Bankruptcy Terminology


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Bankruptcy Terminology

341 Meeting of Creditors – A meeting between the debtor(s), their attorney, the trustee assigned to the case and any creditors that may be present. This meeting is to determine the facts of the bankruptcy estate.

Arrearages (home mortgage) - Unpaid or past due house payments, which may included principal, interest, escrow arrearages, late fees and collection expenses; previous payments or obligations owed to the bank, not being the most recent, that are still due/unpaid.

Asset(s) - Any real or personal property, tangible or intangible, whether of value or not; includes everything that you own or may have an ownership interest in, regardless of form or location or title. An asset is determined by what you control, not what you own.

Asset case – A bankruptcy case in which non-exempt assets may be used by the Bankruptcy Trustee, sold or liquidated to part or all of your debt.

Automatic Stay - A court order that stops all creditors from taking any further collection activity against the debtor.

Avoidance - 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."

Bankruptcy - A legal remedy entered into by debtors who are financially insolvent, or incapable of paying their debts.

Bankruptcy estate – All of the property, including assets and debts of the debtor(s); the term is very broad and all inclusive of everything of the debtor.

Burdensome asset(s) - An asset which has burdensome or inconsequential value to the bankruptcy estate.

Charge-off - The removal of a debt from the accounting records of a creditor.

Collateral - Property used to “secure” payment of a loan.

Confirmation - A hearing in which the bankruptcy court approves the plan of reorganization.

Credit Report - A report maintained by third parties that contains a financial history of individual consumers, which information has been provided by participants (usually creditors) in the credit reporting agency. The Bankruptcy Court and your attorney are NOT responsible and have no connection to your credit report or what’s in it.

Credit Score - A score that is calculated by a credit reporting agency, using formulas devised by creditors, that is used by potential lenders to determine whether to grant you credit.

Cure – To repay or fix a default in payments; or, to fix a broken promise in any agreement with the creditor.

De-accelerate - To put back into an installment form of payments so as to have an installment obligation.

Deed of Trust – A deed conveying title to real property to a trustee as a security until the grantor repays the loan.

Deficiency Debts (foreclosure or repossession) - The amount left owing on the debt after the collateral has been sold. These are generally unsecured debts, and therefore, dischargeable.

Discharge - A legal release of a debtor’s obligation to pay back a debt.

Dischargeable debts - All debts, except certain non-dischargeable debts, those being recent federal income taxes, property taxes, student loans, unlisted debts, fraud debts, child support, alimony, property settlements, fines, criminal penalties, probation fees, personal injuries arising from driving under the influence, and recent credit card charges for luxury goods and services. Most dischargeable debts are unsecured, for example, credit card and medical debts.

Dismissed - An order that terminates a suit or court action.

Estate - The financial affairs, including, but not limited to, property, assets, and liabilities of the bankrupt.

Exemptions – Real or personal property owned by you that may be designated by a debtor as “exempt” from the claims of creditors and the Bankruptcy Court. There are two kinds of exemptions in Texas: federal and state. Many states do not allow debtors to take federal exemptions. The federal exemptions are generally broader in scope but more limited in amount. The state exemptions are generally more limited in scope, but greater in amount.

Fair Credit Reporting Act - A federal law that grants rights to individuals regarding their credit reports and credit reporting procedures.

Fair Debt Collection Practices Act - A federal law granting rights to individuals regarding debt collection practices against them.

Fair Market ValueWhat a willing buyer would pay a willing seller in an arms length sale, with neither party being under any compulsion to act.

Fiduciary – (1) A person who is required to act for the benefit of another person on all matters within the scope of their relationship; one who owes to another the duties of good faith, trust, confidence and candor. (2) One who must exercise a high standard of care in managing another’s money or property. i.e. The debtor in possession in a Chapter 11 is a fiduciary for the creditors, owing loyalty to the creditors and not the shareholders of the debtor.

Finance Companies – A non-bank company that deals in loans either by making them or by purchasing notes from another company that makes the loans directly to borrowers.

Fire Sale – Any sale at greatly reduced prices, esp. due to an emergency. (These are often regulated to protect the public from deceptive sales practices.

Foreclosure - A legal action by the lender, of either accelerating repayment (usually in full) or repossessing the collateral, because of a breach in the loan agreement or note.

Fraud - A knowing misrepresentation of the truth or concealment of material fact to induce another to act to his detriment.

Garnishment - An action by a creditor to legally impound or seize funds from a debtor’s source of income for the repayment of debts.

Joint Case - A case in which both spouses have filed for bankruptcy.

Judgment Liens – A lien imposed on a judgment debtor’s non-exempt property; this lien gives the judgment creditor the right to attach the judgment debtor’s property.

