Bankruptcy Lawyers in DuPage County
Bankruptcy Glossary of Terms
Filing for bankruptcy is generally a one-time event for most debtors. Individual and business debtors, as well as creditors, might be unfamiliar with the bankruptcy process. Familiarity with some basic terminology will help you understand the procedures involved in a bankruptcy case. Contact Mevorah Law Offices LLC today if you need assistance filing for bankruptcy or search for alternatives. Call 630-932-9100630-932-9100 for a free consultation.
341 meeting - Also called creditor's meeting; required by section 341 of the Bankruptcy Code. The creditors, a trustee, an examiner or the U.S. trustee question the debtor under oath about his financial affairs.
Adversary proceeding - A lawsuit related to a debtor's bankruptcy, such as complaints to determine the dischargeability of a debt and the extent and validity of liens.
Arrears - The unpaid and overdue amount as of the date a bankruptcy case is filed. Arrears may be used in reference to back alimony, child support and past-due mortgage payments, including interest and penalties.
Assets - Personal possessions of value, such as cash, real estate, vehicles, and investments.
Automatic stay - An injunction that automatically stops lawsuits, foreclosures, garnishments and all collection activity against the debtor the minute a bankruptcy petition is filed.
Avoidance - The Bankruptcy Code permits the debtor to eliminate some types of liens that interfere with or impair an exemption claimed in a bankruptcy. Most judgment liens 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, an action sometimes called "lien stripping."
Avoidance powers - Rights given to the bankruptcy trustee or 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 - A legal procedure for dealing with consumer and business debt.
Bankruptcy administrator - An officer of the judiciary in Alabama or North Carolina who, like the U.S. trustee, is responsible for supervising the administration of bankruptcy cases, estates and trustees.
Bankruptcy Code - Title 11 of the U.S. Code (11 U.S.C. § § 101-1330), the federal bankruptcy law.
Bankruptcy court - A unit of the U.S. District Court; the bankruptcy judges in regular active service in each district.
Bankruptcy estate - All of the debtor's legal or equitable property interests (even if the property is owned or held by another person) at the time of the bankruptcy filing.
Bankruptcy judge - A judicial officer of the U.S. district court who is the court official with decision-making power over federal bankruptcy cases.
Bankruptcy petition - The official document a debtor (in a voluntary case) or creditors (in an involuntary case) file to open a bankruptcy case.
BAPCPA - The acronym for the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Chapter 7 - The Bankruptcy Code chapter providing for "liquidation" (i.e., the sale of a debtor's non-exempt property and distribution of the proceeds to creditors).
Chapter 9 - The Bankruptcy Code chapter providing for reorganization of municipalities.
Chapter 11 - The Bankruptcy Code chapter providing for reorganization, generally 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. Other business owners or individuals also can seek relief in Chapter 11.
Chapter 12 - The Bankruptcy Code chapter providing for adjustment of debts of a "family farmer" or "family fisherman," as those terms are defined in the Bankruptcy Code.
Chapter 13 - The Bankruptcy Code chapter providing for adjustment of debts of an individual with a regular income. Chapter 13 allows a debtor to keep property and pay debts over time, usually three or five years.
Chapter 15 - The Bankruptcy Code chapter dealing with cases of cross-border insolvency.
Claim - A creditor's assertion of a right to payment from the debtor or the debtor's property.
Collateral - Property subject to a lien 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.
Consumer debts - Debts incurred for personal, as opposed to business, needs.
Contested matter - A matter, other than objections to claims, that is disputed but not within the definition of adversary proceeding contained in Rule 7001.
Contingent claim - A claim that a debtor may owe, such as when the debtor is a cosigner on another person's loan, and that person fails to pay.
Conversion - Cases under the Bankruptcy Code may be converted from one chapter to another; for example, a Chapter 7 case may be converted to a 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 individual's credit history, public records, and credit worthiness.
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 before filing under any chapter of the Bankruptcy Code, or (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 and exigent circumstances or if the U.S. trustee or bankruptcy administrator have determined that insufficient approved credit counseling agencies are available.
