§341 Hearing

The formal term is Section 341 (a) First Meeting of Creditors. This is a recorded meeting between a debtor, the Trustee, the debtor’s attorney, and creditors. During this meeting, the debtor can be asked questions under oath regarding their assets, liabilities, income, expenses and proposed repayment plan. Debtors are required by law to attend. They must provide a picture I.D. and social security card before the hearing can take place. Debtors may be required to bring certain information and documents, but will be advised by their attorney.

Abuse

The disregard of financial ability to repay. An example of abuse in this context would be the purchase of items before the bankruptcy filing with no reasonable means of repayment.

Adversary Proceeding

A separate lawsuit filed in the Bankruptcy Court concerning a dispute which arises in or is related to the bankruptcy case and involves opposing parties. A debtor served with an adversary complaint should immediately contact his or her attorney. A written answer (a legal document) must be filed promptly and served on the parties to the adversary proceeding to avoid a default judgment.

Appeal

A request to a higher court to review a decision of the Bankruptcy Court. A Notice of Appeal (a legal document) must be filed shortly after entry of a final order or judgment.

Assets

Real or personal property, such as: land, houses, vehicles, furniture, clothes, bank accounts, retirement accounts, tax refunds, claims against others, etc.

Automatic Stay

An automatic order requiring the halt of all collection activity on pre-bankruptcy debts. The automatic stay goes into effect upon the filing of the case.

Bankruptcy Estate

In Chapter 13, the bankruptcy estate includes all assets belonging to a debtor at the time the bankruptcy Petition was filed, along with income the debtor earns after filing. A spouse’s income or property may be part of the bankruptcy estate, and some property, such as inheritances, divorce settlements and life insurance due within 180 days of the petition date may also be part of the bankruptcy estate.

Bankruptcy Judge

The Bankruptcy Judge makes all decisions regarding any contested matters brought by any creditors, the Chapter 13 Trustee or the U.S. Trustee. The Bankruptcy Judge will approve the Chapter 13 Plan only after ensuring that it complies with the law and will also grant a discharge when a plan is successfully completed. However, if the terms of a plan are not met, the Bankruptcy Judge may order that a case is dismissed or converted to a Chapter 7.

Bar Date

The deadline for an unsecured creditor to timely file a claim for payment from the bankruptcy estate. It is 90 days after the first date set for the §341 Hearing. Governmental units, such as the IRS, have 180 days from the petition date to file a claim. A debtor has 30 days longer to file a claim for a creditor that has not filed a claim.

Base Plan

A Chapter 13 Plan in which the dividend to unsecured creditors is less than 100%.

Chapter 7

This chapter of the Bankruptcy Code permits a debtor to request a discharge for a surrender of or sale of all non-exempt assets. A Trustee is appointed to collect and sell all the debtor’s non-exempt assets and distribute the net proceeds to creditors. A Chapter 7 discharge is more limited than a Chapter 13 discharge.

Chapter 11

This chapter permits a business or corporate debtor to reorganize and restructure their debts. This chapter may be used by an individual debtor.

Chapter 12

This chapter may be used by family farmers to reorganize and restructure their debts.

Chapter 13

Chapter 13 allows an individual debtor (and spouse) to propose a plan to pay creditors. Unless it proposes to pay 100%, a plan must last at least 36 months and may be no longer than five years. The percentage of payback to unsecured creditors may range from 0% to 100%. An individual is not eligible to file a Chapter 13 case if they have unsecured debts of more than $383,175.00 or secured debts of more than $1,149,525.00.

Co-Debtor

An individual who signs a note or contract with a debtor or guarantees a debtor’s debt.

Co-Debtor Stay

This is an automatic stay which protects persons who did not file bankruptcy but who are liable on the same consumer debt along with a debtor. Joint cardholders or co-signers of a debt are protected by the co-debtor stay, but only to the extent the debtor’s plan proposes to repay the debt, including interest at the contracted rate. In order to protect the co-debtor, the co-signed debt must be paid in full at the contract rate of interest. This co-debtor protection is available only in Chapter 13 cases.

Collateral

Property pledged as security for the payment of a debt.

Confirmation

The official act of the Bankruptcy Court approving a Chapter 13 repayment plan.

Conversion

Changing a bankruptcy case from one chapter to another.

Co-Signed Debt

Debt for which more than one person is legally responsible.

Court

The United States Bankruptcy Court in which a case is pending. Sometimes the Bankruptcy Judge is called the “Court.”

Cram Down

Also known as “lien stripping.” It is the process by which a creditor’s secured claim is split into a secured and an unsecured amount with the secured portion equal to the value of the collateral and the unsecured portion being the balance of the claim. The creditor ends up with two separate claims that may be treated differently.

Creditor

An individual or business to whom the debtor owes money for a loan or a line of credit.

Cure Defaults

To bring bills that were past due current and up to date.

Debt

Money that is owed to another.

Debtor

A person or entity who owes a debt. A person or entity who files a bankruptcy case.

