Glossary of Bankruptcy Terms

Dictionary of Common Bankruptcy Terms

Below are some of the more common terms, a glossary if you will, of the terms you’ll hear throughout your bankruptcy experience.

Chapter 7

Commonly called the “Fresh Start” Bankruptcy.  Individuals who have not received a bankruptcy discharge within the last 8 years and corporations may file under this Chapter.  All non-exempt assets are sold by the trustee and the proceeds are distributed to creditors.  However, it is rare for a debtor to have any non-exempt assets that are sold.  The available exemptions will be discussed below.  This is the most common type of bankruptcy and is generally what one is thinking about when discussing bankruptcy.

Chapter 13

This is a debt repayment plan wherein the debtor enters into a repayment play, typically lasting between 3 and 5 years.  During this time, the Debtor pay over all “disposable income” to the Trustee in Bankruptcy.

Substantial abuse

Upon completion of your case the court will issue a “Discharge Order.”  You do not have to pay debts that are discharged in your bankruptcy.  Your case could be dismissed and no discharge granted if the court determines that granting you a discharge would be a “substantial abuse” of the bankruptcy laws.

  • Automatic Stay
  • Avoiding Liens
  • Means Test
  • Meeting of Creditors
  • Plan – In Chapter 13 Bankruptcy
  • Secured debts
  • Reaffirmation Agreement
  • Required Bankruptcy Courses

Loan modification.

I do not represent debtors in their attempts to renegotiate the terms of their mortgages whether in Chapter 7 or Chapter 13.  If requested I can provide you with a letter that allows the lender to negotiate with you directly.  A lender may refuse to consider a loan modification if you have not reaffirmed the debt.  Also, some lenders have stopped processing loan modification applications once the bankruptcy has been filed.  If you are pursuing a loan modification I recommend you wait to file the bankruptcy until after the loan has been modified.  If you intend to pursue a loan modification after the bankruptcy is complete I recommend that you consider reaffirming the debt.  In Chapter 13 a loan modification cannot be finalized without permission from the Court.

CREDITOR’S MEETING.

You will be required to attend a creditor’s meeting.  The meeting will be held about 6 weeks after your bankruptcy is filed.  Generally, no creditors will show up at the meeting, however a Trustee will conduct an examination of your bankruptcy filing and ask you a few questions.  You will receive notice of this meeting from the bankruptcy court (if you do not receive a notice within 14 days of filing call my office).  You are required to bring to your 341 Creditor’s Meeting the original or certified copy of your proof of identity and verification of social security number.  The following are acceptable:

Picture ID:

  • State driver's license
  • Government ID
  • State ID
  • Student ID
  • U.S. Passport
  • Military ID
  • Resident alien card

Proof of SSN:

  • Social Security Card
  • Medical Ins. Card (with SSN on it)
  • Pay Stub (with SSN on it)
  • W-2 Form
  • IRS form 1099

Prior to the hearing the trustee must receive a signed declaration with copies of the following attached:

1) Paystubs from the 60 days prior to bankruptcy filing;

2) Most recent pay stub after filing;

3) Most recent filed federal tax return;

4) A statement of all your bank accounts, investment accounts, mutual funds and brokerage

accounts showing the balance or value of the account on the date of filing.

Some of this information will have to be provided after the bankruptcy is filed.  If you fail provide the information required in a timely manner or don’t bring the proper identification and proof of social security number to the 341 Creditor’s Meeting you will be required to attend another meeting to present your information.  The court sets the time and date of this meeting.

DISCHARGE.

Upon completion of the bankruptcy a discharge is granted.  Usually 60 days after the creditors meeting in Chapter 7 and after completion of the plan payments in Chapter 13.  Most debts are then discharged, meaning that the creditor has no right to collect the debt, it no longer exists. The following debts are generally not discharged: Charge card purchases within 90 days of filing bankruptcy; cash advances on charge cards within 70 days of bankruptcy; loans against retirement plans; student loans; judgments based on a DWI; taxes (income taxes can be discharged in some circumstances); debts incurred through fraud or false financial statements; debts not listed on your bankruptcy schedules; obligations created by divorce (e.g.., maintenance, alimony, child support,  property settlements and hold harmless provisions); debts resulting from willful or malicious injury of a person or property; and Government Fines/Penalties.

