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Glossary Of Common Terms in Bankruptcy

Below is a glossary of common bankruptcy terms which you will encounter when filing for and going through bankruptcy. If you’re from Connecticut and are planning on starting the bankruptcy process simple visit our knowing many of the terms below will substantially help you. These terms were put together by attorney’s at Action Advocacy, PC for your convenience.


Adversary proceeding

A separate lawsuit filed in the bankruptcy court that is related to the debtor’s case.

Automatic stay

A temporary injunction that immediately stops collection action against the debtor. The automatic stay stops lawsuits, foreclosures, garnishments, harassing phone calls, etc. The automatic stay is effective the moment the debtor’s bankruptcy petition is filed.

Bankruptcy Code

The Bankruptcy Code is the informal name for federal bankruptcy laws found in Title 11 of the United States Code.

Bankruptcy estate

When a bankruptcy case is filed, a bankruptcy estate is created which consists of all legal or equitable interests of the debtor in property.

Chapter 7

Chapter 7 is a liquidation bankruptcy. All of the debtor’s nonexempt assets are sold to pay creditors. Any remaining debts are discharged unless otherwise determined non-dischargeable by law, by agreement, or by the bankruptcy court.

Chapter 9

Chapter 9 is a municipal bankruptcy (which includes cities and towns/villages, counties, taxing districts, municipal utilities, and school districts).

Chapter 11

Generally used by corporations and partnerships for reorganization; also available to individuals. A Chapter 11 debtor proposes a plan of reorganization and pays creditors over time.

Chapter 12

Chapter 12 is the reorganization bankruptcy for a “family farmer,” or a “family fisherman” as defined in the Bankruptcy Code.

Chapter 13

Chapter 13 is the reorganization bankruptcy for individuals with a regular income. Debts are paid under court supervision over three to five years.

Chapter 15

Chapter 15 is cross-border bankruptcy.

Confirmation

Bankruptcy judge’s approval of a plan of reorganization in a Chapter 11, 12, or 13 case.

Creditor

An individual or corporation that holds a financial claim against the debtor.

Debtor

An individual or corporation that files bankruptcy.

Discharge

A release from personal liability for certain debts. The discharge is a permanent injunction prohibiting the collection of the debt against the debtor, personally.

Equity

The value in property after subtracting liens and other creditors’ interests. For example, a home worth $300,000 has a mortgage lien of $250,000. The equity in the home is $50,000.

Executory contract or lease

An obligation wherein both parties to the agreement have duties remaining to be performed (e.g. an unexpired cell phone contract).

Exemptions

Legal protections for property that are defined by the Bankruptcy Code, federal law, or by state law. Exemptions allow the debtor to protect and keep property from creditors.

Insider Creditor

An individual or corporation that has a close personal or financial relationship with the debtor.

Lien

A security interest in property to guarantee payment.

Means Test

A calculation required by individual debtors in bankruptcy to determine the amount the debtor can afford to repay unsecured creditors. The Means Test is used to determine a presumption of abuse and eligibility to file Chapter 7 bankruptcy.

Motion to lift the automatic stay

A request to the bankruptcy court by a creditor for permission to take collection action against the debtor or the debtor’s property that is otherwise prohibited by the automatic stay.

No-asset case

A Chapter 7 case that has no assets available to pay unsecured creditors.

Nondischargeable debt

A debt that cannot be eliminated in bankruptcy as defined by bankruptcy law, agreement, or determined by the bankruptcy court.

Plan

The debtor’s proposal to pay, alter, or discharge creditor claims during the bankruptcy case.

Preference

A payment made to a creditor within 90-days before filing bankruptcy (or within one year if the creditor is an insider) that gives the creditor more than the creditor would receive in a Chapter 7 case.

Preferential transfer

Preferential transfer is any payment of money or transfer of property by a debtor where the transfer was made to, or for the benefit of a creditor or, the transfer was made for or on account of a debt owed before the transfer was made or, the transfer was made during a time that the debtor was insolvent.

Priority

The order in which unsecured claims are paid as determined by the Bankruptcy Code. For example, a child support debt is paid in full before the debtor’s credit card debts are paid.

Proof of claim

A statement filed by a creditor that claims a financial obligation by the debtor.

Property of the estate

All legal or equitable interests of the debtor in property as of the commencement of the case.

Reaffirmation agreement

An agreement between a Chapter 7 debtor and creditor concerning a continuing financial obligation irrespective of the bankruptcy discharge. In most cases, a debtor agrees to continue paying the debt, and the creditor agrees to not take action against the debtor or collateral (e.g. repossession).

Secured debt

An obligation wherein the debtor pledged property as a guarantee of payment. For instance, the debtor pledges the title to a car as security for a loan.

Statement of financial affairs

A statement required by the Bankruptcy Code concerning sources of income, transfers of property, lawsuits by creditors, etc.

Statement of intention

A declaration of the debtor’s intent regarding the disposition of secured debts during a Chapter 7 case.

341 meeting

A meeting required by section 341 of the Bankruptcy Code between the debtor and the assigned trustee. The debtor is examined by the trustee under oath regarding the debtor’s financial affairs. Creditors and interested parties are notified of the meeting and may attend. Also known as the “Meeting of Creditors” and “Trustee’s Meeting.”.

Trustee

An individual assigned or appointed as representative of the bankruptcy estate to oversee the administration of the debtor’s bankruptcy case. The trustee is required to review the debtor’s bankruptcy petition and schedules, and take appropriate action against the debtor to receive or liquidate assets for the benefit of creditors.

Unsecured creditors

An unsecured creditor is someone you owe money to for goods or services but who does not have a lien against any property in which you have a legal interest.

Unsecured debt

An obligation wherein the creditor has no special assurance of payment. For instance, in an unsecured personal loan, or “signature loan,” no collateral is pledged to guarantee payment.