Default

Not doing precisely all that is agreed to within a given time, such as not making a plan or house payment.

Delinquent

Overdue, not paid on the agreed due date.

Deposition

The recorded testimony of a witness under oath taken some place other than the courtroom. A similar procedure is known as a “2004 Examination.”

Discharge

Discharge of debts is one of the debtor’s goals in a bankruptcy filing. All of the debtor’s dischargeable debts become legally non-collectible by any creditors, unless a specific debt is a non-dischargeable debt or is determined to be non-dischargeable by the Court upon entry of the Discharge. A discharge order operates as a permanent order prohibiting the collection of any dischargeable pre-petition debt.

Discovery

The legal process by which one party gives needed information or documents to another party prior to a trial or hearing through interrogatories, requests for the production of documents, requests for admissions, and/or depositions.

Dismissal

An order ending the bankruptcy case before successful completion and discharge. This order allows creditors to restart legal actions for collecting the debt involved in the bankruptcy.

Disposable Income

Money a debtor has available that is not required for reasonable living expenses of the debtor or dependents of the debtor.

Escrow

An account held in trust or as security.

Estate

All that a person owns, including both inheritable and movable property that can be moved or displaced, such as personal property.

Exemptions

Certain property belonging to a debtor not counted as part of the bankruptcy estate. Under the Bankruptcy Code, a debtor is allowed to keep certain property in order to have a “fresh start.” Each state is allowed to create its own exemptions. In some states, a debtor may have the option to choose which exemptions will be followed, either the exemptions designated by the state in which the debtor resides or the federal exemptions set forth in the Bankruptcy Code. An exemption usually does not affect an agreed to lien. So, even though a debtor’s house or car may be exempt, unless the lien is legally voided by the Court, the debtor still must pay any debt secured by such lien in order to keep the property.

Fair Market Value

The price at which a seller is ready and willing to sell and a buyer is ready and willing to buy on the open market and in a transaction where the parties are not related or not on close terms and have roughly equal bargaining power.

Feasibility

Likelihood that all payments due under a debtor’s Chapter 13 Plan will be paid. It is a requirement for Court approval (confirmation) of a repayment plan.

Foreclosure

Takes away the debtor’s ownership rights in pledged or mortgaged property through legal action which produces money to pay on the debt secured by the mortgage.

Fraud

A false statement of an important fact intentionally made by a debtor to a creditor who justifiably relies on the statement and is harmed as a result.

Guarantor

Person who promises to repay a debt made by another.

Insolvency

The inability of a debtor to pay current bills as they become due or when a debtor’s liabilities exceed the value of the debtor’s assets.

Interrogatories

Written questions that must by law be answered in writing under oath. The answers can be used as evidence later in Court. A fine may be charged for willfully refusing to answer timely.

Involuntary Chapter 7

A liquidation bankruptcy case filed by creditors against a debtor.

Joint Bankruptcy

A single bankruptcy case filed by a married couple.

Jurisdiction

Geographical region where a Court is located. Also refers to power of the Court to issue legally binding orders.

Liability

A debt.

Lien

A creditor’s right to property of a debtor, i.e., mortgage or security interest.

Liquidation

Selling assets for cash to use to pay creditors.

Liquidation Test

Sometimes this is called the best interest test. In order for a Chapter 13 Plan to be confirmed by the Bankruptcy Court, the Trustee and the Court must determine that the debtor’s unsecured creditors will receive at least as much in the Chapter 13 Plan as they would have received if the debtor’s assets were liquidated in a Chapter 7 case.

Luxuries

Items of property that provide pleasure or comfort but are not reasonably necessary to support a debtor and a debtor’s dependents.

Matrix

List of names and addresses of each creditor arranged in a particular order on a page.

Meeting of Creditors

See §341 Hearing.

Modification of a Plan

Changes to a repayment plan filed in a Chapter 13 bankruptcy. Once a plan is confirmed, the plan may only be modified with the Court’s approval after notice to affected parties.

Motion

A formal request to a court for an order to allow or require a specific action.

Necessities

Items of property or services that are required for living a normal life without being excessive. For example, food, clothing, shelter, etc.

Non-dischargeable debt

Certain debts not covered by the debtor’s discharge, including IRS debt, alimony, student loans, criminal fines and restitution, and debts for any drunk driving violations. If a debt is non-dischargeable, legal collection activity can resume regarding the debt after the case is over.

Objection to Claim

A pleading (a legal document) filed by a debtor, the debtor’s attorney or the Trustee that disagrees that the debt is owed or that the amount claimed is correct.

Offset

Crediting a debt owed by party “A” to party “B” against a debt owed by party “B” to party “A.” An example is when the IRS keeps all or part of a debtor’s tax refund to pay certain taxes owed by the debtor to the IRS.

Order

A formal ruling by a judge allowing or requiring a specific action or deciding a disputed matter.

Periodic

Occurring at regular times, usually monthly, quarterly, semi-annually or annually.