Creditors' meeting - See 341 meeting.
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 non-debtors and income from the debtor's spouse if the petition is a joint petition.
Debtor - A person or business entity that has filed a petition for relief under the Bankruptcy Code.
Debtor education - See credit counseling.
Default - Failure to make payments within a specified period of time governed by the original contract.
Delinquency - Failure to make payments when due. Even though a lender may not charge a "late fee" for a number of days, the payment still is considered 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 - A 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, debts that could have been discharged, in that case, cannot be discharged in any subsequent bankruptcy. The administration of the case, liquidation of assets and recovery of avoidable transfers continue for the benefit of creditors.
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.
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 designed to provide "adequate information" for creditors to enable them to evaluate the Chapter 11 plan of reorganization.
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 $200,000 is subject to a $160,000 mortgage, it has $40,000 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 or reject it.)
Exemptions, exempt property - Certain property an individual debtor owns that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors. In some states, the debtor may exempt all or a portion of the equity in his primary residence (homestead exemption) or some or all "tools of the trade" used to make a living (e.g., auto tools for an auto mechanic, dental tools for a dentist).
Fiduciary - One who is entrusted with duties on behalf of another. The law requires the highest level of good faith, loyalty, and diligence of a fiduciary, higher than the common duty of care that we all owe one another. The debtor in possession in a Chapter 11 is a fiduciary for the creditors, owing loyalty to the creditors and not the shareholders of the debtor.
Foreclosure - The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. Foreclosure usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.
Fraudulent transfer - A transfer of a debtor's property made with intent to defraud or for which the debtor receives less than the transferred property's value.
Garnishment - A court-ordered method of debt collection in which a portion of a person's salary is paid to a creditor.
General unsecured claim - A creditor's claim without a priority for payment for which the creditor holds no security or collateral. If the available funds in the estate extend to payment of unsecured claims, the claims are paid in proportion to the size of the claim relative to the total of claims in the class of unsecured claims.
Insider (of individual debtor) - 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.
Insider (of corporate debtor) - A director, officer or person in control of the debtor; a partnership in which the debtor is a general partner, a general partner of the debtor or a relative of a general partner, director, officer or person in control of the debtor.
Joint administration - A court-approved mechanism under which two or more cases can be administered together. Assuming there are no conflicts of interest, separate businesses or individuals can pool their resources, hire the same professionals, etc.
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 used for the benefit of creditors.
Liquidated claim - A creditor's claim for a fixed amount of money.
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 five years, net of certain statutorily allowed expenses, is more than (i) $10,000, or (ii) 25 % of the debtor's non-priority unsecured debt, as long as that amount is at least $6,000.
Motion to lift 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 in which no assets are available to satisfy any portion of the creditor's unsecured claims.
Non-dischargeable debt - A debt that cannot be eliminated in bankruptcy.
Objection to dischargeability - A trustee's or creditor's objection to the debtor being released from personal liability for certain dischargeable debts. Common reasons include allegations that the debt to be discharged was incurred by false pretenses or that debt arose because of the debtor's fraud while acting as a fiduciary.
Objection to exemptions - A trustee's or creditor's objection to the debtor's attempt to claim certain property as exempt from liquidation by the trustee to creditors.
Party in interest - A party who has standing to be heard by the court in a matter to be decided in the bankruptcy case. The debtor, the U.S. trustee or bankruptcy administrator, the case trustee and creditors are parties in interest for most matters.
Perfection - When a secured creditor has taken the required steps to perfect his lien, the lien is senior to any liens that arise after perfection. Recording it with the county recorder perfects a mortgage; filing a financing statement with the secretary of state perfects a line in personal property. An unperfected lien is valid between the debtor and the secured creditor but may be behind liens created later in time but perfected earlier than the lien in question. The trustee can avoid an unperfected lien.
Personal property - Property that is not real property or affixed to real property, such as cars, stock, and furniture.
