BK Basic Terms

Adversary Proceeding
A lawsuit filed in the bankruptcy court which is related to the debtor’s bankruptcy case. Examples are complaints to determine the discharge ability of a debt and complaints to determine the extent and validity of liens.

Arrears
The amount that is unpaid and overdue as of the date the bankruptcy case is filed. The word “arrears” is usually used when referring to back child support, back alimony owed, or the amount that is past due on mortgage payments (including interest and penalties).

Assets
Personal possessions of value, including cash, real estate, vehicles and investments.

Automatic Stay
An injunction that stops lawsuits, foreclosure, garnishments and all collection activity against the debtor the exact date a bankruptcy petition is filed Bankruptcy: By filing in federal bankruptcy court, an individual or individuals can restructure or relieve themselves of debts and liabilities.

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.”

Avoidance Powers
Rights given to the bankruptcy trustee or the debtor in possession to recover certain transfers of property such as preferences or fraudulent transfers or to void liens created before the commencement of a bankruptcy case.

Bankruptcy Code
Title 11 of the United States Code governs bankruptcy proceedings. Bankruptcy is a matter of federal law and is, with the exception of exemptions, the same in every state. When federal bankruptcy law conflicts with state law, federal law controls.

Bankruptcy Estate
The estate is all of the legal and equitable interests of the debtor as of the commencement of the case. From the estate, an individual debtor can claim certain property exempt; the balance of the estate is liquidated in a Chapter 7 to pay the administrative costs of the proceeding and the claims of creditors according to their priority.

Chapter 7
Chapter 7 bankruptcy is a process provided for under United States federal law by which you are entitled to a fresh start. Chapter 7 may eliminate most kinds of unsecured debt. It is usually designed for someone with no assets.

Chapter 11
A reorganization proceeding in which the debtor may continue in business or in possession of its property as a fiduciary. A confirmed Chapter 11 plan provides for the manner in which the claims of creditors will be paid in whole or in part by the debtor.

Chapter 12
Similar to a Chapter 13, except it takes into account the variable income that is typical with family fisherman and farmers.

Chapter 13
Chapter 13 is an interest-free debt repayment plan through which you consolidate your debts and make a payment on your debt over a 3 to 5 year period. This type of bankruptcy is often used to save a house from foreclosure or to save a car from repossession.

Collateral
The property that is subject to a lien as for payment of a debt or performance of a contract. A creditor with rights in collateral is a secured creditor and has additional protections in the Bankruptcy Code for the claim secured by collateral.

Confirmation
The process by which the Bankruptcy Judge approves a plan of reorganization of a debtor in a Chapter 13 case.

Conversion
Cases under the Bankruptcy Code may be converted from one chapter to another chapter; for example, a Chapter 7 case may be converted to a case under Chapter 13 if the debtor is eligible for Chapter 13. Even though the Chapter of the Code that governs it changes, it remains the same case as originally filed.

Credit Report
A report outlining an individuals credit history, public records and credit worthiness.

Creditor
Any person or business that a debtor owes money to.

Debtor
Any person who is liable to another for money.

Default
Failure to make payments within a specified period of time governed by the original contract.

Delinquency
Failure to make payments when payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more of the credit bureaus.

Denial of Discharge
Penalty for debtor misconduct with respect to the bankruptcy case or creditors as a whole. The grounds on which the debtor’s discharge may be denied are found in 11 U.S.C. 727. When the debtor’s discharge is denied, the debts that could have been discharged in that case cannot be discharged in any subsequent bankruptcy. The administration of the case, the liquidation of assets and the recovery of avoidable transfers, continues for the benefit of creditors.

Dischargable
Debts that can be eliminated in bankruptcy. Certain debts are not dischargeable; that it, they may not be discharged through bankruptcy or may only be discharged through Chapter 13. Family support and criminal restitution are examples of debts which cannot be discharged. Debts incurred by fraud can only be discharged in Chapter 13.

Discharge
The legal term for the order eliminating a debt through a bankruptcy case. When a debt is discharged, it is no longer legally enforceable against the debtor, though any lien that secures the debt may survive the bankruptcy case.

Equity
A homeowner’s financial interest in a property. Equity is the difference between the value of the property and the amount still owed on its mortgage and other liens.

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