Bankruptcy Attorney Defines Common Terms Found in Bankruptcy Cases

To understand bankruptcy, you need to understand the terminology that is commonly used in its context. Many people are unsure about the bankruptcy process and its details. Here is a list of words you may encounter when dealing with Chapter 7, 11, or 13 bankruptcies in New Jersey.

Adversary Proceeding – When a lawsuit is filed within a bankruptcy case. Typically, the lawsuit pertains to bankruptcy law related issues.

Assets – Assets are anything and everything that have financial value. This includes vehicles, homes, artwork, jewelry, business goodwill and stock options. Anything that is owned by someone filing for bankruptcy can be considered an asset.

Automatic Stay – This is an injunction that prohibits creditors’ collection actions and taking debtor’s personal property and real estate. The Automatic stay  goes into effect immediately upon the bankruptcy filing.

Bankruptcy – A person or entity files a petition with the bankruptcy court, requesting protection against their creditors. Please note that, although atypical, an entity may be forced into bankruptcy involuntarily.

Bankruptcy Code – Bankruptcy falls under the purview of federal law. All proceedings must adhere to Title 11 of the United States Code. Although the debtors must comply with and follow the bankruptcy laws, state laws must be applied in specific matters, as well.

Bankruptcy Judge – Bankruptcy cases require federal United States district court judicial officers to oversee the proceedings.

Bankruptcy Petition – The required documents and schedules that must be filed with the court, which commences the bankruptcy proceedings and protection.

Bankruptcy Trustee – A person that is appointed by the court to administer all bankruptcy cases. The trustee’s tasks and responsibilities vary based on the chapter.

Chapter 7 – This is referred to as a “liquidation bankruptcy”. A person, LLC., Partnership or Corporation may file for chapter 7 protection. A chapter 7 lasts about 4 months after the filing. A person typically files for the purpose of eliminating unsecured debt. The debtor is not required to make monthly payments.

Chapter 11 – This is referred to as a “reorganization bankruptcy”. Any person or type of business may file a chapter 11 case. A person, who is not operating a business would file, only if they have substantial debt and in excess of the amount allowed in a chapter 13 case. The debtor is required to make monthly payments.

Chapter 13 – This is referred to as a “reorganization bankruptcy”. Only a person may file and not a business entity. Typically, a person would file a chapter 13 case to eliminate a portion of their unsecured debt, and/or to save a house from foreclosure. The debtor is required to make monthly payments.

Proof of Claim – Creditors file this document with the court, which reflects the type of debt, the total amount due and the payment arrears.

Collateral – A creditor takes an interest in property that is subject to a loan. An example is a mortgage and automobile financing.

Complaint – The document that represents a lawsuit in any court. The document reflects what the creditor wants and the facts as to why they are entitled to something. Typically, a complaint relates to requesting money in connection with bankruptcy.

Conversion – A conversion is when someone who has filed one form of bankruptcy decides to change to another. For example, you can file for Chapter 7 and then change to a chapter 13 case. One can also convert from a chapter 7 to a chapter 13 case.

Creditor – The entity in which the debtor owes money.

Debtor – The person or entity that filed for bankruptcy protection.

Discharge – When a debt is permanently eliminated so that the debtor does not required to make further payments, the debt has been discharged. Once discharged, creditors cannot pursue payment. Some tax debt and all support debt may not be eliminated.

Dismissal – A bankruptcy case is thrown out of court due to various reasons. The dismissal puts the debtor back into the same position as prior to the bankruptcy filing. No debt is eliminated and the debtor is not provided with any further bankruptcy protection.

Equity – The difference between the value of property, minus the secured interest in the property and any liens.

Exemption – Exemptions is a list of values in the bankruptcy code that apply to specific types of property owned by the debtor. If the amount of the exemption that is applied to the equity in a particular property exceeds the equity, a debtor may keep that property in a chapter 7.  Exemptions may also determine how much must be paid toward unsecured debt in a chapter 13 and chapter 11.

Lien – A creditors’ interest in property, which may be voluntary or involuntary. A creditor may obtain a lien against a home by suing a person and filing the judgment with the NJ. Superior Court.

Liquidated Claim – A Proof of Claim that reflects a specific amount due. A personal injury lawsuit is unliquidated because the exact amount due has not yet been determined.

Liquidation – The proceeds of the sale of an asset, after the disbursement to the secured creditor.

Non-Dischargeable Debt – Not all debt can be eliminated in bankruptcy. The debt that remains is called non-dischargeable debt. Such debt may include student loans and child support.

Priority Debt – The bankruptcy code classifies specific types of debt as “priority”. “Priority debt” cannot be eliminated in a chapter 7 and must be paid in a chapter 13 case. Types of Priority Debt include various tax debt, child and spousal support.

Relief From the Automatic Stay – The bankruptcy court allows a creditor to collect the debtor’s money or to sell an asset, based on certain circumstances.

Statement of Financial Affairs – Part of the bankruptcy petition that reflects the debtors’ recent transactions, payments and, business information, etc.

Schedules – The bankruptcy petition consists of “Schedules” that reflect the debtor’s finances, such as: value of assets; list of creditors; list of debts; income; expenses, etc.

Secured Debt – Debt wherein the creditor takes an interest in the debtor’s property. The property may be personal property or real estate.

Unsecured Debt – Money that is owed to a creditor, which is not secured debt or “priority debt”. The most common types of unsecured debt is credit card debt and personal loans.

If you or someone you know have questions about bankruptcy, please call the Robert Manchel Esq. today at (866) 503-5655 to discuss your options.