Petition - The official document that initiates a bankruptcy case. The filing of the petition constitutes an order for relief and institutes the automatic stay. Events are frequently described as "pre-petition," happening before the bankruptcy petition was filed, and "post-petition," after the bankruptcy.
Petition preparer - A business not authorized to practice law that prepares bankruptcy petitions.
Plan - A debtor's detailed description of how the debtor proposes to pay creditors' claims over a fixed period of time.
Plaintiff - A person or business that files a formal complaint with the court.
Post-petition transfer - A transfer of the debtor's property made after the commencement of the case.
Pre-bankruptcy planning - The arrangement (or rearrangement) of a debtor's property to allow the debtor to take maximum advantage of exemptions. (Pre-bankruptcy planning typically includes converting nonexempt assets into exempt assets.)
Preference or preferential debt payment - A debt payment made to a creditor in the 90-day period before a debtor files for 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.
Pre-petition - Claims or events arising before the filing of the bankruptcy petition. Generally only pre-petition debts may be discharged in a bankruptcy proceeding.
Presumption of abuse - See means test.
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 in full.
Priority claim - An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status.
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.
Reaffirm - The debtor may choose to reaffirm debts that would otherwise be discharged by the bankruptcy. When a debt is reaffirmed, the parties to the reaffirmed debt generally have the same rights and liabilities that each had before the bankruptcy filing: The debtor is obligated to pay, and the creditor may sue or repossess if the debtor doesn't pay.
Relief from stay - A creditor may ask the judge to lift the automatic stay and permit some action against the debtor or the property of the estate. If the motion is granted, the moving party (but no one else) is free to take whatever action the court permits. Relief can be absolute, for example, permitting the creditor to foreclose on property, or limited, as, for example, allowing the recordation of a notice of default.
Repossession - Once in default, as defined by the creditor in the security agreement occurs, the creditor can repossess the collateral by self-help (depending on state law) or, with the aid of a court order, dispose of the collateral by public or private foreclosure sale, retain the collateral in satisfaction of the debt, terminate the debtor's right of redemption, add the costs of repossession and foreclosure to the unpaid balance of the debt, and pursue the debtor for any remaining unpaid balance or deficiency.
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 (e.g.,, a car) that would otherwise be subject to repossession.
Secured creditor - A creditor holding a claim against a debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some of the or the entire claim.
Secured debt - A debt backed by a mortgage, pledge of collateral or other lien, or a debt for which the creditor has the right to pursue specific pledged property upon default. Examples are home mortgages, auto loans, and tax liens.
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.
Small business case - A special type of Chapter 11 case in which there is no creditors' committee (or the creditors' committee is deemed inactive by the court) and in which the debtor is subject to more oversight by the U.S. trustee than other Chapter 11 debtors. The Bankruptcy Code contains certain provisions designed to reduce the time a small business debtor is in bankruptcy.
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.
Statement of intention - A declaration made by a Chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate.
Substantive consolidation - Placing the assets and liabilities of two or more related debtors into a single pool to pay creditors. Courts are reluctant to allow substantive consolidation because the action must justify not only the benefit that one set of creditors receives but also the harm that other creditors suffer as a result.
Transfer - Any means by which a debtor disposes of or parts with property.
Trustee - A bankruptcy estate representative 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. In all Chapter 7, Chapter 12 and Chapter 13 cases and some Chapter 11 cases, the trustee is a private individual or corporation. The trustee reviews the debtor's petition and schedules and brings actions against creditors or the debtor to recover property of the bankruptcy estate. In a Chapter 7 bankruptcy, the trustee liquidates property of the estate and makes distributions to creditors.
U.S. trustee - An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates and trustees.
Undersecured claim - A debt secured by property that itself is worth less than the full amount of the debt.
Unliquidated claim - A claim for which no specific value has been determined.
Unscheduled debt - A debt that should have been listed by the debtor in the schedules filed with the court but was not.
Unsecured claim - A claim or debt for which a creditor holds no guarantee of payment and that was extended based solely upon the creditor's assessment of the debtor's future ability to pay.
Voluntary transfer - A transfer of a debtor's property with the debtor's consent.