Automatic stay – a protection for the debtor that goes into effect immediately when a bankruptcy case is filed. The stay prevents creditors from starting most forms of collection activity, including collection letters and calls, lawsuits, repossessions, and foreclosures. Any such activity that has started before filing must stop.
Bankruptcy – (1) a branch of the law dealing with discharge of debt and adjustment of the rights of debtors and creditors; (2) a case filed under the bankruptcy laws.
Bankruptcy Code – the group of federal laws regulating most aspects of bankruptcy. Found in the Title 11 of the United States Code of Laws. Chapter – a group of sections of the Bankruptcy Code on a certain topic. Each of the last few chapters of the Code (including 7, 11, 12, and 13) sets out the rules for a separate approach to dealing with debt. We refer to each approach by the corresponding chapter number. For example, Chapter 7 refers to what is formally known as a liquidation bankruptcy, while Chapter 13 refers to a reorganization approach for individuals and married couples.
Chapter 7 – a form of bankruptcy primarily intended to discharge unsecured debt. In Chapter 7, the liens held by secured creditors generally survive, usually leaving the debtor with the choice of paying the debt or surrendering the collateral. In addition, certain special debts are not dischargeable, including taxes, student loans, divorce-related obligations, and debts arising from certain misconduct. Chapter 7 also involves a trade-off, in that a trustee is appointed to liquidate any property that has value beyond any liens and beyond the debtor’s exemptions – although, because of liens and exemptions, the debtor usually has no assets for the trustee to liquidate.
Chapter 13 – a form of bankruptcy in which the debtor proposes a plan for making payments toward his or her debts for three to five years. Chapter 13 is frequently used to prevent a
mortgage holder from foreclosing while giving the debtor an extended time to come current under the mortgage. The debtor must usually pay all short-term secured debts (such as car loans) in full with interest or else surrender the collateral. However, in most Chapter 13 cases, the debtor can pay a very small percentage of the unsecured debt.
Collateral – any item of real or personal property pledged or taken as security for a debt.
Creditor – a person, firm, or entity to which a debt is owed.
Debt – any legal obligation to pay money.
Debtor – (1) a person who owes a debt; (2) a person who files bankruptcy.
Default – failure to do something required by law or by a contract, especially a failure to pay a debt or perform some other obligation under a debt agreement such as maintaining insurance on collateral.
Discharge – to cancel debt through bankruptcy. Debt that is discharged is not legally enforceable, and attempts to collect discharged debt violate federal law.
Exemption – a provision of law that permits people to protect certain property from their creditors. A Chapter 7 trustee cannot seize exempt property, and exempt property does not count in determining how much a Chapter 13 debtor must pay to unsecured creditors. While most bankruptcy questions are governed by federal law, the Bankruptcy Code permits states to determine what property their residents can exempt. Generally a person can protect the same property in bankruptcy as he could protect from a creditor who sued, obtained a judgment, and sought to seize property for sale to satisfy that debt.
Filing bankruptcy – an act in which a debtor starts a bankruptcy case and obtains the protection of the automatic stay by filing a petition and certain other documents with a bankruptcy court.
Foreclosure – a proceeding in which a mortgage creditor seeks to end a debtor’s ownership of real estate after default on the mortgage. In states like South Carolina, foreclosure requires a lawsuit, typically taking 3 – 6 months, in which the creditor asks the court to determine the amount of the debt, sell the property, and apply the proceeds to the debt. The debtor can frequently prevent the sale and save the property by filing Chapter 13, but only if he does so before the sale.
Means test – a formula used to determine whether it may be an abuse of the bankruptcy system for a person to file Chapter 7. A similar formula helps determine how much a Chapter 13 debtor must pay his or her creditors. In general, the means test begins with a calculation of the debtor’s monthly gross income based on the last 6 full months. If this income exceeds certain median family income figures, a second phase of the means test comes into play. The debtor must then calculate monthly expenses, using standardized allowances in some categories (mainly relating to homes and cars) and using actual expenses in others (including medical expenses, taxes, insurance, and child care). If the debtor’s income exceeds these combined expenses by a certain amount, the debtor may be able to pay a reasonable portion of his debt, and filing Chapter 7 is likely to be considered abusive.
