Bankruptcy Terms to Know

A. The right of a person or company that has interest in the debtor's property to assurance that its interest won't be devalued during the debtor's bankruptcy filing.

A. A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. This commonly concerns debts that a creditor feels should be held non-dischargeable due to one of the limited exceptions such as fraud, debts from support orders, etc. This can be initiated by a debtor to determine whether a debt is dischargeable or not.

A. This is the claim of a creditor that the bankruptcy court approves to satisfy the plan of reorganization.

A. Any item of value owned by a person or entity.

A. An agreement to continue performing duties under a contract or lease. When you have a lease on a car or other property, you have the choice to either assume the lease and continue to pay for it under the agreed upon terms or you can reject the lease and give the property back.

A. The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.

A. A unit of the U.S. Dictrict Court where all new bankruptcy filings originate.

A. A judicial officer of the United States district court who is the court official with decision-making power over federal bankruptcy cases.

A. The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts).

A. Those matters, other than objections to claims, that are disputed but are not within the definition of an adversary proceeding contained in Rule 7001. These are normally motions filed within a bankruptcy case.

A. A claim that may be owed by the debtor under certain circumstances, e.g., where the debtor is a cosigner on another person's loan and that person fails to pay.

A. This involves changing chapters in bankruptcy when you are already involved in a bankruptcy filing.

A. These are proceedings that are fundamental in a bankruptcy case. They are subject to the jurisdiction of the bankruptcy court.

A. One who literally co-signs loan papers with somebody else. Legally, a cosigner is responsible for making payments on a loan if the primary borrower is unable to do so.

A. This refers to the bankruptcy court confirming a plan of reorganization over the objection of creditor(s) which calls for the payment of a secured claim in the amount of the value of the collateral and not the actual amount owed on the loan. Under current law, vehicles purchased for the personal use of the debtor purchased within 910 days of filing cannot be crammed down and must be paid in full.

A. Generally refers to two events in individual bankruptcy cases: (1) the "individual or group 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 after the case is filed and before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.

A record of your credit history which includes your payment actions on a variety of credit sources, including credit have access to one free credit report per year from each of the big three credit reporting agencies (Equifax, Experian and TransUnion).

An organization that collects, documents and reports consumer credit information. CRAs offer free credit reports to consumers, which are available at www.annualcreditreport.com. The three major CRAs are TransUnion, Equifax and Experian.

Note that the website listed above is the only site on the web that guarantees you a free credit report with no strings attached. Sites with similar names advertise free credit reports, but often charge you for products and services you don't need.

A number between 300 and 850 that measures the credit risk of an individual consumer. The number is calculated with a formula developed by the Fair Isaac Corporation, and is used by lenders to assess how much potential borrowers can afford. Borrowers with low credit scores are considered "subprime," and are considered high lending risks. Those with high credit scores are considered "prime," and generally qualify for more favorable loan terms and larger loans.

A. One to whom the debtor owes money or who claims to be owed money by the debtor.

The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor's spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).

A person who has filed a petition for relief under the Bankruptcy Code.

The failure to meet financial obligations. Also, the state of being behind on payments: if you miss a certain number of loan payments, you will have defaulted on your loan and your loan will be in default. Also when a person or business fails to abide by the provisions in a debt obligation or other financial agreement, like non-payment of interest or principal.

The amount still owed on a loan after application of the proceeds from the sale of any collateral that originally secured the loan.

This refers to the termination of a bankruptcy filing. Cases can be dismissed if the bankruptcy court deems that the debtor or three creditors shouldn't have filed bankruptcy or if a restructuring plan is unable to be worked out.

The amount of income left over after deducting all allowed expense items under the Means Test. If there is a positive disposable income, this amount, when multiplied by 60 months, is the amount that must be guaranteed to general unsecured creditors in a Chapter 13.

This is the schedule to which the bankruptcy court clerk records all court filings.

Debts for alimony, maintenance or support owed to child, spouse or governmental entity that paid for the support of the child or spouse.

This is the date when the plan of reorganization is put into effect. It typically happens when all the conditions of the plan have been met.

The value of a debtor's interest in property that remains after liens and other creditors' interests are considered. (Example: If a house valued at $100,000 is subject to a $80,000 mortgage and a $5,000 tax lien, there is $15,000 of equity.)

A. Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. (If a contract or lease is executory, a debtor may assume it or reject it.)

A. 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.

A. Your credit score, as calculated by the Fair Isaac Corporation. The FICO score is the most commonly used among lenders for determining borrowers' level of risk. This is the number between 300 and 850. Scores on the higher end of this spectrum will qualify you for favorable loan terms, while lower scores will likely make it more difficult for you to get loans.

A. A transfer of a debtor's property made with intent to defraud or for which the debtor receives less than the transferred property's value. (Example: you own a home worth $100,000 per an appraisal and you sell it to someone for only $50,000 to avoid the loss of the property in bankruptcy.)

A. A director, officer, or person in control of the debtor; a partnership in which the debtor is a general partner; a general partner of the debtor; or a relative of a general partner, director, officer, or person in control of the debtor.

A. Any relative of the debtor or of a general partner of the debtor; partnership in which the debtor is a general partner; general partner of the debtor; or a corporation of which the debtor is a director, officer, or person in control.

One bankruptcy petition filed by a husband and wife together.

An order entered by a state court in a judicial foreclosure state such as Illinois after a lawsuit is filed against a property owner seeking the right to begin foreclosure proceedings. If a Judgment of Foreclosure is entered, the mortgage lender can then proceed with the setting of a date for a Sheriff's sale of the property. If the Sheriff's sale occurs, then the property owner has no legal right to the property as of that date.

The right to take and hold or sell the property of a debtor as security or payment for a debt or duty. Often times referred to as secured debts because if the debtor defaults in payment, the property can be repossessed or foreclosed.

Liens can be voluntary or involuntary; home mortgages and auto loans, for example, are voluntary liens. You agree that your creditor can have the house or car back if you can't make payments. Involuntary liens result when a circuit court judge rules that you must pay a judgment (as in a lawsuit) or when certain past due taxes or utilities attach to your real estate by statute.

One of the most powerful tools for achieving a truly fresh start in bankruptcy is the debtor's power to avoid certain liens on his assets. The power to avoid liens modifies the general bankruptcy rule that liens pass through bankruptcy unaffected by the discharge: that is, unless liens are avoided, the discharge only discharges the personal liability of the debtor, not the liability of property that is subject to a pre petition lien.

So, what liens can be avoided and under what conditions? Liens that attach to assets that the debtor is entitled to claim as exempt can be avoided to the extent the lien impairs (or eats into) the value of the exemption in both Chapter 13 and Chapter 7. To be avoidable, the lien must be a judicial lien (like a judgment or a garnishment), or a non-possessory, non-purchase money security interest in certain household goods or tools of the trade.

Tax liens (which are statutory liens, not judicial liens) aren't avoidable in Chapter 7 even if they impair exemptions. Tax liens can be avoided in Chapter 13 to the extent the lien is greater than the asset's value.

A creditor's claim for a fixed amount of money.

A calculation of the amount of funds that would be available to creditors in a Chapter 7 case if a debtors property were sold. This amount is determined by subtracting any properly perfected liens, statutory liens, judgments and exemptions the debtor would be entitled to. In addition, the debtor is allowed to deduct cost of a hypothetical sale.

The Chapter 7 means test is used to determine who qualifies for protection under Chapter 7 of the U.S. Bankruptcy Code. It's based on median income comparisons, disposable income available and unsecured debts owed. You must "pass" the means test to file for Chapter 7 bankruptcy.

The initial hearing in a bankruptcy case which is attended by the debtor (and lawyer), any trustee appointed in the case, and creditors who wish to attend. An opportunity for the parties to a case to ask the debtor questions about their financial condition, income, assets, liabilities and past transactions. Also referred to as a 341 Meeting.

A pledge to pay (loan) backed by real estate. If you have a mortgage on your home, you risk losing the property if you don't comply with the terms of the pledge (loan). Most people use mortgages to pay for houses because few people can afford to pay the full price of a home in cash.

A request by a creditor to allow the creditor to take action against the debtor or the debtor's property that would otherwise be prohibited by the automatic stay.

A chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.

A notice filed by the mortgage lender when the debtor has defaulted on the terms of a Stipulation Agreement entered into to settle a prior Motion for Relief. Typically, the notice of default gives the debtor 14 days to cure the delinquency or relief will be automatically granted by the Court without hearing.

