GLOSSARY

Adversary Proceeding: A creditor may file a lawsuit in the bankruptcy court to determine dischargeability of a debt or to verify a lien. Debtors may file an adversary proceeding when a creditor violates the "automatic stay".

Arrearage: Overdue payments which remain unpaid at the time of a bankruptcy filing. In most cases, arrearage refers to past due mortgage payments, unpaid child support or alimony, or income taxes.

Assets: Any personal property or possessions that hold "equity", including cash, securities, real estate and vehicles.

Automatic Stay: A court order issued by the bankruptcy court when a bankruptcy petition is filed. The automatic stay prohibits lawsuits, foreclosures, repossessions, garnishments and all collection activity against the debtor on the day the bankruptcy is filed.

Bankruptcy: A federal law which allows consumers to re-organize or discharge debts.

Avoidance: The Bankruptcy Code permits the debtor to eliminate (avoid) certain liens that have not been validated or "perfected" by judgment creditors. These liens generally are placed on various household items which may be exempted through filing bankruptcy. Judgments that have been granted a creditor (usually an unsecured creditor) may also be "avoided" in most cases relieving a debtor's real property of such judgment. This is sometimes called "lien stripping."

Avoidance Powers: Rights given to the bankruptcy trustee to recover certain transfers of property which are considered preferential or fraudulent transfers. A debtor in possession of personal property before the commencement of a bankruptcy case may void "unperfected" liens as described in the definition above described as "Avoidance".

Bankruptcy Code: Title 11 of the United States Code governs bankruptcy proceedings. The Bankruptcy Code 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 bankruptcy estate includes all of a debtor's legal and equitable interests (including real and personal property) as of the commencement of the bankruptcy case. A debtor, when filing bankruptcy, can claim certain property exempt from the bankruptcy estate. Property that is unable to be exempted 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 which entitles debtors to obtain a "fresh start". Chapter 7, in most cases, eliminates most kinds of unsecured debt. It is designed for debtors who have no property that is unable to be exempted using the available bankruptcy exemptions.

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 reorganization and repayment of the claims of creditors which will be paid in whole or in part by the debtor.

Chapter 12: Chapter 12 is not longer available, but during its existence, was a reorganization plan for family farmers whose debts fall within certain limits.

Chapter 13: Chapter 13 is a reorganization and repayment plan which, in most cases, lowers interest rates on secured debts and provides interest-free debt repayment on unsecured debts. Chapter 13 is designed for individuals, or consumers, and allows a 3 to 5 year repayment period. In many cases, it is used to protect a house from foreclosure or repossession of vehicles.

Collateral: Personal or real property owned by a Debtor that is subject to a lien which ensures performance of a contract by the Debtor. Collateral is repossessed or foreclosed on by creditors when payments are missed.

Confirmation: The process by which the Bankruptcy Judge rules that a debtor's plan of reorganization is acceptable to the Court and is fair both to the debtor and the creditors.

Conversion Cases: In some cases a bankruptcy filed under either Chapter 13 or Chapter 7 may be converted if a debtor's circumstances change. Any bankruptcy case may, under certain restrictions, be converted from one chapter to another. A Chapter 13 case may be converted to a Chapter 7 and a Chapter 7 case may be converted to a Chapter 13.

Credit Report: A report derived from a credit reporting agency which publishes an individual's credit payment history, public records, including liens and judgments, and credit score.

Creditor: Any person or business that has loaned money to an individual either whether the loan is secured or unsecured.

Debtor: Any person who has borrowed money from an individual or entity and is liable for the repayment of the debt.

Default: Failure to perform under the terms of a contract for any reason specified in the contract.

Delinquency: Failure or delay in making payments called for under a contract. Generally, when a loan payment is more than 30 days late, most lenders report the late payment to one or more of the credit bureaus which ultimately affects a debtor's credit score.

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 are determined by a bankruptcy judge to be eliminated or wiped out. Student loans, child support or alimony and criminal restitution are examples of debts which cannot be discharged.

Discharge: The Order of the bankruptcy court which eliminates debts through a bankruptcy case. Discharged debts are prohibited from being pursued in collection by creditors. When a debt is discharged, a debtor is relieved of any legal responsibility to pay the debt. However, if collateral has been pledged to secure the note, this collateral may be subject to repossession.

Equity: An individual's investment in property, which is able to be liquidated, usually in reference to real or personal property. Equity is the difference between the value of the property and the amount still owed on its lien.

Exempt Property: Property that has been protected by bankruptcy exemptions which is removed from the bankruptcy estate and is not available to be liquidated to pay the claims of creditors.

Exemptions: Exemptions are used to protect real and personal property of a debtor from being seized and sold by either a creditor or the bankruptcy trustee to be liquidated to pay debts. Determination of what exemptions are available will vary from state to state.

Fiduciary: A person has been appointed and entrusted with certain duties on behalf of another, usually monetary in nature. A fiduciary must possess the highest level of good faith, loyalty and diligence.

