Dictionary

Bankruptcy Dictionary: Understand the Bankruptcy Terms

Bankruptcy is full of complicated terms and new concepts. Even an experienced lawyer who does not practice bankruptcy may need a dictionary to look up a few things. This glossary of terms explains the bankruptcy process and provides a brief explanation of some of the most common terminology used in bankruptcy cases. If you are considering bankruptcy, this guide should help you understand the process.

A

ABANDON/ABANDONMENT: 

When you file a Chapter 7 bankruptcy case, you must list all assets. The case Trustee has the authority to make decisions about those assets. When a Trustee determines that there is no value to the asset, he/she will abandon that asset. This means that the Trustee determines that there is no benefit to them selling or using the property. In most cases, all assets are abandoned by the Trustee because it is either exempt or has no real value.

ABOVE-MEDIAN DEBTOR:

This is a debtor that has income above the median income of the state for their household size. In a Chapter 13, this Debtor must file a five-year plan, unless paying all creditors 100%. In a Chapter 7, the Debtor must complete the Means Test and show there is little to no ability to pay funds in a Chapter 13 case.

ADMINISTER:

When a Trustee finds an asset to sell and/or use, it is called administering an estate. They are basically in charge of handling the property for the benefit of the creditors.

ASSET CASE:

These are Chapter 7 cases that have property that is used or sold. In these situations, a Chapter 7 Trustee determined that there are some non exempt assets that can be sold tfor the benefit of creditors. Trustees only earn additional fees when they find assets to administer.

ASSUMPTION:

The decision to continue the with existing contract or lease that was in place at the time the case was filed.

AUTOMATIC STAY:

When you file for bankruptcy, usually an Automatic Stay goes into place. This is an order from the bankruptcy court that prohibits a creditor from collecting any debt that is owed by the Debtor until the court can make a determination about the case. This usually applies to all creditors, even the Internal Revenue Service.

B

BANKRUPTCY:

A legal process to handle the debts of individuals and businesses; specifically, a case filed under the 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), which is where the federal bankruptcy laws are found.

BAR DATE:

The last date that creditors may file a claim against the Debtor. If there are assets to be distributed to creditors (i.e., Asset Chapter 7, Chapter 13, Chapter 11, Chapter 12 cases), creditors are only allowed to collect, if they file a timely claim. Otherwise, they may be barred from collecting.

BELOW-MEDIAN DEBTOR:

This is a debtor that has income below the median income of the state for their household size. This debtor is permitted to file a three-year Chapter 13 or has income that automatically qualifies them for Chapter 7.

C

CHAPTER 7:

The chapter of the Bankruptcy Code providing for “liquidation,” i.e., the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors.

CHAPTER 11:

It is a business reorganization plan, often used by large businesses to help them stay active while repaying creditors. It is also used by individuals with significant debts to reorganize when they cannot file a Chapter 13 due to debt limits.

CHAPTER 12:

A bankruptcy case to help with the debts of a “family farmer” or a “family fisherman” under the Bankruptcy Code. Very similar to a Chapter 13 but provides more flexibility to the specific Debtors that qualify.

CHAPTER 13:

The chapter of the Bankruptcy Code providing for adjustments 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.) This is also called a wage earner’s plan. The plan is based on various factors, including income, non-exempt assets, and priority debts.

CHAPTER 20 BANKRUPTCY:

This is the strategic filing of a Chapter 7 followed by a Chapter 13. The Chapter 7 allows the Debtor to get rid of as much debt as possible and then the Chapter 13 allows the Debtor to reorganize any remaining debt.

CONFIRMATION: 

Approval of the proposed Plan by the court in Chapter 12, Chapter 13, and Chapter 11 cases.

CONVERTING:

The process of changing your bankruptcy cases from one type to another. Most common type of converting is changing your Chapter 13 case to a Chapter 7.

CRAMDOWN:

Reducing the secured debt on an asset to the value of the collateral. One advantage of a Chapter 13 bankruptcy is that you may qualify to reduce certain secured loan to the current value of the collateral. In some cases, the law also allows the Debtor to reduce the interest rate on the loan.

CREDITORS

Any business or person to a Debtors owe money.

CREDITOR MATRIX:

The list attached to your Petition of all the individuals and creditors receiving notice of your bankruptcy. Certain people, like Co-Debtors, may receive notice of the bankruptcy even though you do not owe them any money.

CO-DEBTOR:

Someone who a Debtor owes money jointly with. This occurs whenever there is a debt with a co-signer or a joint account.

