The Bankruptcy Law Clinic Blog

Thursday, February 11, 2016

Scary bankruptcy words

If you found this blog, it means you've spent some time on the internet researching bankruptcy.  STOP IT!  The internet is full of crazy sites that will scare the heck out of you and others that will tell you it's easy without risks.  Neither are true.  The only way to know for sure if bankruptcy is right for you is to talk to a qualified bankruptcy law firm like ourselves.  I hope you call us at 305-663-3281 but if not, talk to a bankruptcy law firm.  Most will answer simple questions over the phone and offer free initial consultations.  


Until then, courtesy of the Bankruptcy Law Network, here are some common terms used...

 ADVERSARY PROCEEDING: A lawsuit filed in the bankruptcy court which is related to the debtor’s bankruptcy case. Examples are complaints to determine dischargeability and complaints to determine the extent and validity of liens.

ARREARAGES: What you’re behind on in making payments. If your monthly payment is $500, and you’re three payments behind, your arrearages are $1,500.

ASSETS: Things that you own or have a legal interest in that have value. Your house, car, bank accounts, cash, household goods and furnishings, are all considered assets, even if you are making payments on them.

AUTOMATIC STAY: As soon as a bankruptcy is filed, the Bankruptcy Court enters an Order that immediately stays, or stops, all collection actions against you. This means that foreclosures, garnishments, attachments, lawsuits, collection calls and letters, and even regular monthly bills are stopped.

AVOIDANCE: The Bankruptcy Code permits the debtor to eliminate (avoid) some kinds of liens that interfer with an exemption the debtor has claimed. The trustee may also avoid a preferential transfer to a creditor made before the bankruptcy case was filed.

BANKRUPTCY ESTATE: The sum total of the debtor’s legal and equitable interests as of the commencment of the case. This is the collection of assets and legal rights that a trustee administers for the benefit of creditors.

BANKRUPTCY PETITION: Legal papers filed with the Court that start a bankruptcy case.

CHAPTER 7: In a Chapter 7 bankruptcy case, a Debtor s unsecured debts (usually credit cards, doctors’ bills and personal loans) are wiped out. Most people can keep their home, car and all of their belongings, but if you can’t bring your mortgage or car payments current quickly, you may lose your house or car.

CHAPTER 11: The Chapter of the Bankruptcy Code that deals with business reorganizations and individual reorganizations of people who have too much debt to qualify for Chapter 13.

CHAPTER 12: A special type of bankruptcy offering protections for farmers.

CHAPTER 13: A typical Chapter 13 bankruptcy sets up a five year payment plan for your Debts. A Chapter 13 usually saves your home and car, and you keep everything you have. You need to restart your regular monthly mortgage and car payments after the case is filed.

CHAPTER 13 PLAN: When you file for Chapter 13, you propose a plan to the Court to repay your creditors some or all of the money you owe. This is the Chapter 13 Plan, which is approved by the Court at the Chapter 13 Confirmation Hearing.

CLAIM:In bankruptcy cases, a Creditor, someone you owe money to, files a Proof of Claim to tell the Court how much you owe them.

COLLATERAL: Property that is security for a loan. An example is a car loan.  If you don’t make the monthly payments, they can repossess the car, because the car is collateral for the loan.

CONFIRMATION HEARING: In a Chapter 13 case, this is a Court hearing for the Judge to approve your Chapter 13 Plan. In many cases, it is not necessary for you to appear for this meeting; your attorney works things out in advance with the Chapter 13 Trustee.

CONSUMER DEBTS: Obligations incurred for personal, family or household purposes. Taxes are not consumer debtor; neither are business debts.

CREDITOR:Someone you owe money to.

DEBTOR: What the Court calls someone who files for bankruptcy.

DEBTS: Money you owe.

DISCHARGE: The legal term for wiping out your debt through bankruptcy. When a debt is discharged, it cannot be legally collected, although a lien that secures the debt is not automatically wiped out.

