Bankruptcy — A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of Title 11 of the United States Code (the Bankruptcy Code).
Bankruptcy Estate — Upon the filing of a Bankruptcy Petition, a legal estate is created and administered by the United States Trustee. The estate consists of all legal or equitable interests of the debtor in property at the time of the bankruptcy filing. The estate includes all property in which the debtor has an interest, even if it is owned or held by another person.
Chapter 7 — The chapter of the Bankruptcy Code providing for liquidation, (i.e., sale) of a debtor’s nonexempt property and the distribution of the proceeds to creditors.
Chapter 11 — The chapter of the Bankruptcy Code generally providing for reorganization, usually involving a corporation or partnership. A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in Chapter 11.
Chapter 13 — The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.
Credit Counseling — 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 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.
Creditors’ Meeting — The meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called a 341 Meeting.
Current Monthly Income (CMI) – The income earned by an individual debtor (and in a joint case the debtor’s spouse) within 6 months prior to the commencement of the case, for use in calculating the means test under 11 U.S.C.A.§707(b)(2)(A). See 11 U.S.C.A.§101(10A).
Debt Relief Agency – A person defined in 11 U.S.C.A. §101(12A) who, with some exceptions, provides any bankruptcy assistance to an assisted person in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer under 11 U.S.C.A.§110, and who is subject to the restrictions, disclosure requirements and other requirements of 11 U.S.C.A. §§526, 527 and 528, respectively.
Debtor Education — see Credit Counseling.
Debtor’s Principal Residence – A residential structure, including incidental property, without regard to whether that structure is attached to real property, and an individual condominium or cooperative unit, a mobile or manufactured home, or trailer. See 11 U.S.C.A.§101(13A).
Discharge — A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.
Domestic Support Obligation (DSO) – Defined in 11 U.S.C.A. § 101(14A) as a debt arising out of a divorce decree or administrative order, owed to a former spouse or child of the debtor for alimony, maintenance or support.
Equity — The value of a debtor’s interest in property that remains after liens and other creditors’ interests are considered. For example, if a house valued at $100,000 is subject to an $80,000 mortgage, there is $20,000 of equity.)
Executory Contract or Lease — 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.)
Exemptions, Exempt Property — Certain property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor’s primary residence (homestead exemption), or some or all “tools of the trade” used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives in.
First Day Motions – The motions generally filed at the outset of a Chapter 11 bankruptcy case, such as a motion to employ counsel and other professionals, motion to use cash collateral, motion to determine adequate assurance of payment of utilities, and motion to pay pre-petition wages.
Insider (of individual debtor) — 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.
Insider (of corporate debtor) — 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.
Lien Stripping – Bifurcating a secured claim between the secured and unsecured components based upon the value of the debtor’s interest in the collateral securing the claim, providing for the full payment of the secured claim, with interest, under the Chapter 11, 12 or 13 plan, and providing for the payment of the unsecured portion of the claim consistent with other unsecured claims. 11 U.S.C.A. §§ 1129(b)(2)(A), 1225(A)(5)(B), and 1325(A)(5)(B).
Means Test — Section 707(b)(2) of 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 (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,950, or (ii) 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $6,575. 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.
Nondischargeable Debt — A debt that cannot be eliminated in bankruptcy. Examples include a home mortgage, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action.
Objection to Dischargeability — 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.
Party in Interest — 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.
Pre-bankruptcy planning — 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.
Preference or Preferential Debt Payment — 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.
Priority — 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.
Priority Claim — 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.
Reaffirmation Agreement — An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession.
Schedules — Detailed lists filed by the debtor along with (or shortly after filing) the petition showing the debtor’s assets, liabilities, and other financial information. (There are official forms a debtor must use.)
Secured Debt — Debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens.
Skeletal Petition — An incomplete bankruptcy filing, requiring a few forms to be initially filed, and the rest of the paperwork filed within fifteen days. The required forms are: the petition, a mailing list of creditors, a form showing the debtor’s Social Security number, and a certificate indicating the completion of credit counseling.
Statement of Financial Affairs — 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.)
341 Meeting — See Creditor’s Meeting.
Trustee — The representative of the bankruptcy estate who exercises statutory powers, principally for the benefit of the unsecured creditors, under the general supervision of the court and the direct supervision of the U.S. Trustee. The trustee is a private individual or corporation appointed in all Chapter 7, Chapter 12, and Chapter 13 cases and some Chapter 11 cases. The trustee’s responsibilities include reviewing the debtor’s petition and schedules and bringing actions against creditors or the debtor to recover property of the bankruptcy estate. In chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in Chapters 12 and 13 have similar duties to a Chapter 7 trustee and the additional responsibilities of overseeing the debtor’s plan, receiving payments from debtors, and disbursing plan payments to creditors.
U.S. Trustee — An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors’ committees; monitoring fee applications; and performing other statutory duties. Compare, bankruptcy administrator.
Unscheduled Claim — A debt that should have been listed by the debtor in the schedules filed with the court but was not. Depending on the circumstances, an unscheduled debt may or may not be discharged.
Unsecured Claim — A claim or debt for which a creditor holds no special assurance of payment, such as a mortgage or lien; a debt for which credit was extended based solely upon the creditor’s assessment of the debtor’s future ability to pay
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