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Bankruptcy Terms Definitions | Aurora Elgin Wheaton Batavia Oswego Planfield

Bankruptcy Terms Definitions

adversary proceeding
A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court.

automatic stay 
An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.

claim 
A creditor’s assertion of a right to payment from the debtor or the debtor’s property.

confirmation 
Bankruptcy judges’s approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.

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

creditor 
One to whom the debtor owes money or who claims to be owed money by the debtor.

debtor 
A person who has filed a petition for relief under the Bankruptcy Code.

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.)

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.)

exemptions, exempt property 
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 in.

joint petition
One bankruptcy petition filed by a husband and wife together.

lien
The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.

liquidation
A sale of a debtor’s property with the proceeds to be used for the benefit of creditors.

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).

motion for relief from the automatic stay 
A request by a creditor to allow the creditor to take action against the debtor or the debtor’s property that would otherwise be prohibited by the automatic stay.

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, 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.

plan 
A debtor’s detailed description of how the debtor proposes to pay creditors’ claims over a fixed period of time.

postpetition transfer 
A transfer of the debtor’s property made after the commencement of the case.

prebankruptcy planning 
The arrangement (or rearrangement) of a debtor’s property to allow the debtor to take maximum advantage of exemptions. (Prebankruptcy planning typically includes converting nonexempt assets into exempt assets.)

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 (or shortly after filing) the petition showing the debtor’s assets, liabilities, and other financial information. (There are official forms a debtor must use.)

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. (There is an official form a debtor must use.)

341 meeting 
The 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.

trustee 
The representative of the bankruptcy estate who exercises statutory powers, principally for the benefit of the unsecured creditors, under the general supervision of the court and the direct supervision of the U.S. trustee or bankruptcy administrator. The trustee’s responsibilities include reviewing the debtor’s petition and schedules and bringing actions against creditors or the debtor to recover property of the bankruptcy estate. In chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in chapter 12 and 13 have similar duties to a chapter 7 trustee and the additional responsibilities of overseeing the debtor’s plan, receiving payments from debtors, and disbursing plan payments to creditors.

unsecured debt 
A debt for which a creditor holds no special assurance of payment; a debt for which credit was extended based solely upon the creditor’s assessment of the debtor’s future ability to pay. Examples include credit cards, department store cards and personal loans.

www.uscourts.gov

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