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Glossary of Bankruptcy Terms

There’s a learning curve in bankruptcy if you’re not familiar with the process. One of the best ways to begin to arm yourself with knowledge is to talk the talk before you walk the walk. Below is a selection of terms with basic definitions to get you started.


Adversary Proceeding

A separate lawsuit that’s filed within a bankruptcy case. The creditor, the bankruptcy trustee, or you will file a complaint. Adversary proceedings in bankruptcy can resolve the state law claims you have against others, and any claims creditors may have against you. Bankruptcy court reduces the cost of ongoing litigation by providing one forum for the resolution of disputes.


Automatic Stay

On the filing of a bankruptcy case, an automatic injunction is put in place that stops actions by creditors to collect debts from you. Creditors face severe penalties for violation of the automatic stay, or the discharge injunction at the conclusion of the case.


Bad Faith

A bankruptcy that’s filed in ‘bad faith’ is said to be intentionally misrepresented in some way. Court review the acts and conduct leading up to, and in, a bankruptcy case by reviewing objective criteria that indicate a subjective bad faith intent to abuse the judicial process.


Bankruptcy Estate

All of the property/assets owned by the debtor become part of the bankruptcy estate upon filing. This includes property in the debtor’s possession, property that’s been loaned, property that you’re entitled to, property you’ve recently given away, proceeds from property, assets you receive within 180 days after filing, and your share of marital property.


Bankruptcy Judge

A judicial officer of the United States district court who has the decision-making power over federal bankruptcy cases.


Bankruptcy Petition

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


Chapter 7

This is the simplest and most common form of bankruptcy. The bankruptcy trustee will sell the debtor’s non-exempt assets and use the money to pay creditors in accordance with the Bankruptcy Code. This type of bankruptcy is also known as “liquidation bankruptcy.”


Chapter 9

This proceeding gives municipalities (cities, towns, villages, counties, taxing districts, municipal units, and school districts) protection from creditors to resolve/reorganize their debt.


Chapter 11

The debtor (often a corporation or partnership, but sometimes individuals or businesses) proposes a plan for reorganization to keep the business operating while paying back creditors over time. Small business debtors now have an easier path toward confirmation of a reorganization plan, due to the Small Business Bankruptcy Act (“SBRA”) of 2019.


Chapter 12

Allows "family farmers" or a "family fishermen" to restructure finances and avoid liquidation/foreclosure. Similar to Chapter 13, but with additional benefits for these specific debtors.


Chapter 13

Individuals with a regular income can create a plan to repay all or part of their debts over 3-5 years. This is also known as a “wage earner’s plan.”


Chapter 15

When a foreign debtor files for bankruptcy under the U.S. bankruptcy code, or a party seeks recognition of a foreign insolvency proceeding in the U.S.


Claim

A document filed with the court to register a claim against the assets in a bankruptcy estate that’s owed to the creditor.


Confirmation

The judge's approval of a plan for reorganization or liquidation in Chapter 11 or payment plan in Chapter 12 or 13 bankruptcy.


Creditor

The debtor in a bankruptcy case owes money to someone or some entity, known as the creditor.


Debtor

The person (or entity) who has filed a petition for bankruptcy.


Discharge

A permanent court order that releases the debtor from liability of certain debts and prevents creditors from taking action or communicating.


Dischargeable Debt

Debts that the debtor is no longer obligated to pay and wiped out by the discharge. A few examples include credit card debt, medical bills, personal loans, and past-due utility bills.


Fraudulent Transfer

When a debtor intentionally transfers property ownership in order to reduce the amount a creditor will get in a bankruptcy case, or transfers property to another while insolvent, for less than reasonably equivalent value being received in exchange for it.


Fraudulent Intent

When someone wrongfully attempts to gain an economic advantage over someone else in a bankruptcy case.


Involuntary Petition

When creditors force a bankruptcy petition as a result of unpaid debts.


Lien

An agreement where the creditor is allowed to take the property, sell it at an auction, and use the money to pay a loan balance in the event that a debtor can’t pay the debt as promised.


Liquidation

When the debtor's property is sold and the proceeds are used to pay creditors.


Nondischargeable Debt

Obligations that survive the bankruptcy. Examples include home mortgages, child support, spousal support, particular taxes, debts to government agencies, student loans, debts for personal injury caused by the debtor’s operation of a motor vehicle while intoxicated, debts owed to certain retirement plans, debts for some condo or cooperative housing fees, attorney fee for child custody/support cases, court fines and penalties, etc.


Schedules

Documents that the debtor prepares and files to the bankruptcy court that show the assets, liabilities, and other financial information.


Secured Debt

A debt that’s secured by property (mortgage, pledge of collateral, or another lien) that the creditor can claim.


Trustee

The administrative person appointed by the U.S. Trustee to represent the debtor’s estate and make recommendations about creditor demands in alignment with the Bankruptcy Code (the judge has the final authority). Their responsibilities are different based on the type of bankruptcy proceedings.


U.S. Trustee

An officer of the Justice Department who supervises the administration of bankruptcy cases, estates, and trustees.


Unsecured Claim

A payment request made to the court by a creditor who doesn’t have the right to sell the property (such as a mortgage or lien). This can include credit card companies, medical providers, and utility companies.


Voluntary Petition

When the debtor elects to file for bankruptcy voluntarily.


At Michael H. Moody Law, P.A., we seek to provide big law quality legal services, at a fraction of the cost. Contact us today to learn more about your options and whether a bankruptcy filing might serve to help you achieve your goals and objectives.


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