to.

Debtor
Any person who is liable to another for money.

Default
Failure to make payments within a specified period of time governed by the original contract.

Delinquency
Failure to make payments when payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a "late fee" for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more of the credit bureaus.

Denial of Discharge
Penalty for debtor misconduct with respect to the bankruptcy case or creditors as a whole. The grounds on which the debtor's discharge may be denied are found in 11 U.S.C. 727. When the debtor's discharge is denied, the debts that could have been discharged in that case cannot be discharged in any subsequent bankruptcy. The administration of the case, the liquidation of assets and the recovery of avoidable transfers, continues for the benefit of creditors.

Dischargeable
Debts that can be eliminated in bankruptcy. Certain debts are not dischargeable; that it, they may not be discharged through bankruptcy or may only be discharged through Chapter 13. Family support and criminal restitution are examples of debts which cannot be discharged. Debts incurred by fraud can only be discharged in Chapter 13.

Discharge
The legal term for the order eliminating a debt through a bankruptcy case. When a debt is discharged, it is no longer legally enforceable against the debtor, though any lien that secures the debt may survive the bankruptcy case.

Equity
A homeowner's financial interest in a property. Equity is the difference between the value of the property and the amount still owed on its mortgage and other liens.

Estate
The legal and equitable interests of the debtor.

Exempt
Property that is exempt is removed from the bankruptcy estate and is not available to pay the claims of creditors. The debtor selects the property to be exempted from the statutory lists of exemptions available under the law of his state. The debtor gets to keep exempt property for use in making a fresh start after bankruptcy.

Fair Market Value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept. Foreclosure: The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Garnishment
A court-ordered method of debt collection in which a portion of a person's salary is paid to a creditor. The process by which a judgment creditor seizes money, which is owed to his judgment debtor, from a third party known as a garnishee.

General Unsecured Claim
Creditor's claim without a priority for payment for which the creditor holds no security (or collateral). If the available funds in the estate extend to payment of unsecured claims, the claims are paid in proportion to the size of the claim relative to the total of claims in the class of unsecured claims.

Lien
A charge upon real or personal property for the satisfaction of a debt or discharge of an obligation. Examples would include: judgments, taxes, mortgages, deeds of trust, etc.

Liquidated
A debt that is for a known number of dollars is liquidated. An unliquidated debt is one where the debtor has liability, but the exact monetary measure of that liability is unknown. Tort claims are usually unliquidated until a trial fixes the amount of the liability of the tort feasor.

Non-dischargeable
A Chapter 7 case in which the trustee determines, after the applicable exemptions, that there are no significant assets to liquidate. The debtor retains all of their real and personal property.

No Asset Case
A debt that cannot be eliminated in bankruptcy. Non dischargeable debts remain legally enforceable despite the bankruptcy discharge.

Personal Property
Property that is not real property or affixed to real property, such as cars, stock, furniture, etc.

Petition
The document that initiates a bankruptcy case. The filing of the petition constitutes an order for relief and institutes the automatic stay.

Preference
A transfer to a creditor in payment of an existing debt made within certain time periods before the commencement of the case. Preferences may be recovered by the trustee for the benefit of all creditors of the estate.

Priority Claims
Certain debts, such as unpaid wages, spousal or child support, and taxes are elevated in the payment hierarchy under the Code. Priority claims must be paid in full before general unsecured claims are paid.

Proof of Claim
Document a creditor files showing how much money is owed to them by the debtor, together with all supporting evidence of such claim. There is usually a deadline in which to file a Proof of Claim.

Property of the Estate
The property that is not exempt and belongs to the bankruptcy estate. Property of the estate is usually sold by the trustee and the claims of creditors paid from the proceeds.

Reaffirm
The debtor can choose to reaffirm debts that would otherwise be discharged by the bankruptcy. Generally, when a debt is reaffirmed, the parties to the reaffirmed debt have the same rights and liabilities that each had prior to the bankruptcy filing: the debtor is obligated to pay and the creditor can sue or repossess if the debtor doesn't pay.

Repossession
Once in default, as defined by the creditor in the security agreement, occurs, the creditor can: repossess the collateral by self-help (depending on state law) or with the aid of a court order, dispose of the collateral by public or private foreclosure sale, retain the collateral in satisfaction of the debt, terminate the debtor's right of redemption, add the costs of repossession and foreclosure to the unpaid balance of the debt, and pursue the debtor for any remaining unpaid balance or deficiency.

Schedules
The debtor must file the required lists of assets and liabilities to commence a bankruptcy case, collectively called the schedules.

Secured Debt
A secured debt is one where the creditor takes personal or real property as collateral. A creditor whose debt is secured has a right to take property to satisfy a debt in default. For example, most homes are burdened by a secured debt in the form of a mortgage. This means that the lender has the right to take the home if the borrower fails to make payments on the loan.

Trustee
A private individual or corporation appointed in bankruptcy filings who represents the interests of the creditors in the bankruptcy estate.

Unsecured
A claim or debt is unsecured if there is no collateral that is security for the debt. Most consumer debts are unsecured.

Unsecured Debt
A debt is unsecured if you have simply promised to pay a creditor a sum of money at a particular time, and you have not pledged any real or personal property as collateral for that debt. Generally, credit cards and medical bills are unsecured debts.

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