Meeting of creditors – an event every debtor must attend about 3 – 4 weeks after filing bankruptcy. Also known as the 341 meeting. The purpose is to permit the case trustee to ask
questions of the debtor under oath. In most consumer cases, the questions are primarily standard ones designed to make sure the documents the debtor has filed are accurate. In many
cases, however, the trustee will ask a few additional questions to clarify any unusual information contained in these documents. These meetings typically last 3 – 4 minutes. Cases involving business owners are often longer and more complicated. Creditors may also attend or send representatives to ask questions, though vert few typically do.
Personal property – possessions that are moveable instead of permanently attached to land. Includes items such as cars, boats, appliances, jewelry, money, bank accounts, etc. Mobile
homes, modular buildings, and other large items may be personal property or real estate depending on factors such as what they sit upon, whether porches or decks are attached, and
whether they are owned by the same persons who own the underlying land.
Petition – a short form document filed to start a bankruptcy case. It requires certain identifying information about the debtor(s), a choice of chapter, information about prior cases, and certain signatures.
Petition date – the day a debtor files a bankruptcy case. In several different respects, the petition date marks an important change in the legal relationship between the debtor and his or her creditors.
Plan – a document proposed by a Chapter 13 debtor that states the amount the debtor will pay toward his or her debts and the treatment of various categories of debt. A basic feature of the plan is a fixed amount the debtor must pay each month to the Chapter 13 trustee. If the plan meets all requirements, the bankruptcy court will confirm it, and the plan, not the original terms of the various debts, will determine what each creditor is entitled to receive.
Property – anything a person owns. In bankruptcy, property is a very broad term. It means not only real estate but also personal (moveable) property. Property also includes ownership rights in intangible things like stock, trusts, insurance policies, personal injury claims, social security claims, and the like.
Real estate – land and things permanently attached to it. Also called real property or realty. The opposite of personal property. A house or other building with a permanent foundation is part of the realty, as are trees, septic tanks, driveways, most sheds, underground plumbing, etc. Things firmly attached to a permanent building, such as built-in bookshelves or a furnace, are also part of the realty.
Repossession – a practice by which a secured creditor takes possession of personal property, such as a car, boat, jewelry, etc., that is collateral for a debt after a debtor has failed to make payments. A repossessing creditor can usually act without prior approval from a court, although creditors will usually ask for court approval before repossessing larger items such as mobile homes. After repossessing, the creditor sells the collateral and applies the proceeds to the debt unless the debtor pays off the debt or files bankruptcy before the sale.
Schedules – documents, disclosing information such as the debtor’s property, debts, and budget, which the debtor must file when he starts a bankruptcy case or shortly thereafter.
Secured debt – a debt that is secured by some property. Examples include a mortgage (secured by a house or other real estate), a car loan (secured by the car) or an account with a jewelry store (usually secured by the jewelry purchased). If the debtor does not pay a secured debt, the creditor can usually have the security (collateral) sold and apply the proceeds to the debt.
Trustee – an officer appointed to represent the interests of creditors. A Chapter 7 trustee is responsible for identifying, seizing, and liquidating any property a debtor cannot protect through exemptions. In contrast, a Chapter 13 trustee is responsible for receiving payments a debtor makes under a plan approved by the court and distributing the funds to creditors as the plan specifies. A trustee is not a judge, but trustee recommendations carry a great deal of weight in bankruptcy court. Trustees are appointed by the U.S. Department of Justice and are usually attorneys.
Unsecured debt – a debt for which no collateral is pledged as security. Examples include most credit cards, retail charge accounts, medical bills, and “signature” notes. However, even these debts may become secured if the creditor sues the debtor, obtains a judgment, and records it where the debtor owns real estate.
*Photograph by Marissa DeMott of Hazel Eyes Photography, Summerville, South Carolina