A trustee's or creditor's objection to the proposed plan in a Chapter 13 case. Common reasons include allegations that the debtor is not using best efforts to repay creditors, is attempting to keep items not necessary to an effective reorganization or that a secured creditor is not adequately protected by the terms of the proposed plan.

A trustee's or creditor's objection to the debtor being released from personal liability for certain dischargeable debts. Common reasons include allegations that the debt to be discharged was incurred by false pretenses or that debt arose because of the debtor's fraud while acting as a fiduciary.

A trustee's or creditor's objection to the debtor's attempt to claim certain property as exempt from liquidation by the trustee to creditors.

This service gives specific bankruptcy case filing information.

A party who has standing to be heard by the court in a matter to be decided in the bankruptcy case. The debtor, the U.S. trustee or bankruptcy administrator, the case trustee and creditors are parties in interest for most matters.

This is the monthly payment required to be paid to the Chapter 13 Trustee each month for the entire length of the plan. The total paid in is the minimum amount that must be repaid to pay all creditors in full that are entitled to repayment by current law. A plan payment is not necessarily determined simply by the amount of money you have available to repay, but can be based on the total of secured and priority claims to be repaid in the case, as well as the results of a liquidation analysis and, in some cases, by the amount of projected disposable income available for repayment.

When a secured creditor has taken the required steps to perfect his lien, the lien is senior to any liens that arise after perfection. A mortgage is perfected by recording it with the county recorder; a lien in personal property is perfected by filing a financing statement with the secretary of state. An unperfected lien is valid between the debtor and the secured creditor, but may be behind liens created later in time, but perfected earlier than the lien in question. An unperfected lien can be avoided by the trustee.

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

A person or business that files a formal complaint with the court.

A debtor's detailed description of how the debtor proposes to pay creditors' claims over a fixed period of time. A Chapter 13 plan can be anywhere from 36 - 60 months in length.

The total of plan payments to be made to the Chapter 13 Trustee under a confirmed plan. This is usually equal to the monthly payment times the number of months in the plan, but certain items can be added to the base like tax refunds, personal injury settlements and any other additional income received during the plan period.

As the name implies, this is a period that occurs after the filing of a petition.

A transfer of the debtor's property made after the commencement of the case.

The arrangement (or rearrangement) of a debtor's property to allow the debtor to take maximum advantage of exemptions. (Prebankruptcy planning typically includes converting nonexempt assets into exempt assets.)

A: As the name implies, this is a period that occurs before the bankruptcy petition is filed.

A debt payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an insider) that gives the creditor more than the creditor would receive in the debtor's chapter 7 case. These payments can be reversed by the bankruptcy court.

A: When a debtor fails the means test in a Chapter 7, a presumption arises that debtor can afford to repay creditors and the case should be converted to a Chapter 13. Debtor can offer evidence to rebut the presumption of abuse in an attempt to remain in the Chapter 7.

A: The Bankruptcy Code's statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full. For example, under the Bankruptcy Code's priority scheme, money owed to the case trustee or for prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.

A: An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which these unsecured claims are to be paid.

A: This is a Latin word that means "proportionately".

A: A written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. (There is an official form for this purpose.)

A: All legal or equitable interests of the debtor in property as of the commencement of the case.

A creditor can ask the judge to lift the automatic stay and permit some action against the debtor or the property of the estate. If the motion is granted, the moving party (but no one else) is free to take whatever action the court permits. Relief can be absolute, for example, permitting the creditor to foreclose on property, or limited, as for example, allowing the recordation of a notice of default.

A contract term by which a debtor grants a creditor right to receive payment from the sale of certain collateral and typically giving the creditor the right to take and sell that collateral upon failure to perform some part of the contract.

A term used in conjunction with the foreclosure of real property. This generally refers to a Sheriff's sale on a specified date in which the real property subject to foreclosure is placed on the auction block to the highest bidder. This can be a private buyer or the lender who holds the mortgage on the property. Once the sale takes place on the specified sale date, the property owner loses all legal right of ownership in the property.

This occurs when debt is discharged or reduced when a counter claim is applied between the same parties.

The bankruptcy court uses this term to describe a bankruptcy case where not all of the required forms have been filed.

A series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc. (There is an official form a debtor must use.) This basically provides information about past transactions the debtor was involved in over the course of several years prior to filing the bankruptcy case.