SECURED CREDITORS.

A deed of trust, legal ownership of vehicle, or interest under the Uniform Commercial Code are examples of security interest (leases are not secured debts).   Some property may secure more than one loan, this is called cross collateralization.  For example your car may secure the loan on the car plus a personal loan or charge card through the bank or credit union.  Generally, you will have to pay off both loans in order to clear title to the property.

  1. LEASES/EXECUTORY CONTRACTS.  If you have leased property or an executory contract (executory contracts are contracts in which performance is still due by the debtor, non-debtor, or both parties to the contract) the agreement must be assumed or it is deemed rejected.  Generally, the lessee will allow you to reaffirm or continue to make the payments under the contract.  However, you do not necessarily have the right to merely continue making the payments.  If the lessee wants the property they may be able to get it back.

THE BANKRUPTCY ESTATE.

When you file bankruptcy a “bankruptcy estate” is created.  It is an entity similar to a Trust or Corporation.  The estate is comprised of all property you own or have rights to.  Under some circumstances property that you have transferred, or property that you become entitled to after the bankruptcy is filed, may also be property of the estate.  You do not have the right the sell, transfer, or encumber that property until it is no longer property of the estate.  The property is usually no longer property of the estate when the case is closed.  Generally, the case is closed shortly after you receive your discharge.  However, under some circumstances the case can be kept open for administration of assets even though you have received your discharge.   In most cases the property will probably never leave your possession and you’ll be allowed to keep it, this is because of the “exemptions”.

Property that you currently own.

Upon filing bankruptcy essentially everything you own or have rights to will become property of the “bankruptcy estate”.

Property that you have transferred.

Some payments made to creditors within 90 days of filing may be pulled back into the estate, or 1 year if the payment was made to an “insider” (e.g., relative).  Transfers made within the last four years that violate the Uniform Fraudulent Transfers Act may be undone (generally a transfer made for less than economic value while you were insolvent).

Property that you become entitled to in the future.

Included in the estate is property you become entitled to via inheritance, life insurance, or a property settlement with a spouse within 180 days of the bankruptcy or while making payments in a Chapter 13.

AUDITS

The Department of Justice oversees the bankruptcy system.  They will periodically audit bankruptcy cases.  If this happens you will be required to provide a substantial amount of additional information to the US Trustee.

EXEMPTIONS

Before the “estate” is used to pay creditors you can exempt certain property.  That means  you get to keep the exempt value of the property.  In some states,  you may elect Federal or State exemptions.  In Missouri however, only the state exemptions are available.    If you are married and filing jointly you are entitled to double the many exemptions.  Property claimed as exempt must be sufficiently described so that the trustee and parties in interest can reasonably be expected to know what property the debtor claims as exempt, therefore when preparing your worksheet provide detailed descriptions of your property where requested.  If you omit property from your schedules the court may deny your exemptions in that property even if you would otherwise be entitled to exempt the property.  There are many different exemptions, and I have listed a few of the commonly used state exemptions below:

Property

STATE EXEMPTION (double for married couple filing joint, unless otherwise indicated)

House (homestead)

$15,000.00 real property (married or single – no doubling)

Any Property (wild card)

$600.00 each Head of Household additional $1250 + $350/child

Household goods

$3,000 – each

Cars, Trucks and Boats

$3,000 – each

Jewelry

$1000, Wedding ring additional $3000 each

Current payments for alimony child support

$750 with higher potential

Tools of trade

$3,000 (double if both are involved in the trade)

ERISA-qualified benefits (retirement or pension)

Unlimited

IRAs

Unlimited

Disability, illness or unemployment benefits

Unlimited

Life insurance payments

$150,000 with restrictions

Life insurance policy

$300,000 with some restrictions

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