Important Bankruptcy Terms

A meeting where the debtor is questioned under oath by the creditors, the examiner and/or the United States Trustee about his or her financial affairs. Creditors are invited to attend but seldom do.

A lawsuit filed in the bankruptcy court relating to a debtor’s case. Typically these suits are filed to determine if a debt is dischargeable and if a lien filed against a debtor is valid.

A court order that immediately stops lawsuits, foreclosure, wage garnishment, and phone calls and letters from debt collectors. An automatic stay goes into effect once a bankruptcy petition has been filed.

Bankruptcy is a legal process overseen by federal bankruptcy courts designed to help individuals and businesses who cannot repay debts to creditors eliminate all or part of their debt or formulate a plan to repay a portion of what they owe.  It refers to a case filed under the Bankruptcy Code or Title 11 of the United States Code. A primary goal of the federal bankruptcy laws is to give debtors a financial “fresh start” from unmanageable debts.

All the property or assets of the debtor at the time of the bankruptcy filing.  When a bankruptcy case is filed, all of the debtor’s property comes into the bankruptcy estate, and any payments to creditors come from the estate.

Also known as liquidation, Chapter 7 is a type of bankruptcy that allows individuals or businesses to give up nonexempt property/assets and walk away from most debts. To qualify, debtors must pass the means test — that is, their income must be less than their state’s median income.

Also known as reorganization, Chapter 11 is a type of bankruptcy that allows businesses and some individuals to keep their business alive by restructuring their debt and paying creditors over time.

A type of bankruptcy that allows family farmers and fishermen with regular income to reorganize debt and pay creditors over time.

A type of debt “reorganization,” Chapter 13 allows individuals with regular income to keep property and pay debts over time, usually three to five years.

The chapter of the Bankruptcy Code that allows a foreign debtor to file bankruptcy in the United States court system in cases where there are assets in more than one country.

A creditor’s assertion of a right to payment from a debtor or the debtor’s property.

Debt incurred for personal and not business reasons.

A “cram down” involves reducing the balance owed on the debt to the value of the asset attached to it. For example, if you owe a lot more on your vehicle loan than the vehicle’s replacement value, you can propose to pay just the value of the car. At the end of Chapter 13, the discharge will wipe out the balance of the vehicle loan.

Cramdowns often are associated with car loans, but they can apply to investment property mortgages and other types of property, even including furniture and household items. One key exception of which to be aware is that you cannot cram down the mortgage for your principal residence unless it meets certain requirements.

Individual debtors must attend a credit counseling course prior to filing under any chapter under the Bankruptcy Code. This class can be taken online from a nonprofit budget and credit counseling agency. 

Any person or business to whom money is owed by the debtor.

Any person or business that has filed for debt relief in bankruptcy court.

A bankruptcy discharge releases a debtor from personal liability for certain debts (known as dischargeable debts) so that the debtor is no longer legally required to repay them. A discharge prevents the creditors owed those debts from contacting the debtor in any way regarding those debts at any time in the future.

A debt from which a debtor can be released according to the Bankruptcy Code. In other words, debt that can be eliminated in bankruptcy.

Assets or properties owned by the debtor that cannot be recovered by creditors. The federal Bankruptcy Code has its own set of exemptions, as does each state.

The transfer of a debtor’s property or assets to a friend, relative, or business partner to avoid collection by a creditor, usually by selling or giving away something valuable without receiving a fair price for it.

Giving debtors a fresh start is an important purpose of the Bankruptcy Code and refers to the debtor’s status after bankruptcy, i.e, free of most debts.

The principal place of residence of a debtor (e.g., house, apartment, condo).

A single bankruptcy petition filed by both husband and wife.

A legal right or claim against a property by a creditor. Some liens are voluntary like a mortgage and some are involuntary like a tax lien. Liens are commonly placed against property, such as homes and cars, so creditors, such as banks and credit unions, can collect what is owed to them.

The process of selling off a debtor’s property and assets for cash to help repay creditors.

The means test is a calculation to determine if a person’s income is low enough to file a Chapter 7 bankruptcy for a full discharge of their debts. Unless they can qualify for an exception, those determined to have too much income to file Chapter 7 bankruptcy may be advised to file a Chapter 13 case.

This motion is filed typically under Chapter 13 by the trustee asking the judge to dismiss the case. This usually happens when the debtor hasn’t made their Chapter 13 payments or the trustee believes the Chapter 13 plan doesn’t comply with the rules or if too little money will be paid to certain creditors.

Debt that cannot be discharged or eliminated in bankruptcy. It must be repaid in full.

Property and assets that can be liquidated in bankruptcy to pay creditors.

Also known as a bankruptcy petition, this is a collection of official bankruptcy forms (known as schedules) and supporting documents that list all of your assets (real and personal property), monthly income, expenses, and the debts you wish to eliminate. Your bankruptcy case starts when you file the petition with the clerk of the bankruptcy court.

A detailed description of how a debtor proposes to pay creditors over a period of time.

In bankruptcy, priority debts are unsecured debts that are given special status in by the Bankruptcy Code and paid before any money is distributed to nonpriority unsecured creditors.

Examples include recent tax debts and child support.

Official bankruptcy forms required in the filing of a bankruptcy petition that list all of your assets (real and personal property), monthly income, expenses, and the debts you wish to eliminate.

An individual or a business with a legal right to or claim against the assets of a debtor that is secured by collateral or a lien. 

Debt that is secured or backed by mortgage, collateral, or other lien. For example, the collateral on a vehicle loan is the vehicle itself, the collateral on a mortgage is a home. Creditors can repossess these types of secured debt if a debtor fails to make payments.

In bankruptcy law, different roles are performed by different types of trustees. They are described below:

BANKRUPTCY TRUSTEE

An official appointed to oversee the bankruptcy process and administer the bankruptcy estate. Bankruptcy trustees approve or deny bankruptcy petitions, and evaluate and make recommendations about various debtor demands in accordance with the U.S. Bankruptcy Code. A bankruptcy trustee works under the general supervision of the court and the direct supervision of the United States Trustee.

A bankruptcy trustee’s duties vary depending on the type of case, as well as the circumstances of a particular debtor and their creditors:

• Chapter 7 Trustee: A person appointed in a chapter 7 case to represent the interests of the bankruptcy estate and the unsecured creditors. A Chapter 7 trustee’s responsibilities include reviewing the debtor’s petition and schedules, liquidating the property of the estate, and making distributions to creditors. The trustee may also bring actions against creditors or the debtor to recover property of the bankruptcy estate. 
• Chapter 13 Trustee: A person appointed to administer a Chapter 13 case. A Chapter 13 trustee’s responsibilities are similar to those of a chapter 7 trustee; however, a Chapter 13 trustee has the additional responsibilities of overseeing the debtor’s plan, receiving payments from debtors, and disbursing plan payments to creditors.

UNITED STATES TRUSTEE

An employee of the Department of Justice who appoints a bankruptcy trustee to administer the bankruptcy estate in a bankruptcy case.

Debt not backed by collateral. This type of debt is usually discharged or eliminated in bankruptcy.