CROSS COLLATERALIZATION:

This occurs when the collateral for one loan is also used as collateral for another loan. This most often occurs with credit unions; if you have a car loan and a credit card with the same credit union, your vehicle can be used as collateral for both the car loan and the credit card.

D

DEBTOR:

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

DISCHARGE

A official order from the court that relieves a debtor from personal liability for their dischargeable debts. The discharge prohibits creditors from collecting or communicating with the Debtor regarding any of the cancelled debts.

DISGORGEMENT:

The bankruptcy court reviews all cases to determine if the fees an attorney charges are appropriate. If the court determines the fees are not appropriate, the court can disgorge fees or order that the attorney return some or all the fees to the debtor/client.  

DISMISSAL:  

This occurs when the court ends your case before receiving a discharge; you are still liable for your debts and creditors can resume collections against you.

DOMESTIC SUPPORT OBLIGATION:

A court ordered support, usually alimony or child support. These support obligations are not dischargeable in any type bankruptcy.

E

EQUITY:

The value of a debtor’s interest in property that remains after liens and any related creditors’ interests are considered. For example: If a car is valued at $6,000 and is subject to a $4,000 car loan, there is $2,000 of equity.

EXEMPTIONS

The various federal or state laws that exist that allow debtors to protect assets. For example, in Virginia there is a retirement exemption designed to protect up 100% of any funds in a retirement account.

F

FEASIBILITY:  

The court and the Trustee will consider whether any proposed plan has a chance to succeed. Most common objection to feasibility is that the Debtor does not earn sufficient income to fund the plan payment or that the amount that needs to be paid during the plan cannot be reasonably paid by the income of the debtor.

FORECLOSURE:

A collection activity that occurs when a mortgage lender attempting to take possession and ownership of real estate. There are judicial and non-judicial foreclosures. Here in Virginia, most foreclosures are non-judicial, which means the lender has the right to foreclose on a property by itself without any court involvement.

FRAUDULENT CONVEYANCE:

This occurs when a debtor is attempting to creditors from attaching liens to assets or collecting money debt by transferring money or an asset to another person or company. For example, a husband may transfer a property to his wife shortly before a judgment is entered to prevent it from being incumbered with a judgment lien.

G

GARNISHMENT:

The process utilized by judgment creditors to seize funds from your bank account or wages. This often motivates people to file bankruptcy.

TRUSTEE GOLD:

One of the current four bankruptcy Chapter 7 Trustees in the Alexandria Division of the Eastern District of Virginia. If you file a Chapter 7 bankruptcy in Alexandria, VA, he or one of the three other Trustees would be appointed to oversee your case and determine if you have any assets that could be sold for the benefit of creditors.  

H

HOMESTEAD:  

This exemption allows you to exempt/protect a certain amount of your equity in your primary residence. Here in Virginia, the Homestead is currently $25,000.00, which can be increased by up to $5,000.00 with the Virginia Wildcard.

HOUSEHOLD SIZE:

The amount of people that are in your household size; this number impacts the allowable expenses under the Means Test.

I

IN REM:

This is Latin for made against property. A bankruptcy discharge usually does not stop a creditor from having a lien against property or trying to collect from the asset it is secured against unless a separate order is entered. After a bankruptcy is over, a creditor usually may still be able to proceed with In Rem (relief against property). This includes foreclosures or repossessions.

INSIDER:

Any relative, friend, or business associated with the Debtor. Different rules apply to insiders regarding transfers of property and repayment of debts than other creditors.

INVOLUNTARY PETITION:

This is a less common way for a bankruptcy case to start. It is when creditors force a Debtor into bankruptcy.

J

JUDGEMENT:

This is an order that states that a debtor owes money. It allows creditors more aggressive options to collect on their debts. A creditor can convert a judgments into a lien on property.

K

JUDGE KENNEY:

One of the two current bankruptcy judges in the Alexandria Division of the Eastern District of Virginia. If you file a bankruptcy in Alexandria, VA, he or Judge Kindred would be appointed to oversee your case.

JUDGE KINDRED:

One of the two current bankruptcy judges in the Alexandria Division of the Eastern District of Virginia. If you file a bankruptcy in Alexandria, VA, she or Judge Kenney would be appointed to oversee your case.

TRUSTEE KING:

One of the current four bankruptcy Chapter 7 Trustees in the Alexandria Division of the Eastern District of Virginia. If you file a Chapter 7 bankruptcy in Alexandria, VA, he or one of the three other Trustees would be appointed to oversee your case and determine if you have any assets that could be sold for the benefit of creditors.  

