Bankruptcy Terms

  • Assets: The bankruptcy debtor‘s ownership interest in real estate, personal property, money in the bank, claims for tax refunds, rights to inherit or other rights. Assets of the bankruptcy estate are very broadly defined in bankruptcy, almost anything that the debtor owns or has a right or claim to receive.“Assets” can often be protected by “exemptions.”
  • Automatic Stay:Except in the case of re-filings, the court enters an order that automatically stays collection and other related proceedings when the bankruptcy is filed with the court.The order is usually effective to stop foreclosures, prevent repossessions, prevent most future garnishments (child support excepted), and creditors contacting the debtor.The court might impose penalties for creditor knowingly violating the automatic stay after notice of the proceeding.
  • Bankruptcy Code:Title 11 of the United States Code, the statutory basis for all bankruptcy proceedings.The chapters that aredivided into chapters that provide remedies remedies (Chapter 7, Chapter 11 & 13)and chapters that provide legal and administrative law.
  • Chapter 7: The most common type of bankruptcy filed by individuals.Technically this is the chapter called “Liquidation” but it is common for people to have enough exemptions to protect their assets from liquidation by the bankruptcy trustee.To file chapter 7, the person must pass a means test, essentially an income-based test in which their income must not be too high or they might be forced into a chapter 13 bankruptcy
  • Chapter 11: Reorganization bankruptcy, often used by businesses, to continue operations.
  • Chapter 13: Only allowed for individuals, this bankruptcy allows for a payment plan to be implemented over 3-5 years with the debtor making payments to the bankruptcy trustee who distributes the payments in accordance with the confirmed repayment plan. The amount of the payment, who gets paid and other issues are complicated, but are covered in the Payment plan. This bankruptcy iscommonly used by debtors whowant to keep their on house or car, even if the payments have fallen behind payments or who have too much income to be allowed to file Chapter 7 bankruptcy.
  • Collateral: In addition to the contract to make payments on a car, for example, many loans, including provision that allows repossession of the collateral (the “security”).For example, the purchase of a car house pledges the car house as collateral for the loan.
  • Creditor: The person, business or entity who has a claim for money or property of the debtor.
  • Debtor: A person or business who owes money, services or the return of property.
  • Default: Non-performance of a term of a contract, a breach of the contract.The most common example is missing payments.
  • Discharge Order:An order from the bankruptcy court that discharges the bankruptcy debtor’s dischargeable debts.See also, non-dischargeable debt” Some debts cannot be discharged such as court fines, recent taxes, child support and others. Some debts that cannot be discharged in a Chapter 7 can be discharged in a Chapter 13.
  • Equity: The difference between the value of an asset and the balance of any loan where the asset is collateral. Ask your Missouri bankruptcy lawyer to help you calculate equity.
  • Exempt:see “Exemption.”
  • Exemption:Laws,eitherState &Federal thatdefinewhat property is exemptfrom collection by creditors and the dollar limit of that protection for the property (sometimes expressed as a percentage of property, for example “100%“ or “All”).For example, the homestead exemption protects $15,000 of the bankruptcy debtor’s value in their residential real estate; the MO state Motor vehicle exemption protectsor $3000 of equity divided among one or more cars. Most retirement plans are 100% percent exempt.
  • Fair Market Value or “Current Value”: The amount a willing buyer will pay to a willing seller for an asset. This is the valuation used in bankruptcy,  but if the trustee is going to liquidate the property, the sale would be at a discount from their market value our current value because it is a distress sale.
  • Foreclosure: The State Law’s legal process whereby a creditor holds a public auction at the courthouse to sell to a third-party, or, as more often occurs, obtain title & possession of real property from a debtor following adefault, either in payment of the contractual amount in the mortgage or deed of trust, or other breach of contract issues.
  • Garnishment: The process a creditor uses to obtain money from a debtor’s bank account or wages after the creditor has a judgment against the debtor. (Most garnishments will stop with the automatic stayorder).
  • Means Test: A mandatory, income-based test that determines whether persons are qualified to file Chapter 7 bankruptcy or, if they do not pass the test and have to file a Chapter 13 bankruptcy, how much money they will have to pay to a certainclass of creditors in the payment plan.
  • No Asset Case: A Chapter 7 case in which the trustee determines that the debtor has no significant assets that can be taken and sold to pay the claims of creditors. The trustee abandons these assets, although the assets are still subject to the rights of creditors for repossession foreclosure, etc.
  • Non-Dischargeable Debt. Some debts cannot be discharged by bankruptcy. Examples of non-dischargeable debt include child support, alimony,most student loans, court fines/restitution and income taxes less than three years old. Some debts that cannot be discharged in a Chapter 7 might be discharged in a Chapter 13.
  • Petition: Thepetition is one paragraph in a very long document that constitutes the bankruptcy filings.Most of the bankruptcy is schedules and forms.
  • Preference or“Preferential Transfer”: A payment to a creditor on an existing debt, that occurs withintypically 90 days (for business transfers) or within one year for “insiders” (a phrase that includes repayments to relatives). Under bankruptcy law the trustee can demand the payment from the creditor to be returned the bankruptcy estate for a more equitable distribution among all the creditors.
  • Reaffirm or“Reaffirmation Agreement”:Unique to bankruptcy, this document allows the bankruptcy debtor to agree to continue to make payments on, for example, a car loan, despite the bankruptcy and to be held to that agreement even after the bankruptcy. A creditor will typically require reaffirmation agreement to report to the credit bureau on the status of the payments. A reaffirmed debt is not discharged in bankruptcy
  • Relief From Stay:A motion for relief or the order granting reliefto a creditor who seeks to override the automatic stay as it applies to that creditor. (A common example would be a creditor asking for relief from the stay in order to repossess a car that thedebtor has stated his intention to surrender in a chapter 7 bankruptcy).If the court grants the order, the creditor can proceed with the repossession or other actionrequested in the motion for relief from stay.
  • Repayment Plan:  The Chapter 13 repayment plan as approved (“confirm”) by the court. The bankruptcy debtor, assisted by the attorney, proposes the repayment plan. The original proposal is often amended before the bankruptcy court finally approves a repayment plan.
  • Trustee:The chief administrative official of the bankruptcy, usually chosen from one of a pre-approved panel of personsfor Chapter 7 bankruptcies, typically just one person for Chapter 13 bankruptcies.Trustees operate under review of Office of the United States Trustee.The case (or panel) bankruptcy trustee holds the debtor property in trust, for a time, and represents the interest of the creditors,although the creditors can also represent themselves inmost capacities.