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Glossary of Bankruptcy Terms



Automatic Stay - Immediately following the filing of the bankruptcy petition, there goes into effect a court order that prohibits all collection and foreclosure efforts against a debtor including lawsuits. Creditors are barred from calling or writing a debtor for the duration of the bankruptcy unless the automatic stay is otherwise modified or "lifted" by court order.

Bankruptcy - A legal procedure filed in Federal Bankruptcy Court that allows an entity or individual that is unable to pay its debt when due to reduce, reorganize or cancel those debts.

Bar Date - The last day that the court allows the filing of a proof of claim by a creditor in a bankruptcy case. For a chapter 7 case, this is usually 90 days after the first meeting of the creditors ("341 hearing.")

Chapter 7 - Known as "straight bankruptcy" or liquidation bankruptcy. This form of bankruptcy is the most common form of personal bankruptcy. It eliminates most debt completely. If you have property that is not protected by state or federal exemptions, the Trustee will sell those assets and distribute the proceeds to your creditors in the order of priority of the debt (see priority).

Confirmation - Approval by the Bankruptcy Court of a plan of reorganization that has met the many requirements of Code Section 1129. Once approval is given, all of the debtor's prepetition debts are discharged (eliminated) as provided by the plan.

Consumer Debt - Debt created primarily for household, personal or family purposes.

Creditor - A person or entity that has a claim against the debtor at the time of or before the petition was filed. A creditor may be secured or unsecured. (See secured and unsecured).

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Creditor Meeting - ("341 Meeting") The meeting which takes place 3-6 weeks after the bankruptcy petition is filed at which time the debtor may be questioned about the information provided by the debtor on the bankruptcy petition by the Court appointed Trustee and the debtor's creditors.

Contingent Claim - A claim that only becomes a claim if a specified, predetermined event occurs in the future.

Debtor - The person who owes money and who is the subject matter of the bankruptcy proceeding.

Debtor

Discharge - Official elimination of all prepetition debt (except debts exempt from discharge).

Disputed claim - A dispute about the actual amount owed to a creditor.

Distribution - When a debtor's nonexempt assets are distributed among the debtor's creditors.

Executory contracts - Contracts where both parties have yet to fulfill the terms and obligations of the contract. For example - an unexpired lease.

Exemptions - Federal and state laws protecting property of the debtor from being taken in a bankruptcy.

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Exempt property - Property of the debtor that is protected by law from being taken by creditors in a bankruptcy.

Fraudulent Transfers (Conveyances) - Transfer of property or an obligation made within one year before the filing date of the bankruptcy petition that was made with the intent to hinder, delay or defraud creditor(s).

Garnishment - When the Court orders a third person to hold money or property of the debtor when the property is in the third person's possession as a means of satisfying the debtor's debt.

Insider - As defined by Code Section 101(31) - A person who is a close working associate of the debtor or a relative. If the debtor is a corporation, an insider is an officer, director, manager or a relative of a director, officer or manager. If the debtor is a partnership, an insider includes a general partner of the debtor or a relative of such person.

Modification - Changes made in the terms of the bankruptcy plan of reorganization.

Nonexempt Property - Property that is not protected from being taken to satisfy debts in a bankruptcy.

Nonpossessory Security Interest - A security interest in property where the property that is the subject of the security interest is in the possession of the debtor.

Nonpurchase-money security interest - A security interest (collateral) given to secure a loan when the loan was not used to purchase the collateral.

Postpetition debt/liabilities - Debt or liabilities incurred after the filing date of the petition.

Preferential Transfer - Defined in Code Section 547(b). A transfer of property for a creditor's benefit made wtihin 90 days before the filing date or within one year if transfer is made to an insider, and it causes the creditor to receive more than he would have in a liquidation case. This kind of transfer is voidable by the Trustee.

Priority - Debt is classified into 3 levels - A priority debt is paid before unsecured nonpriorty debts and after secured debt. It cannot be wiped out in a bankruptcy. An example of this kind of debt would be taxes, student loans or child support.

Proof of claim - A document filed with the bankruptcy court by a creditor stating the amount and nature of the claim that the creditor believes that the debtor owes to him. Creditors have a certain time period to file this claim. After that time period has passed, they are barred from filing a proof of claim. (Bar date)

Pro Se - This term is used when a person who is not a laywer represents himself/herself in a court proceeding.

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Purchase money security interest - A lien placed on the property being purchased. In other words, the collateral is the property being purchased. A very common example is a mortgage.

Reaffirmation Agreement - An agreement between a creditor and a debtor wherein the debtor agrees to continue making payments in return for keeping a piece of property. A common example is when a debtor owes money to a car dealership for a car that the debtor wants to keep. If the car dealer and the debtor enter into a reaffirmation agreement, the debtor may continue to make scheduled payments and thereby keep the car. The court will want to make sure the agreement is fair to the debtor before it approves it.

Redemption - A debtor may keep exempt secured property even though he/she owes money on it by paying the creditor the collateral value of the property rather than the amount of the debt. Note that in some cases the "value" of the collateral may be less than the amount owed on it. In these cases it is advantageous for the debtor to redeem the property.

Reorganization Plan - A Chapter 13 or 11 plan describing the terms by which the debtor intends to repay his debts usually over a three to five year period.

Secured Debt (Creditor) - A debt (creditor) that is secured by a lien on debtor's property that may be taken by the creditor in case of nonpayment by the debtor. A common example is a mortgage loan.

Trustee - An individual appointed by the Bankruptcy Court who is responsible for the distribution and liquidation of the estate's assets. The Trustee usually plays a key role in many bankruptcies including reviewing the plan of reorganization in a Chapter 13 and recommending approval or changes to the Bankruptcy Court. It is also the Trustee who conducts the Meeting of Creditors hearing and may ask the debtor questions about his/her petition and schedules. The Trustee in a Chapter 7 case makes decisions as to whether or not a debtor has enough nonexempt assets to sell and distribute to creditors.

Unliquidated claim/debt - A claim that is known to exist, but it is uncertain as to the amount. For example, a judgment awarded in a lawsuit for which damages have not been determined would be this kind of debt.

Unsecured claim/creditor - A claim that is not secured by collateral. This would also include the excess of a secured claim over the value of the collateral.

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Voidable Preference - A transfer of property that is voidable by the Trustee.



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