If you are looking to file for bankruptcy but may not understand some terms, check out our glossary of common bankruptcy terms for guidance.
One of the things that most people find very confusing about the bankruptcy process is the number of terms and definitions that are routinely used in these cases. These words often are not used in other contexts, so their meaning may not be clear. Although this is not a comprehensive listing of all bankruptcy terms, it does include the more common words that you may see in doing your research.
Absolute Priority – This is the priority applied to creditors and the type of debt, as established in the United States Bankruptcy Code.
Adversary Proceeding – This action is initiated by a person involved in the bankruptcy case by the filing of a complaint. The trustee may bring this action to recover property or take issue with the actions of a creditor. The debtor also may file for an adversary proceeding if a creditor has done something to violate the automatic stay. These actions are not common in consumer filed Chapter 7 and Chapter 13 cases.
Automatic Stay – This provision takes effect as soon as the bankruptcy action is filed and serves as an injunction against any further actions to collect on the debts owed by the debtor, including through debt collection agencies, repossessions, garnishments, lawsuits, and foreclosures.
Bankruptcy – This is a formal statement that the debtor no longer has the ability to pay creditors. There are a number of different bankruptcy options available to individuals and businesses. A person who wants to discharge debt and satisfies the income requirements may file a Chapter 7 bankruptcy action. An individual who is behind in payments on a house or car, but wishes to retain possession if possible may file a Chapter 13 action where debt is reorganized and a payment plan is filed with the court.
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) – This broad reform of existing bankruptcy law was enacted in 2005 in order to correct abuses of the bankruptcy system, but imposed many more restrictions on bankruptcy filings and was not viewed as beneficial to individuals needing the protections that bankruptcy afforded.
Bankruptcy Code – In accordance with the Bankruptcy Reform Act of 1978, this was the designation given to the federal body of bankruptcy laws that directs how United States bankruptcy courts manage cases.
Bankruptcy Estate – This is the property of the debtor that falls under the control of the bankruptcy trustee during the course of the case. It can be assets that the debtor had at the time of filing or property that the trustee recovers during the course of the case and may include:
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Personal property, including clothes, jewelry, furniture, artwork, other household goods, and automobiles;
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Real estate, including the debtor’s residence;
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Insurance policies;
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Ownership interest in a business;
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Business income;
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Trademarks, copyright, goodwill, and other intellectual property;
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Tax refunds;
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Retirement plans, accounts, and pensions;
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Personal injury settlements;
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Payments from government programs; and
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Property that was recovered from by the trustee from third-parties after a pre-filing transfer from the debtor.
Claims – These are filed by creditors who are seeking a payment from the debtor. Claims can fall into many different categories that establish the order in which they are paid. These classifications include secured, unsecured, matured, unmatured, liquidated, unliquidated, subordinated, fixed, contingent, legal, or equitable.
Credit Counseling Briefing – This is an information source about the types of credit counseling, which is mandatory for individuals filing for bankruptcy, that are available. It also provides support for those doing a budget analysis.
Creditor – A person or business who is owed money.
Debtor – A person or business who has outstanding financial obligations to a creditor.
Discharge – The wiping out of debt and conclusion of a bankruptcy case.
Dismissal – The termination of a bankruptcy case before there is a discharge of debts.
Exemptions – These are established under state and federal law and list the assets that are not subject to liquidation for the payment of debts in a bankruptcy case.
Foreclosure – The action taken by a mortgage holder to take possession of real property when the borrower has breached the terms of the mortgage agreement.
Garnishment – This is the process by which a creditor can claim a portion of the money being paid to a debtor in order to satisfy an outstanding obligation.
Lien – This is the claim against property that is taken in exchange for the provision of credit.
Liquidation – This is the action by which an asset of the debtor is converted into cash to settle debts, frequently through the sale of the asset.
Means Test – This was created by the BAPCPA and is used to determine who may file a Chapter 7 bankruptcy action. It calculates the current monthly income (CMI) of the debtor, which may be sufficient to qualify for Chapter 7 protections if the CMI is less than the applicable median income. If the CMI is above the median income, it is still possible to file for bankruptcy once the income is adjusted based upon accepted deductions and disposable income is calculated and compared to the outstanding debts of the individual. Chapter 13 involves a means tests of sorts used to calculate reasonable payments for the Chapter 13 plan.
Petition – The court filing that commences the bankruptcy action and triggers the automatic stay.
Predatory Lending – This is the term applied to lenders who take advantage of borrowers and lock them into agreements with interest rates and repayment terms that are extremely unfavorable to the borrower. Also applies to actions where fraudulent practices are used in procuring the loan.
Schedules – These are the documents that are filed with the initial bankruptcy Petition that detail information about the debtor’s assets, liabilities, income, and other financial information that is relevant to the disposition of a bankruptcy action.
Section 341 Meeting – Also referred to as a 341 Meeting or §341 Meeting, this is the first meeting of the creditors and the debtor and is scheduled by the bankruptcy trustee assigned to the case.
Trustee – The bankruptcy trustee is the individual who is assigned to a bankruptcy case once it has been filed. The trustee has the obligation to oversee all the activities of the bankruptcy case and ensure that all parties have satisfied their obligations. The United States Trustee in a Chapter 7 or 13 action is the employee of the United States Department of Justice who is charged with discharging the duties of the bankruptcy court.
Unsecured Debt – This term applies to any debt that is not protected by an interest in collateral that can be redeemed in the event of a default.
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New Jersey Bankruptcy Attorney Andrew M. Carroll is committed to ensuring each of our clients receives unparalleled legal representation. Attorney Carroll will fully explore your bankruptcy options and select the best means of helping you achieve a bright financial future. Call us today at (609) 400-1302 to schedule your free debt relief and bankruptcy consultation.
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