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Commonly Used Terms

341 Meeting of Creditors - the mandatory meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called creditors' meeting.

Adequate Protection - fundamental protection of creditors in bankruptcy. A debtor might be required to provide funds if creditor request and court orders money to be paid to protect a secured creditors interest. By doing so debtor will be allowed to continue use of the collateral.

Adversary Proceeding - a lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the bankruptcy court. For example, through an adversary proceeding a second mortgage can be deemed to be unsecured and thereby discharged along with other unsecured debt in the right circumstances during a bankruptcy.

Assets - anything of value owned by the debtor.

Assume - an agreement to continue performing duties under a contract or lease.

Automatic Stay - an injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.

Bankruptcy - a legal procedure for dealing with debt problems of individuals or businesses, specifically, a case filed under one of the chapters of 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. §§ Chapter 7

Bankruptcy Estate - all legal or equitable interests of the debtor in property at the time of the bankruptcy filing. (The estate includes all property in which the debtor has an interest, even if it is owned or held by another person.)

Bankruptcy Judge - a judicial officer of the United States district court who is the court official with decision-making power over federal bankruptcy cases.

Budget - average monthly income and expenses debtor's household, usually reported on Schedules I and J of the bankruptcy petition.

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 13 - the chapter of the Bankruptcy Code providing for adjustment 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.)

Chapter 11 - the chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.)

Chapter 12 - the chapter of the Bankruptcy Code providing for adjustment of debts of a "family farmer," or a "family fisherman" as those terms are defined in the Bankruptcy Code.

Claim - a creditor's assertion of a right to payment from the debtor or the debtor's property.

Collateral - asset pledged as collateral to secure a debt (loan) typically a vehicle, residence or other real estate but can be any property, personal or real.

Confirmation - bankruptcy judges' approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.

Cramdown - modification of the terms of a secured loan, used in bankruptcy to reduce the amount of payments required to satisfy a loan.

Creditor - one to whom the debtor owes money or who claims to be owed money by the debtor.

Credit Counseling - generally refers to two events in individual bankruptcy cases: (1) the "individual or group briefing" from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the "instructional course in personal financial management" in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.

Credit Report - A report containing detailed information on a person's credit history, including identifying information, credit accounts and loans, bankruptcies and late payments, and recent inquiries. It can be obtained by prospective lenders with the borrower's permission.

Current Monthly Income - the average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor's spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).

Consumer Debtor - a debtor whose debts are primarily consumer debts.

Consumer Debts - debts incurred for personal, as opposed to business, needs.

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

Default - failure to meet a legal obligation such as make agreed mortgage payments in the amount and at the time agreed by contract (note and deed of trust).

Deficiency - amount not paid on a loan linked to an asset, such as a house, has been foreclosed and sold by the creditor. The creditor may be able to file a lawsuit to get paid back the "deficiency", the amount not paid back by the sale of the asset after foreclosure or repossession.

Discharge - a release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.)

Dischargeable Debt - a debt for which the Bankruptcy Code allows the debtor's personal liability to be eliminated.

Disclosure Statement - a written document prepared by the chapter 11 debtor or other plan proponent that is designed to provide "adequate information" to creditors to enable them to evaluate the chapter 11 plan of reorganization.

Dismissal - the termination of a bankruptcy proceeding. The bankruptcy court can dismiss a case if it deems that the debtor or three creditors should not have filed or that a plan can never be formulated.

Disposable Monthly Income - in Chapter 13 Bankruptcy it is income as defined on Schedule I less expenses as defined on Schedule J that is available to make the plan payment.

Domestic Support Obligation - usually child support or maintenance owed under a court order for support of a child or former spouse.

Effective Date - date the reorganization (chapter 13) plan becomes binding on the parties, debtor, trustee, and creditors.

Equity - the value of a debtor's interest in property that remains after liens and other creditors' interests are considered. (Example: If a house valued at $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.)

Executory Contract or Lease - generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. (If a contract or lease is executory, a debtor may assume it or reject it.)

Exemption - certain property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor's primary residence (homestead exemption), or some or all "tools of the trade" used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives.

Feasibility - capable of being completed or carried out. In chapter 13 bankruptcy meaning the plan payments will pay required creditors, secured, priority, and unsecured.

FICO Score - most common credit rating used by creditors in making lending decisions.

Foreclosure - process property is transferred involuntarily from owner to creditor after creditor has successfully placed a lien on real property

Fraud - wrongful or criminal deception intended to result in financial or personal gain. In bankruptcy typically it is an act of intentional omission or non-disclosure of assets.

Fraudulent Transfer - transfer of assets with the intent to prevent creditors from attaching the asset to satisfy its claims.

Fresh Start - an opportunity to start over with a clean slate. In bankruptcy typically no longer owing most creditors.

Garnishment - the judicial process for the taking of one's property to pay a judgment. Typically, through seizure of paycheck funds from employment or bank accounts.

Good Faith - generally, that honesty regarding the facts, not engaging in fraud or concealment. Additionally, in Chapter 13 cases, that the debtor is paying all of its disposable income into the plan payment each month.

Insider - any relative of the debtor or of a general partner of the debtor; partnership in which the debtor is a general partner; general partner of the debtor; or a corporation of which the debtor is a director, officer, or person in control.

Means Test - Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual debtor's chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor's aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,950, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $6,575. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.

Mortgage Arrearage - amount of mortgage payment(s) due but not yet paid to lender.

Petition - the document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case.

No-Asset Case - a chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.

Nondischargeable Debt - a debt that cannot be eliminated in bankruptcy. Examples include a home mortgage for the home you are not surrendering, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action.

Plan - a debtor's detailed description of how the debtor proposes to pay creditors' claims over a fixed period of time.

Preference or Preferential Debt Payment - a debt payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an insider) that gives the creditor more than the creditor would receive in the debtor's chapter 7 case.

Priority - the Bankruptcy Code's statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full. For example, under the Bankruptcy Code's priority scheme, money owed to the case trustee or for prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.

Priority Claim - an unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which these unsecured claims are to be paid.

Proof of Claim - a written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money.

Property Of The Estate - all legal or equitable interests of the debtor in property as of the commencement of the case

Reaffirmation Agreement - an agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession.

Schedules - detailed lists filed by the debtor along with the petition showing the debtor's assets, liabilities, and other financial information.

Secured Debt - debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens.

Statement of Financial Affairs - a series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc.

Trustee - the person responsible for reviewing filed bankruptcy petitions and in chapter 13 also collects debtor payments and pays creditors consistent with the confirmed chapter 13 plan.

Unsecured Claim - a claim or debt for which a creditor holds no special assurance of payment, such as a mortgage or lien; a debt for which credit was extended based solely upon the creditor's assessment of the debtor's future ability to pay.

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