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Bankruptcy Terms

A

Adversary proceeding Litigation within bankruptcy. Can be started by either the debtor or creditors with regard to a question about the bankruptcy estate. Note that adversary proceedings are usually outside the parameters of a standard retainer agreement and may incur additional cost for representation.

Amendment A document filed by the debtor that changes one or more documents previously filed with the court. A debtor often files an amendment because the trustee requires changes to the debtor’s paperwork based on the testimony at the meeting of creditors.

Automatic stay An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.

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B

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

Bankruptcy estate 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.)

Bankruptcy petition The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case.

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C

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

Codebtor A person who assumes an equal responsibility, along with the debtor, to repay a debt or loan.

Community property Certain property owned by married couples in Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, Wisconsin, and, if both spouses agree, Alaska. Very generally, all property acquired during the marriage is considered community property, belonging equally to both spouses, except for gifts and inheritances by one spouse. Similarly, all debts incurred during the marriage are considered community debts, owed equally by both spouses, with limited exceptions.

Confirmation The bankruptcy judge’s approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.

Consumer debtor A debtor whose debts are primarily consumer debts.

Consumer debts Debts incurred for personal, as opposed to business, needs.

Contested matter Those matters, other than objections to claims, that are disputed but are not within the definition of adversary proceeding contained in Rule 7001.

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

Cramdown In a Chapter 13 bankruptcy, the act of reducing a secured debt to the replacement value of the collateral securing the debt.

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.

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 referred to as a 341 meeting.

Current monthly income 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).

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D

Debt An obligation of any type, including a loan, credit, or promise to perform a contract or lease.

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

Debtor education Bankruptcy Code mandated counseling session with an approved credit counseling organization that evaluates the debtor’s financial situation, a discussion of alternatives to bankruptcy, and a personal budget plan.

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.)

Dischargeable debt A debt for which the bankruptcy Code allows the debtor’s personal liability to be eliminated.

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E

Equity 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, 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 or 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.

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F

Fraud Generally, an act that is intended to mislead another for the purpose of financial gain. In a bankruptcy case, fraud is any writing or representation intended to mislead creditors for the purpose of obtaining a loan or credit, or any act intended to mislead the bankruptcy court or the trustee.

Fraudulent transfer In a bankruptcy case, a transfer of property to another for less than the property’s value for the purpose of hiding the property from the bankruptcy trustee—for instance, when a debtor signs a car over to a relative to keep it out of the bankruptcy estate. Fraudulently transferred property can be recovered and sold by the trustee for the benefit of the creditors.

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H

Heirloom An item with special monetary or sentimental value, which is passed down from generation to generation.

Home equity loan or home equity line of credit A loan made to a homeowner on the basis of the equity in the home—and secured by the home in the same manner as a mortgage.

Homestead exemption A state or federal exemption applicable to property where the debtor lives when he or she files for bankruptcy—usually including boats and mobile homes.

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J

Joint debtors Married people who file for bankruptcy together and pay a single filing fee.

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L

Lien The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.

Liquidation A sale of a debtor’s property with the proceeds to be used for the benefit of creditors.

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M

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).  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.

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N

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.

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P

Prebankruptcy 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.

Property of the estate All legal or equitable interests of the debtor in property as of the commencement of the case.

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R

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.

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S

Secured creditor A creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or all of the claim.

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.

Statement of intention A declaration made by a Chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate.

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T

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 or bankruptcy administrator. The trustee is a private individual or corporation appointed in all Chapter 7 and Chapter 13 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 Chapter 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.

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U

Undersecured debt A debt secured by collateral that is worth less than the debt.

undue hardship  The conditions under which a debtor may discharge a student loan—for example, when the debtor has no income and little chance of earning enough to repay the loan in the future.

Unexpired lease A lease that is still in effect.

Unmatured life insurance A policy that is not yet payable because the insured is still alive.

Unscheduled debt A debt that is not included in the schedules accompanying a bankruptcy filing, perhaps because it was overlooked or intentionally left out.

Unsecured priority claims Priority claims that aren’t secured by collateral, such as back child support or taxes for which no lien has been placed on the debtor’s property.

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V

Valuation of property The act of determining the replacement value of property for the purpose of describing it in the bankruptcy schedules, determining whether it is protected by an applicable exemption, redeeming secured property, or cramming down a lien in Chapter 13 bankruptcy.

Voluntary dismissal When a bankruptcy debtor dismisses his or her Chapter 7 or Chapter 13 case on his or her own, without coercion by the court.

Voluntary lien A lien agreed to by the debtor, as when the debtor signs a mortgage, car note, or second deed of trust.

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W

Weekly net earnings The earnings a debtor has left after mandatory deductions, such as income tax, mandatory union dues, and Social Security contributions, have been subtracted from the debtor’s gross income.

Wildcard exemption A dollar value that the debtor can apply to any type of property to make it—or more of it—exempt. In some states, filers may use the unused portion of a homestead exemption as a wildcard exemption.

Willful and malicious act An act done with the intent to cause harm. In a Chapter 7 bankruptcy, a debt arising from the debtor’s willful and malicious act is not discharged if the victim proves to the bankruptcy court’s satisfaction that the act occurred.

Willful and malicious act resulting in a civil judgment A bad act that was careless or reckless, but was not necessarily intended to cause harm. In a Chapter 13 case, a debt arising from the debtor’s act that was either willful or malicious is not discharged if it is part of a civil judgment.

Wrongful death cause of action The right to seek compensation for having to live without a deceased person. Usually only the spouse and children of the deceased have a wrongful death cause of action.

Wrongful death recoveries The portion of a lawsuit judgment intended to compensate a plaintiff for having to live without a deceased person. The compensation is intended to cover the earnings and the emotional comfort and support the deceased would have provided.

Arjont Group Law Office of Roger Traversa is designated by Congress as a debt relief agency. Among other things, we help people file for relief under the Bankruptcy Code. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult a Philadelphia bankruptcy attorney for individual advice regarding your own situation.