Perjury

Lying under oath. Perjury can be a false oath orally, such as during the §341 Hearing, or in writing in the schedules.

Petition

The document filed with the Bankruptcy Court used to begin a bankruptcy case. Other documents (Schedules of Assets, Liabilities, Income and Expenses, Statement of Financial Affairs, Statement of Intention, etc.) are often attached or must be filed in the Bankruptcy Court within 14 days, or some other time as permitted by a court order.

Petition Date

The date the bankruptcy Petition is filed with the Bankruptcy Court Clerk.

Post-Petition

Any event occurring after the bankruptcy Petition is filed.

Post-Petition Debts

Any debt created after the filing of the Petition in the Bankruptcy Court. Post-petition debts may not be dischargeable or protected by the automatic stay.

Preference

A pre-petition payment to a creditor which allows the creditor to receive a greater percentage of their debt than that received by similar creditors. The Trustee may require the creditor to give back certain preferential payments so that the money can be divided equally among all similar creditors.

Pre-Petition Debts

Any debt which existed at the time the bankruptcy Petition was filed.

Presiding Officer

The Trustee or a representative of the Trustee who conducts the §341 Hearing.

Presumption Period

According to the Bankruptcy Code, purchases in excess of $500 made for luxury goods and services within 90 days of the date the bankruptcy was filed or cash advances in excess of $750 made within 70 days of the date the bankruptcy was filed are presumed to be non-dischargeable.

Priority Debts

Debts that must be paid in full under a Chapter 13. Such debts include court fines, criminal restitution, certain income taxes, past due property taxes, alimony and child support.

Proof of Claim

A form used by creditors to file a claim in order to receive payment from the bankruptcy estate. A debtor or the Trustee may file a Proof of Claim for a creditor who does not do so.

Pro Rata Basis

Divided proportionally.

Pro Se

Also called Pro Per; A debtor filing bankruptcy without being represented by an attorney.

Relief from Stay

In certain situations, a creditor may obtain an order for relief from the automatic stay to allow it to enforce its claims, pursue collections against a debtor, or conduct any other activity that would otherwise violate the automatic stay. When an order for relief is granted by the Court (sometimes called “lifting” the stay), the automatic stay protection is canceled as to the particular debt involved.

Restitution

An obligation to pay a debt usually ordered by a criminal court and usually payable to the crime victim, resulting from a criminal conviction or plea bargain.

Sanction

A penalty, usually a money fine, against a party or their attorney for violating a bankruptcy court order.

Schedules

Written information given by a debtor and filed with the Bankruptcy Court on the day of filing of the bankruptcy Petition or within 14 days thereafter. These forms provide financial information about the debtor and must be completed under oath.

Secured Creditor

Any creditor or lender that holds a special monetary assurance of payment of a debt owed, such as collateral or a lien on a property.

Sole Proprietorship

A business owned by an individual that is not a corporation or a partnership.

Solvency

The ability to pay all debts and just claims as they come due. Simply stated, a debtor’s assets are more than his liabilities. When a debtor’s Chapter 13 case is deemed solvent, the debtor is required to pay all of his or her creditors a 100% dividend with interest.

Special Class

An unsecured claim or claims which the law allows to be treated differently than other unsecured claims, for example, some co-signed debts.

Stipulation

An agreement between a debtor and a creditor that ends a dispute and is filed with the Bankruptcy Court.

Subpoena

A formal document, usually issued by a court, requiring specific action, such as an appearance at a particular time and date. Failure to obey a subpoena may result in a fine or other punishment for contempt of court.

Substantial Abuse

The Court may dismiss a Chapter 7 bankruptcy case on the motion of a U.S. Trustee or a U.S. Bankruptcy Administrator if the debts are mostly consumer debts and if the Court believes that the Chapter 7 Petition represents an improper use of the Bankruptcy Code. See Section 707(b) of the Bankruptcy Code. A factor considered is a debtor’s ability to repay a significant portion of their debts in a Chapter 13 case.

Summons

An order to file a written answer (a legal document) to a lawsuit or adversary proceeding within a specified time.

Trustee (Chapter 7)

A person appointed to take charge of the non-exempt assets of a debtor and sell them to pay creditors.

Trustee (Chapter 13)

A person appointed to collect payments from a debtor or debtor’s employer and pay creditors during a 3 to 5 year period pursuant to a court approved (confirmed) repayment plan. The Chapter 13 Trustee conducts the §341 Hearings, reviews proposed plans for compliance with the Bankruptcy Code, and generally helps debtors complete Chapter 13 plans successfully and in a timely manner. The Chapter 13 Trustee and his staff are available for assistance, but may not give any legal advice.

Unsecured Creditor

A creditor whose debt is not secured by property or collateral. This would include credit card debts.

U.S. Bankruptcy Administrator

A governmental entity that monitors the administration of bankruptcy cases in certain states.

U.S. Trustee

A governmental entity that monitors the administration of bankruptcy cases in certain states.