L

LEVY:

A legal seizure of your property or money to satisfy a tax debt; the most common levy is when the IRS takes money from your paycheck.

LIEN AVOIDANCE:

This is the process of removing judgment liens. This most often is allowed if there is a judgment lien against real property, and there is little to no equity in the home after the existing mortgage, the lien may be eliminated or reduced to the available equity.

LIQUIDATION:

A Chapter 7 is also known as a Liquidation Bankruptcy. This is because the purpose of the bankruptcy is to liquidate non-exempt assets to pay creditors. Most Chapter 7 cases have no liquidation that occurs because there are no assets for the Trustee to administer.

LIQUIDATION TEST:

This analysis shows the minimum amount of money that creditors would receive in a Chapter 7. It is used in a Chapter 13 to determine that creditors who are being paid less than their full claim amount are receiving at least the amount that they would receive if said case was liquidated under Chapter 7 bankruptcy laws.

M

MEANS TEST: 

The mathematical analysis that determines whether a Debtor may qualify for a Chapter 7. In a Chapter 13 cases, the analysis determines the minimum required payments to your unsecured creditors. This test uses your income from over the past 6 months and deducts various expenses, some actual expenses and some expenses based on IRS standards for your family size and location.  

MEETING OF CREDITORS:

This is also called a 341 Meeting. It is a hearing that a Debtor must attend with the Trustee appointed by the court. During the meeting, the Trustee reviews parts of your Petition. Creditors may show up and answer questions; however, it is rare for creditors to appear.

TRUSTEE MCCARTHY

One of the current four bankruptcy Chapter 7 Trustees in the Alexandria Division of the Eastern District of Virginia. If you file a Chapter 7 bankruptcy in Alexandria, VA, he or one of the three other Trustees would be appointed to oversee your case and determine if you have any assets that could be sold for the benefit of creditors.  

TRUSTEE MEIBURGER:

One of the current four bankruptcy Chapter 7 Trustees in the Alexandria Division of the Eastern District of Virginia. If you file a Chapter 7 bankruptcy in Alexandria, VA, she or one of the three other Trustees would be appointed to oversee your case and determine if you have any assets that could be sold for the benefit of creditors.  

MOTION FOR RELIEF FROM THE AUTOMATIC STAY:

The most utilized motion by creditors. Creditors most often use this to proceed with In Rem relief against property. Creditors file this motion to receive permission from the court to proceed in collection activity despite the Automatic Stay. This is commonly use in cases where a Debtor is not paying a mortgage and the creditor wants to foreclose against the collateral.  

N

NO ASSET CASE:

Most Chapter 7 cases are no asset cases. This means that the Chapter 7 Trustee concluded that the Debtor has no significant property to be liquidated for the benefit of creditors.

O

OBJECTION TO PROOF OF CLAIM:

A written objection to a Proof of Claim filed by a creditor. A Debtor or Trustee files an Objection to Proof of Claim to change the classification of a claim (i.e., secured to unsecured) or to limit what a creditor may collect. An objection may even be filed to disallow the entire claim. Some of the more common reasons to object to a proof of claim include: the creditor fails to attach sufficient documentation to prove that a debt is owed, or the debt is barred from collection under the statute of limitation.

OBJECTION TO CONFIRMATION:

Any proposed plan has a period of time before confirmation where a creditor or a Chapter 13 or Chapter 12 Trustee can file an objection to the terms of the plan. Common objections include that the plan does not meet all requirements needed to confirm a bankruptcy plan or that the plan does not adequately provide for a debt.  

P

PLAN:

In Chapter 13, Chapter 11, and Chapter 12 cases, Debtors must propose a Plan. This is a document that explains what the Debtor will pay during the pendency of the case and how creditors will be treated. This document outlines which creditors the trustee will pay and in what order. The goal of a Chapter 13, Chapter 11 or Chapter 12 case is to get the plan confirmed by the judge.

PREFERENCES:

Certain payments to creditors within the 90 days preceding your bankruptcy filing or 1 year preceding the bankruptcy filing (if those payments were made to family members or friends) may be deemed to be preferences and may “undone” by the Chapter 7 Trustee. All creditors are supposed to be treated the same; no preferring grandma by paying her back and not American Express.

PRESUMPTION OF ABUSE:

This concept is used when the court and the U.S. Trustee’s office believes someone filling a Chapter 7 case may have sufficient income to pay into a Chapter 13 repayment plan. It usually occurs when there is a positive surplus in the Means Test. This presumption can be overcome by showing there is special or atypical circumstances that need to be considered.