EQUITY: If an asset of yours would sell for more than it would cost to pay any Liens and the costs of sale, it probably has Equity. For example, if your car would sell for $10,000, you have a car loan of $8,000, and it would cost $1,000 to sell the car, you have $1,000 in Equity. Most household goods and furnishings and clothing, since they bring in very little if sold, have little Equity.

EXEMPTIONS: Each state has different lists of assets you can keep in bankruptcy. These are called “Exemptions.” In a Chapter 7 case, you generally need to exempt assets that have Equity in them to keep them.

FORECLOSURE: When your home is sold because you get behind on your mortgage.

INDEMNIFY: To guarantee against any loss which someone else might suffer. Used to describe the obligation of one spouse in a divorce to assume debts of the marriage and see that the other spouse is not forced to pay.

LIEN: The legal document that lets a Creditor use Collateral for a loan. A car loan is a lien on the car, and a mortgage is a lien on a house. In some cases, you can reduce or eliminate a lien in bankruptcy.

LIQUIDATED: A debt for a known number of dollars; an unliquidated debt is one where the exact amount owed has not been determined, such as an injury claim before trial.

NON-DISCHARGEABLE DEBT: Debt that cannot be discharged through a bankruptcy. Non-dischargeable debts can be enforced by the creditor after the bankruptcy case is over. Some examples of non-dischargeable debts are alimony, child support, student loans (in most cases) and taxes (in some cases, depending on how old they are).

MEETING OF CREDITORS: A hearing all Debtors are required to attend, usually scheduled 3-6 weeks after a case is filed. A better name for this hearing (which is also called the “341 Meeting”) would be the Trustee’s Meeting, since creditors very rarely appear. Most 341’s last 3-5 minutes, and consist of the Trustee verifying you are who you say you are, asking a series of standard questions, and going into detail about anything unusual that appears on your Schedules.

PERSONAL PROPERTY: Everything that isn’t real estate:  cars, cash, furniture, etc.

PETITION: The document that, when filed with the Bankruptcy Court, starts the bankruptcy case. Events that happen before the Petition is filed are called “Pre-Petition,” and events that happen after the Petition is filed are called “Post-Petition.”

PREFERENCE: A transfer to a creditor in payment of an existing debt made within certain periods prior to the filing of a bankruptcy case. The trustee can avoid certain preferential payments for the benefit of all creditors.

PREPETITION: Claims or events arising before the filing of a bankruptcy case.

PRIORITY DEBT:A debt that has to be paid in full through a Chapter 13 Plan. Some taxes and domestic support obligations are typical priority debts. Priority debts are not dischargeable unless they are paid in full.

PROOF OF CLAIM: The document that creditors file with the Bankruptcy Court stating how much the creditor is owed. If a creditor doesn’t file a Proof of Claim, it generally doesn’t get paid through the bankruptcy.

REAFFIRM: To assume personal liability after bankruptcy for a debt that would otherwise be discharged in the bankruptcy case.

REINSTATEMENT: An agreement with your mortgage lender letting you pay off your Arrearages over time.

SCHEDULES: The documents filed with your Bankruptcy Petition that list your assets, debts, income and expenses.

SECURED CREDITOR: A Creditor whose loan is secured by Collateral. If you don’t pay, the Creditor can take the Collateral. Most mortgages and car loans are Secured, because if you don t make the payments, they can foreclose on the house or repossess the car.

TRUSTEE: In a Chapter 7 case, the Trustee is the person who conducts the Meeting of Creditors and is responsible for recovering any assets that aren’t Exempt. In a Chapter 13 case, in addition to conducting the Meeting of Creditors, the Trustee receives payments under the Chapter 13 Plan and pays your creditors.

UNSECURED CREDITOR: A Creditor whose loan isn t secured by Collateral. Most credit cards, doctors’ bills and personal loans are Unsecured.


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