Bankruptcy has its own language. Here is a brief definition of those terms used in this site and in the Bankruptcy Code.
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.
The injunction issued automatically upon the filing of a bankruptcy case, which prohibits certain collection actions against the debtor, the debtor’s property, or the property of the estate.
The Bankruptcy Code permits the debtor to eliminate (avoid) some kinds of liens that interfere with (or impair) an exemption claimed in the bankruptcy. Most judgment liens that have attached to the debtor’s home can be avoided if the total of the liens (mortgages, judgment liens and statutory liens) is greater than the value of the property in which the exemption is claimed. This is sometimes called “lien stripping.”
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.
A condition where a debtor cannot pay debts now or as they become due, and uses the protection of the law to reorganize their financial affairs by liquidating certain property or formulating a repayment plan.
Title 11 of the United States Code governs bankruptcy proceedings. Bankruptcy is a matter of federal law and is, with the exception of exemptions, the same in every state. When federal bankruptcy law conflicts with state law, federal law controls.
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.
The most common form of bankruptcy. A Chapter-7 case is a liquidation proceeding available to individuals, married couples, partnerships and corporations.
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.
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.
A repayment plan for individuals with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income over 3 to 5 years.
The property, which is subject to a lien. A creditor with rights in collateral is a secured creditor and has additional protections in the Bankruptcy Code for the claim secured by collateral. The measure of the secured claim is the value of the collateral available to secure the claim. It is possible to have a lien on property that is subject to a senior lien or liens such that the security available to pay the claim is really without value to the junior creditor. The general rule with respect to liens is “First in time, first in right.”
The court order, which makes the terms of the plan for repayment of debts in a Chapter-11, 12 or 13 binding. The terms of the confirmed plan replace the pre-petition rights of the debtor and creditor.
Cases under the 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 which governs it changes, it remains the same case as originally filed.
The person or organization to whom the debtor owes money or has some other form of legal obligation.
A meeting required under Section 341 of the Bankruptcy Code, conducted by the trustee, and where the debtor can be examined concerning assets, finances or improper conduct having a bearing on the case.
The debtor is the entity (person, partnership or corporation) who is liable for debts, and who is the subject of a bankruptcy case.
In a Chapter-11 case, the debtor usually remains in possession of its assets and assumes the duties of a trustee. The debtor-in-possession is a fiduciary for the creditors of the estate, and owes them the highest duty of care and loyalty.
A failure to perform a legal obligation imposed by law or contract.
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.
The legal elimination of debt through a bankruptcy case. When a debt is discharged, it is no longer legally enforceable against the debtor, though any lien which secures the debt may survive the bankruptcy case.
Debts that can be eliminated in bankruptcy. Certain debts are not dischargeable; that is, 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.
The termination of the case without either the entry of a discharge or a denial of discharge; after a case is dismissed, the debtor and the creditors have the same rights as they had before the bankruptcy case was commenced.
The value of property to its owner after all liens and encumbrances are satisfied and the costs of sale paid.
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.
Exemptions are the lists of the kinds and values of property that is legally beyond the reach of creditors or the bankruptcy trustee. What property may be exempted is determined by state and federal statutes, and varies from state to state.
One who is entrusted with duties on behalf of another. The law requires the highest level of good faith, loyalty and diligence of a fiduciary, higher than the common duty of care that we all owe one another. The debtor-in-possession in a Chapter-11 is a fiduciary for the creditors, owing loyalty to the creditors and not the shareholders of the debtor.
A forced sale of real estate by a creditor to satisfy a defaulted mortgage, delinquent property taxes or a judgment.
The legal outcome resulting from a court action determining that a liability does or does not exist.
General, Unsecured Claim:
A 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.
An interest in real or personal property which secures a debt; the lien may be voluntary, such as a mortgage in real property, or involuntary, such as a judgment lien or tax lien.
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 tortfeasor.
A lien on real estate.
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.
The document that initiates a bankruptcy case. The filing of the petition constitutes an order for relief and institutes the automatic stay. Events are frequently described as “pre-petition”, happening before the bankruptcy petition was filed, and “post petition”, after the bankruptcy.
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.
Claims or events arising before the commencement of the bankruptcy case, that is, before the filing of the bankruptcy petition. Generally only pre-petition debts may be discharged in a bankruptcy proceeding.
The Bankruptcy Code establishes the order in which claims are paid from the bankruptcy estate. All claims in a higher priority must be paid in full before claims with a lower priority receive anything. All claims with the same priority share pro rata. Claims are paid in this order:
- Costs of administration;
- Priority claims; and
- General unsecured claims.
Secured claims are paid from the proceeds of liquidating the collateral, which secured the claim.
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:
The form filed with the court establishing the creditor’s claim against the debtor.
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.
The debtor can chose 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.
A reaffirmation agreement is an agreement by which a bankruptcy debtor becomes legally obligated to pay all or a portion of an otherwise dischargeable debt. Such an agreement must be timely filed by the debtor within 60 days after the first date set for the meeting of creditors.
Reaffirmation agreements are strictly voluntary. They are not required by the Bankruptcy Code or other state or federal law. A debtor can voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be valid reasons for wanting to reaffirm a particular debt.
Since a reaffirmation agreement takes away some of the effectiveness of the debtor’s discharge, it is advisable to seek legal counsel before agreeing to a reaffirmation. Even if the debtor signs a reaffirmation agreement, the debtor has 60 days after the agreement is filed with the court to change his/her mind. If the debtor’s discharge date is more than 60 days after the agreement is filed with the court, the debtor has until the discharge date to change his/her mind. If the debtor reaffirms a debt and fails to make the payments as agreed, the creditor can take action against the debtor to recover any property that was given as security for the loan and the debtor may remain personally liable for any remaining debt. Therefore a reaffirmation agreement should not be entered into without careful consideration of your responsibilities and knowledge of the right to rescind or cancel the agreement within sixty days.
Relief From Stay:
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.
The debtor must file the required lists of assets and liabilities to commence a bankruptcy case, collectively called the schedules.
A claim secured by a lien in the debtor’s property by reason of the debtor’s agreement or an involuntary lien such as a judgment or tax lien. The creditor’s claim may be divided into a secured claim, to the extent of the value of the collateral, and an unsecured claim equal to the remainder of the total debt. Generally a secured claim must be perfected under applicable state law to be treated as a secured claim in the bankruptcy.
The court appoints a trustee in every Chapter-7 and Chapter-13 case to review the debtor’s schedules and represent the interests of the creditors in the bankruptcy case. The role of the trustee is different under the different chapters.
A claim or debt is unsecured if there is no collateral that is security for the debt. Most consumer debts are unsecured.