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Bankruptcy Terms
During any type of bankruptcy case, the average person is bound to hear a number of unfamiliar words. These phrases are used quite frequently during the bankruptcy proceedings. The following list provides an overview of some of the most common terms:
341 Hearing — This phrase is frequently used for the meeting of creditors required under section 341 of the United States Bankruptcy Code (11 U.S. Code § 341). These meetings are open to the general public, but they are rarely attended by anybody other than debtors with bankruptcy cases and relevant trustees. While creditors have the right to attend these meetings and question debtors, most do not, in fact, attend 341 hearings.
Automatic Stay— Under 11 U.S. Code § 362, this is an injunction that immediately halts all collective actions by creditors as soon as a debtor files a bankruptcy petition. Certain collection actions, such as those relating to evictions, child support, or Internal Revenue Service (IRS) tax actions, are not prohibited by automatic stays.
Bankruptcy Code — This refers to Title 11 of the United States Code, which is the official compilation of federal statutes.
Bankruptcy Court — Federal courts have exclusive jurisdiction over all personal and business bankruptcy cases. These courts are often divided into districts. Ohio has a Northern District with five locations and a Southern District with three locations. Kentucky has an Eastern District with five locations and a Western District with four locations.
Chapter 7 — This is the chapter of U.S. Bankruptcy Code that governs the liquidation process in which a debtor’s nonexempt assets are sold and proceeds are distributed to creditors.
Chapter 13 — This is the chapter of U.S. Bankruptcy Code that allows a debtor with a regular income to have his or her debts adjusted and paid over a period of usually three to five years. Debtors frequently get to keep their property in Chapter 13 cases.
Contingent Claim — This is a claim in which the debtor is not liable to pay unless so triggered by the occurrence of a future event. For example, a debtor’s liability for a cosigned secured loan may be contingent upon the default of the principal debtor.
Creditor — The party that is owed money or claims to be owed money by the debtor.
Credit Counseling — This is a course required of all debtors before they file for Chapter 7 or Chapter 13 bankruptcy. Credit counseling is used to examine all possible alternatives to filing bankruptcy, but debtors are not obligated to adhere to any plan proposed by a credit counseling agency.
Current Monthly Income — This is the average monthly income that a debtor received from all sources during the six-month “look-back period” prior to his or her filing for bankruptcy. This income does not include any payments a debtor received under the Social Security Act.
Debtor —The person filing the petition for relief under the U.S. Bankruptcy Code.
Discharge— The formal release from personal liability for a debt is known as a discharge. When a debtor has a debt discharged in bankruptcy, he or she is no longer required to pay that debt and the creditor is prohibited from any communications regarding the debt.
Estate — This is all property that a debtor owns or has a right to when he or she files bankruptcy. Property that is sold or transferred in the two years prior to a bankruptcy filing can be considered part of the debtor’s estate. Property acquired after the filing will not be considered part of the estate in a Chapter 7 case, but it will be in a Chapter 13 case.
Equity — This is the difference between the actual value of a debtor’s property and the legal claims of creditors against it. If a debtor has a house worth $500,000, but he or she has a mortgage of $400,000 and unpaid property taxes of $25,000, then there is $75,000 in equity.
Exemptions — Property that is considered exempt cannot be taken by creditors in bankruptcy. There are several different categories for exemptions, and Ohio and Kentucky have different limits for the types of property that may be exempted.
Joint Petition — A single petition filed by a husband and wife declaring bankruptcy together is considered a joint petition.
Lien— This is a notice that is attached to property that states a creditor is owed a certain share of money. A creditor can be authorized to seize and sell property it places a lien on in order to collect a debt. Federal tax liens take precedence over all other creditor debts.
Means Test — Means testing was implemented as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) to prevent abuse of the U.S. Bankruptcy Code by people filing Chapter 7. Debtors whose incomes exceed certain limits may have their cases dismissed or could be forced to convert to Chapter 13.
Nondischargeable Debt — This is any kind of debt that a person cannot be released from personal liability for. Common nondischargeable debts include student loans, child support, and certain taxes.
Priority — Certain debts are required to be paid first or paid in full under the U.S. Bankruptcy Code. When a debtor does not have adequate funds to pay all of his or her claims in full, the trustee will make priority debts such as child support paid in full before any unsecured debts such as credit cards are paid. In Chapter 13 cases, priority claims are reorganized and worked into repayment plans so they are still paid in full.
Proof of Claim — This is the written statement that any creditor must file in order to exercise its right to receive payment form a bankruptcy estate.
Reaffirmation Agreement— Typically used in Chapter 7 cases, debtors enter into these types of agreements in order to declare that they will continue paying a debt what was otherwise dischargeable in order to keep property that would have been subject to repossession.
Secured Creditor or Debt — A creditor is considered secured when has the legal right to take or sell certain property of the debtor in order to recoup money. A secured debt is an obligation owed by a debtor that is backed by collateral which a creditor can legally recover.
Trustee— This is the person appointed by the bankruptcy court to manage the distribution of assets in a Chapter 7 bankruptcy or payments in Chapter 13. A trustee is also responsible for reviewing petitions and schedules as well as liquidating property.
Unsecured Creditor or Debt — A creditor is considered unsecured when it has no collateral or legal authority to take or sell a debtor’s property. An unsecured debt is money owed by a debtor without any type of backing, as the credit was extended to the debtor based solely on his or her ability to pay.
Voluntary Petition — Also known as Official Bankruptcy Form 1, this is the petition that marks the beginning of every bankruptcy case when it is filed. It contains basic information about the debtor as well as disclosure about any previous bankruptcy filings.
Bankruptcy Term Resources
Internal Revenue Manual | Glossary of Common Bankruptcy Terms — This manual of the IRS provides a really thorough understanding of the agency’s procedures. The glossary offers several additional definitions not listed in this article. You can learn more about other tax-related terms and abbreviations used during the bankruptcy process.
Bankruptcy Basics Glossary | United States Courts — Find definitions provided by the official website for the federal courts in the United States. Additionally, you can also find links to other bankruptcy-related information, including the Unites States Trustee Program and approved bankruptcy notice providers, credit counseling agencies, and debtor education providers.
Find a Bankruptcy Lawyer Knowledgeable with BAPCPA Laws
If you need legal assistance filing bankruptcy in Ohio or Kentucky, the experienced Cincinnati bankruptcy attorneys of Steiden Law Offices can help you understand all of the requirements and answer whatever questions you might have. Our firm has more than two decades of legal experience.
Our bankruptcy attorneys have office locations in Florence and Covington, Kentucky as well as Cincinnati and Maineville, Ohio. Call right now to schedule a free, confidential consultation that will let our lawyers review your case.