PRIORITY CREDITORS:

The Bankruptcy Code classifies these creditors as most important. These creditors are paid first in bankruptcy cases and are usually non-dischargeable. The most common examples are taxes and support obligations.

PROJECTED DISPOSABLE MONTHLY INCOME (DMI):  

In a Chapter 13, the Means Test determines your projected disposable income. Your DMI is the minimum amount of money that you must pay your unsecured creditors during your plan.

PROOF OF CLAIM:

A document filed by a creditor in a Chapter 7 Asset Case or a Chapter 13 Case that explains how much the debtor owes and the basis of the debt. Creditors cannot be paid without filing a Proof of Claim, even if their debt was listed on the bankruptcy petition.

Q

R

REAFFIRMATION AGREEMENTS:

An agreement that re-establishes the Debtor is personally liable on a loan that must be approved by the court. Debtors can sign these agreements for secured debts. It basically removes your car loan or mortgage from the bankruptcy.

REDEMPTION:

This process is used in a Chapter 7 case to allow the Debtor to only pay to a secured creditor the current value of the vehicle, instead of the current loan value. This is often used in situations where a vehicle is substantially “under water.”

REJECTION:

Cancelling or ending a contract or agreement that exists at the time of filing.

S

SCHEDULES:

This the part of the Petition that delineates specifics about your financial situation, including property, debts, and income and expenses.

SECURED CREDITORS/DEBT:

Those creditors whose loans are secured by collateral. The most common secured lenders out there are banks handing out mortgages and car loans. Usually creditors will keep their lien against property unless specific orders are entered lifting or limiting the lien.

STEP UP PAYMENT:

An increase in payment amount during a Plan. This is often due to certain events, including paying off a car loan or a retirement loan ending during your chapter 13 bankruptcy. That increase is referred to as a step up.

SURRENDERED PROPERTY:

Under any chapter of bankruptcy, the Debtor has the right to give up property that has a debt secured against it. Choosing this option means you are surrendering the property.

T

TRUSTEE:

In Chapter 7 cases, the Trustee is the person appointed by the court that determines if there are any assets that they can seize and sell for the benefit of the creditors. In Chapter 13 cases, the Trustee is the person appointed by the court that reviews and evaluates your plan. The Trustee determines whether your plan meets all the requirements under the law.

TENANTS BY THE ENTIRETY (TBE):

This is a very specific way some property may be titled when owned by a married couple. This titling is important because it can protect the property from being seized, garnished, or having a lien against it by most creditors that are not jointly owed by both spouses. It can also protect property from being administered by a Trustee in a Chapter 7 case if there are no joint debts.

U

UNDERSECURED CLAIM:

A debt secured by property that is worth less than the amount of the debt aka “under water.”

UNLIQUIDATED CLAIM:

A claim for which a specific value has not been determined.

UNSECURED CREDITORS:

A claim or debt for which a creditor holds no lien against an asset, such as a mortgage or car loan. Credit cards and personal loans are the most common unsecured debts.

U.S. TRUSTEE:

Part of the Department of Justice that oversees all bankruptcy cases. Their job is to review cases to determine if there could be an abuse of the bankruptcy system; they can object to a Chapter 7 case if they believe the filing was not appropriate. Additionally, they review cases to ensure attorneys are handling their bankruptcy cases properly.

V

VOLUNTARY PETITION:

The most common way a bankruptcy case starts. This document has the basic information about the debtors and is filed by the debtor to deal with debts.

W

WAGE ORDER:

In many jurisdictions, the bankruptcy court requires that Chapter 13 Plan payments be paid via Wage Order. This is an order that will command your employer to start setting aside your monthly payment out of your paycheck and send it directly to the Chapter 13 Trustee. This is done to ensure payments are met.

WARRANT IN DEBT:

A civil lawsuit by a creditor trying to collect on a debt. It is one of the most common reasons individuals file bankruptcy.

WILDCARD:

This exemption lets you choose what property you want to protect. It can usually be used for any property. Here in Virginia, we have a $5,000.00 wildcard that increases by $500.00 for every dependent and doubles to $10,000.00 at the age of 65.

X

Y

Z

Attorney Ashley F. Morgan is a Virginia licensed attorney. She has helped hundreds of individuals file for bankruptcy during her career. It is important for her that her clients are making the best decision for their circumstances and understand the process. If you are considering filing bankruptcy in Virginia, please set up a free consultation with her.