Judicial Lien – A lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding. If a debtor is adjudged to owe money to a creditor and the judgment has not been satisfied, the creditor can ask the court to impose a lien on specific property owned and possessed by the debtor. After the court imposes the lien, it usually issues a writ directing the local sheriff to seize the property, sell it, and turn over the proceeds to the creditor.

Liabilities Debtors’ obligations, debts, of direct responsibilities on a creditor’s claim, potential or otherwise.

Lien (property) - A claim or charge on property for payment of some debt, duty or obligation.

Liquidate - The selling of property of the debtor(s) for the payment of debts.

Loan Companiessee Finance Companies.

Means Test A formula used by the Bankruptcy Court to determine if you qualify for Chapter 7 relief.

Mortgage - A legal contract that secures payment of a debt, usually used on home and business loans.

Net Disposable Income - The income that remains after deduction for expenses that are reasonably necessary for living and for operation of debtor’s business.

No asset case - Case in which debtor(s) do not possess any assets which may be used to pay debts.

Non-Dischargeable Debt - A debt that cannot be eliminated in bankruptcy. 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. 523. The scope of the discharge in Chapter 13 differs from the discharge in Chapter 7.

Non-Exempt Property Debtors’ property that may be liquidated or sold for the payment of debts.

Perfected Lien - 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 mortgage is perfected by recording it with the county recorder; a lien in personal property is perfected by filing a financing statement with the secretary of state. 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. An unperfected lien can be avoided by the trustee.

Plan of Reorganization – A detailed program of action formulated by a debtor or its creditors to govern the debtor’s rehabilitation, continued operation or liquidation, and payment of debts. The Bankruptcy Court must approve the plan.

Preference - The paying or securing to one or more of his creditors, by an insolvent debtor, the whole or a part of their claim, to the exclusion of the rest. By preference is also meant the right which a creditor has acquired over others to be paid first out of the assets of his debtor, as when a creditor has obtained a judgment against his debtor which binds the latter's land, he has a preference. Voluntary preferences are forbidden by the insolvent laws of some of the states, and are void, when made in a general assignment for the benefit of creditors.

Priority Claim (debts) Creditor’s claim that is legally considered to have priority over other claims. Example: Taxes and child support.

Proceeds – The value of land, goods, or investments when converted into money; or the amount of money from a sale. Note that security interests in proceeds can transfer from one item to another. For example, a creditor may have a security interest in a cotton harvest. If that cotton harvest is traded for a tractor, the creditor’s security interest will transfer to the tractor because the tractor is considered proceeds of the cotton harvest.

Proof of Claim – A legal document filed by a creditor to establish a right to payment.

Purchase Money Loan - A loan made by a creditor to finance the purchase of goods. Often referred to as a Purchase Money Security Interest.

Reaffirmation Agreement- An agreement between the bankrupt debtor and a secured creditor stating that the debtor will continue to keep the collateral and make regular payments on the collateral.

Redeem, Redemption(1) The act or an instance of reclaiming or regaining possession by paying a specific price. (2) A debtor's right to repurchase property from a buyer who obtained the property at a forced sale initiated by a creditor.

Redemption Agreement - An agreement between the bankrupt debtor and a secured creditor allowing the debtor to finish paying off the debt in one lump sum, usually for the current fair market value.

Reorganization - See Plan of Reorganization.

Repossession - An action taken by a secured creditor to legally take seize the collateral to be liquidated to pay the debt.

Schedules - The statements and worksheets attached to a voluntary petition for relief through bankruptcy that states a debtor’s financial affairs, including assets, debts, exemptions, occupation, monthly income and expenditures, and many other matters.

Security Agreement - A contract to secure payment of a debt, for example, a car loan. The loan usually requires full coverage insurance on an automobile until the note is paid in full.

Secured Claims (debts)- A claims in which the creditor has an interest in the property of the debtor, or the bankruptcy estate, to secure payment of the debt.

Surrender – An arrangement in which the bankrupt debtor returns the secured collateral to the creditor.

Trustee - A court appointed official who oversees the bankruptcy estate and is charged with liquidating any property that is non-exempt, or declaring the estate to be a no asset case.

Unsecured Claims (debts) A debt owed by a debtor for which the creditor does not have any collateral securing the debt.

Usury - Excessive or illegal interest that is charged by a creditor in violation of state or federal lending laws.

 


If you have any questions about terminology, then please call Dana A. Ehrlich at 325-655-5351.


Dana A. Ehrlich
Dana A. Ehrlich is a bankruptcy specialist who lives and works in
San Angelo, Texas. He has lived in the Concho Valley and San Angelo, Tom Green County for many years. His practice is primarily consumer bankruptcy law and he is a board certified bankruptcy specialist for Chapter 7 and Chapter 13. He may be reached at 325-655-5351 or at dana@wcc.net.

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