Throughout the bankruptcy process, you may encounter some unfamiliar words and phrases. This is normal. Below is a list of some common terms you may hear, with definitions to let you understand what they mean for your case.
adversary proceeding - A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. For instance, if a creditor attempted to foreclose your home while you were under bankruptcy protection, you could sue them for damages through an adversary proceeding.
Bankruptcy - A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under one of the chapters of title 11 of the United States Code (the Bankruptcy Code).
Bankruptcy Code - The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.
bankruptcy court – The federal court where bankruptcies are filed and managed. Bankruptcy Judges are federal appointees who serve 14 year terms on the bench.
bankruptcy petition - The document which opens the bankruptcy case.
Chapter 7 - The chapter of the Bankruptcy Code providing for “liquidation” (i.e., the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors).
Chapter 9 - The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts).
Chapter 11 - The chapter of the Bankruptcy Code providing (generally) for reorganization, usually 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. People in business or individuals can also seek relief in chapter 11.)
Chapter 12 - The chapter of the Bankruptcy Code providing for adjustment of debts of a “family farmer,” or a “family fisherman” as those terms are defined in the Bankruptcy Code.
Chapter 13 - The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.)
Chapter 15 - The chapter of the Bankruptcy Code dealing with foreign cases.
Claim - A creditor’s assertion of a right to payment from the debtor or the debtor’s property. Anyone who claims that you owe them money and who wants to receive a portion of the proceeds of your bankruptcy case must file a claim with the court explaining the basis for your debt to them. If claims are excessive or unenforceable, we can object to them in the Bankruptcy Court to help you save money.
Confirmation - Bankruptcy judges’s approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.
Creditor – A person or corporation to whom you owe (or allegedly owe) money.
Credit counseling – The debtor education required to file a bankruptcy. This is a course that lasts approximately one hour. It can be taken over the telephone or internet.
Debtor - A person who has filed a petition for relief under the Bankruptcy Code.
Discharge – The official Bankruptcy Court order that eliminates your debt. In Chapter 7, it takes about 3-5 months to receive your discharge. In Chapter 13, it takes about 3-5 years.
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 – State laws that allow you to keep certain property out of reach of your creditors. In Alabama, each person is allowed to exempt $5,000 of home equity, $3,000 of personal property (including automobiles), and all of your family's books and clothing.
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. i.e. selling your $10,000 boat to your brother for $1 to keep from losing it in bankruptcy.
Lien - The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.
Means test – The mathematical formula which determines if your income is too high to file Chapter 7.
Motion for Relief from the Automatic Stay – A request by a creditor (usually a secured creditor) to be allowed to take collection action against a debtor in spite of the bankruptcy. For instance, if you quit making mortgage payments during your bankruptcy, your mortgage company may move for relief from the stay to foreclose your home.
Nondischargeable debt - A debt that cannot be eliminated in bankruptcy. Examples include a home mortgage, alimony or child support, most taxes, debts for most government funded or guaranteed educational loans, and debts arising from death or injury caused by drunk driving.
plan A debtor’s detailed description of how the debtor proposes to pay creditors’ claims over a fixed period of time.
preference or preferential debt payment A debt payment made to a creditor in the 90-day period before a debtor files 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.
Priority – Certain debts must be paid in full in Chapter 13 and in Chapter 7 must be paid before any unsecured debts are paid: taxes and child support are the most common priority claims.
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.)
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. Also called creditors’ meeting
trustee The officer of the court who represents the general unsecured creditors in a bankruptcy case. The Trustee reviews each bankruptcy petition and, at the 341 Meeting, will question the debtor under oath about the information in the petition and schedules. The Chapter 7 Trustee liquidates all nonexempt property for the benefit of creditors. The Chapter 13 Trustee receives every debtor's monthly bankruptcy payments and distributes them according to the Plan.