Use this page as a way to quickly reference commonly used bankruptcy terms. Knowing the terms used during the bankruptcy process will help you understand the communication between you, your lawyer and the courts.
A lawsuit filed in the bankruptcy court that 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 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 made prior to the filing of the bankruptcy case. This power allows the trustee to recover assets that seized, transferred or sold prior to the filing of the bankruptcy. Either the Bankruptcy Judge or the Trustee will then sell the assets at a public auction and use the funds from the sale of those assets to pay creditors in the bankruptcy.
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. In other words, if a garnishment, trustee’s sale or repossession is about to take place (all state actions), then a bankruptcy (federal law) will stop those actions for some period of time.
The estate is all of the legal and equitable interests of the debtor as of the date the bankruptcy case was filed with the Court. From the estate, an individual debtor can claim certain property exempt; the balance of the estate is liquidated by the Chapter 7 Trustee and used to pay the administrative costs of the proceeding and the claims of creditors according to their priority.
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 debtor will pay the claims of creditors in whole or in part.
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 creditors. The 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 control over all pre-existing contracts or obligations as between the debtor and creditor.
If the creditors do not approve a plan of reorganization, the court may still approve it, if the bankruptcy judge believes it is in the best interest of all parties. Normally a cramdown involves reducing a secured creditor’s debt to the fair market value of the property, with the balance of the debt determined to be unsecured.
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.
If the Debtor commits bankruptcy fraud, or fraud on its creditors as a whole, then the Debtor can be denied a discharge. 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 continue for the benefit of creditors.
A discharged debt is one that the creditor cannot make a demand for payment. If they do that creditor is in contempt of the federal restraining order and can be fined for its intentional conduct.. Unless the court has determined otherwise, the secured creditor can still enforce on its lien against its collateral (such as cars and homes).
Debts that can be discharged in bankruptcy. Certain debts are not dischargeable in a chapter 7 bankruptcy, but may be in a chapter 13 (such as fraud). Some debts cannot be discharged at all – such as child support, criminal restitution, and some student loans.
A formal record of all action pending before the court in one matter. These actions are assigned consecutive filed numbers. The bankruptcy docket includes all pleadings, minute entries, orders and any other document filed in the particular case. The docket numbers are usually electronically linked to the referenced document.
CM/ECF is the federal courts’ case management and electronic case files system. It provides courts enhanced and updated docket management. It allows courts to maintain case documents in electronic form. And it gives each court the option of permitting case documents — pleadings, motions, petitions — to be filed with the court over the Internet. CM/ECF implementation in the bankruptcy courts has been underway since early 2001. District court implementation began in 2002. Appellate court implementation began in late 2004.
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 lists of the types of property that is protected by law from your creditors, and the bankruptcy Trustee. Each state has its own list of exempt property. There is also a list of exempt property under federal statutes. The types and values of exempt property differ greatly from state to state.
A person or entity who is entrusted with duties on behalf of another, (such as an attorney or a person with power of attorney). The law requires the highest level of good faith, loyalty and diligence from a fiduciary. This duty is higher than the common duty of care that we all owe to each other.
Claims (debts) that do not fall into the administrative or secured category. Usually, credit cards, medical bills and personal loans are general, unsecured claims. If the bankruptcy has funds, after paying administrative and priority claims, then unsecured claims will receive a pro-rata payment. For example – all general unsecured may receive 10 percent of the entire amount of their debt.
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 not known. Tort claims (such as personal injury lawsuits) are usually unliquidated until a trial fixes the amount of the liability of the person being sued.
A debt that cannot be eliminated in bankruptcy (such as child support and most student loans). Non-dischargeable debts remain legally enforceable despite the bankruptcy discharge. The Code’s list of non dischargeable debts is found at 11 U.S.C. Section 523.
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 deed of trust is perfected upon execution and delivery of the Deed to the Buyer; filing a financing statement with the secretary of state perfects a lien in personal property. 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. The trustee can avoid an unperfected lien.
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 “prepetition”. That means the event happened before the bankruptcy petition was filed, and “post petition”, after the bankruptcy was filed.
A transfer to a creditor in payment of an existing debt made within certain time periods before the commencement of the case (anywhere from one year to 3 months prior to filing the bankruptcy). The Trustee may recover preferences for the benefit of all creditors of the estate. Therefore, if a relative is paid and not other creditors, the Trustee can demand that the relative return all funds received within on year prior to filing the bankruptcy.
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: 1) costs of administration (such as attorney and CPA fees), 2) priority claims (such as IRS) and 3) general unsecured claims (such as credit cards). Secured claims are paid from the proceeds of liquidating the collateral that secured the claim (such as house or car).
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. Go to discussion of priority taxes.
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.
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 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.
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