Bankruptcy law is primarily federal law and varies little from state to state. The United States Constitution grants Congress the power to establish uniform bankruptcy laws throughout the United States, which ensures uniformity in how bankruptcy proceedings are conducted, encourages interstate commerce, and promotes national economic security. The individual states do, however, retain jurisdiction over certain debtor-creditor issues that are not addressed by or do not conflict with federal bankruptcy law, such as which property remains exempt from creditors’ claims.
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341 Meeting: Also known as a creditors’ meeting, this is a mandatory meeting between debtors and creditors that takes place during the bankruptcy process.
Assets: Property of all kinds, including real and personal, tangible and intangible, that the debtor owns at the time of the bankruptcy filing.
Automatic Stay: An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.
Bankruptcy: A legal proceeding involving a person or business unable to repay their outstanding debts.
Bankruptcy Code: The name given to the unified federal laws that govern all bankruptcy cases.
Bankruptcy Court: The specialized federal court where all bankruptcy matters are conducted.
Bankruptcy Estate: All legal or equitable interests of the debtor in property at the time of the bankruptcy filing.
Bankruptcy Trustee: A representative appointed to oversee the bankruptcy process.
Chapter 7: A chapter of the Bankruptcy Code providing for “liquidation,” that is, the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors.
Chapter 13: A chapter of the Bankruptcy Code providing for the adjustment of debts of an individual with regular income, often referred to as a “wage-earner” plan.
Claim: A creditor’s assertion of a right to payment from the debtor or the debtor’s property.
Consumer Debt: Debts incurred by an individual primarily for personal, family, or household purposes.
Conversion: Cases under the Bankruptcy Code may be converted from one chapter to another chapter; for example, a Chapter 7 case may be converted to a case under Chapter 13 if the debtor is eligible for Chapter 13.
Cramdown: The ability in Chapter 13 bankruptcy to modify the terms of a secured loan to the current value of the collateral securing it.
Credit Counseling: An instruction given to bankruptcy debtors concerning budgeting and money management.
Creditor: Any entity (person, company, government body) to whom a debtor owes money.
Debtor: An entity (person, company, government body) that owes money to another entity, known as a creditor.
Debt Relief Agency: An organization, whether it’s a bankruptcy attorney or a commercial company, that provides advice or assistance to people in filing for bankruptcy.
Discharge: The legal elimination of debt through a bankruptcy case.
Dischargeable Debt: Debt that can be eliminated in bankruptcy.
Equity: The value of a debtor’s interest in property that remains after liens and other creditors’ interests are considered.
Exempt Property: Property that a debtor may protect from seizure by creditors because the law allows debtors to keep certain basic assets and property considered necessary for survival.
Exemption: Statutory allowance that protects certain property types from a bankruptcy estate and thus from potential sale by the trustee.
Fraudulent Transfer: A transfer of the debtor’s property made with intent to defraud or for which the debtor receives less than the transferred property’s value.
Fresh Start: The characterization of a debtor’s status after bankruptcy, i.e., free of most debts. (Getting a fresh start is one reason people file bankruptcy.)
Insolvency: A financial state in which a person or entity cannot pay its bills as they become due or its liabilities are more than its assets.
Joint Petition: One bankruptcy filing by a husband and wife together.
Lien: A legal claim against the property for the payment of a debt or the satisfaction of an obligation.
Liquidation: A sale of a debtor’s nonexempt property by a trustee and the distribution of the proceeds to the debtor’s creditors.
Means Test: A test to determine whether a debtor is eligible for Chapter 7 bankruptcy based on the debtor’s income and expenses.
Non-Dischargeable Debt: A debt that cannot be eliminated in bankruptcy, such as most taxes, student loans, child support, and alimony.
Nonexempt Property: Property that a debtor cannot protect from seizure by creditors because the law does not allow it.
Petition: The document that initiates a bankruptcy case. The filing of the petition constitutes an order for relief and institutes the automatic stay.
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: The Bankruptcy Code’s ranking of unsecured claims that determines the order in which these claims will be paid if there is not enough money to pay all claims in full.
Proof of Claim: A form showing the creditor’s claim against assets of the bankruptcy estate.
Reaffirmation Agreement: An agreement by a debtor to continue paying a dischargeable debt after the bankruptcy, usually for the purpose of keeping collateral or mortgaged property that would otherwise be subject to repossession.
Repossession: Act of a creditor seizing collateral following the debtor’s failure to keep up the payments on a secured debt.
Secured Creditor: A creditor whose claim against the debtor is secured by a lien on the property of the estate.
Secured Debt: Debt backed by a mortgage, pledge of collateral, or other liens; debt for which the creditor has the right to pursue specific pledged property upon default.
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.
Statement of Financial Affairs: A series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc. (There is an official form a debtor must use.)
Surrender: In a bankruptcy case, a debtor can surrender his or her rights to property secured by a debt. The creditor can then take the property back.
Trustee: The court-appointed official who takes over the debtor’s estate after a bankruptcy filing. The trustee’s role varies depending on the type of bankruptcy.
U.S. Trustee: An officer of the Department of Justice responsible for supervising the administration of bankruptcy cases, estates, and trustees.
Undersecured Claim: A debt secured by property that is worth less than the amount of the debt.
Unsecured Claim: A claim or debt for which a creditor holds no special assurance of payment, such as a lien or collateral.
Voluntary Bankruptcy: A decision by a debtor to file for bankruptcy relief.
Wage Garnishment: A legal procedure through which some portion of a person’s earnings is required to be withheld by an employer for the payment of a debt.
Workout: An out-of-court agreement between a debtor and creditors for repayment of debts.