Fair Market Value: The highest price that the market will bear for the purchase of real or personal property.

Foreclosure: The legal process which a mortgage holder pursues to enforce the lien on a debtor's home which allows them to regain legal possession of the property. The property is generally sold at public auction to allow the mortgage holder to recover its losses due to the debtor's default on the loan.

Garnishment: A court-order obtained by a creditor which allows a portion of a debtor's salary to be paid to that creditor. Garnishments by judgment creditors are only allowed in certain states.

General Unsecured Claim: A debt for which no collateral has been pledged, usually credit card debt, medical debt, signature loans, etc. These debts may either be discharged completely through a Chapter 7 bankruptcy or partially or in full through a Chapter 13 Plan of Reorganization.

Lien: A claim upon real or personal property for the satisfaction of a debt or discharge of an obligation on which collateral has been pledged. The debts are known as secured debts. Mortgages, automobile loans and debts on furniture are examples of secured debts.

Liquidated: A liquidated debt is a debt for which the exact amount has been established. A debt that the amount has not been determined is considered an unliquidated debt. An example of an unliquidated debt would be where a lawsuit is pending and the court has not ruled on the amount of the damages or claim.

Non-dischargable: A debt that cannot be discharged in bankruptcy.

No Asset Case: A Chapter 7 case in which it has been determined by the court that there are no non-exempt assets to be liquidated. In this case, all property held by the debtor remain in their possession.

Perfection: A perfected lien is one in which the creditor has secured the proper documentation necessary to make the lien valid. For example, a mortgage is perfected by recording a Deed of Trust with the county recorder, a lien on personal property is perfected by filing a financing statement with the Secretary of State. An unperfected lien can be avoided by the bankruptcy court.

Personal Property: Any property this is not real estate and is not affixed to the real property, such as automobiles, furniture, stock, etc.

Petition: The document that initiates a bankruptcy case. This document initiates the automatic stay, which is the protection given to debtors from their creditors being able to foreclose, repossess or even attempt to collect any debts.

Preference: A transfer of money or assets to a creditor in payment of an existing debt which was made within a certain time frame before the bankruptcy is filed. These preferences may be recovered by the trustee for the benefit of all creditors of the estate.

Pre-petition: Claims or events arising before the commencement of the bankruptcy case, that is, before the filing of the bankruptcy petition. Generally only pre-petition debts may be discharged in a bankruptcy proceeding.

Priority: The Bankruptcy Code establishes the order in which claims are to be paid from the bankruptcy estate. Claims, such as secured claims, must be paid in full before claims with a lower priority receive anything. All claims with the same priority share pro rata. Claims are paid in this order: 1) costs of administration 2) priority claims and 3) general unsecured claims.

Priority Claims: Priority debts, which are largely debts such as income tax, back child support, or any type of governmental debt are classified as priority debts and are paid after administrative claims and before any unsecured claims.

Proof of Claim: Document a creditor files indicating the full amount of the debt they are owed through the date of the filing of the bankruptcy petition which will include any supporting documentation of liens held on collateral.

Property of the Estate: Any property the Debtor holds that is considered non-exempt property and is held by the bankruptcy estate to be liquidated and paid pro rata to all creditors.

Reaffirm: A debtor may elect to reaffirm a debt that would otherwise be discharged in bankruptcy. In most cases, only secured debts are reaffirmed so that that the debtor may continue to make payments on the collateral in order to maintain possession of it. Once a debt is reaffirmed, it reverts back to its original terms of the contract which could mean repossession or foreclosure if default occurs.

Relief from Stay: If a creditor desires to seek further relief after a bankruptcy is filed, they may file a Motion for Relief from Stay requesting the court to either remove or modify the bankruptcy stay. Relief from the automatic stay may be granted in the event a creditor is deemed to not be adequately protected during the term of the bankruptcy.

Repossession: A creditor may repossess collateral any time the debtor defaults on the terms of the contract. In some cases, a creditor may repossess collateral without obtaining a writ from a state court. In other cases, a writ must be obtained before the collateral can be recovered by the creditor. Although the collateral has been repossessed by the creditor, the debtor may still be liable for any unpaid balance on the note.

Schedules: Along with the bankruptcy petition, the debtor must prepare and file bankruptcy schedules, which includes all property owned by the debtor, along with a list of all creditors to whom money is owed. Along with these schedules, a Statement of Financial Affairs must be filed.

Secured Debt: A secured debt is one where the creditor secures a lien on personal or real property. A secured creditor has established, in perfecting a lien, the right to repossess the property to satisfy a debt in default.

Trustee: A private individual or corporation appointed in bankruptcy filings to represent the best interests of the creditors and to ensure the bankruptcy estate is distributed according to law.

Unsecured: A debt is considered to be unsecured if there is no collateral that has been claimed as security for the debt. Credit card debt, medical bills, signature loans, etc. are, in most cases, considered unsecured debts.

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