Bankruptcy Terms

Automatic Stay As an operation of law, the automatic stay suspends certain actions such as debt collection or foreclosure as soon as the bankruptcy petition is filed. This action also halts current and prevents initiation of litigation in connection to collection actions. It also acts to protect some creditors in that it prevents one creditor from obtaining a disproportionate share of the assets of the debtor the exclusion of the other creditors.

Collateral Assets guaranteed as a second form of security or insurance should the primary form of security fail. For instance, where cash is owed some debtors pledge their vehicles as collateral and should the debtor be unable to pay back the cash, the creditor can take vehicle in lieu.

Creditor A person or buisiness who either claims to be owed money or to whom money is actually owed.

Debtor A person or business who owes money to one or more creditors. A debtor file for bankruptcy.

Discharge the satisfaction or elimination of debts by the bankruptcy court.

Disposable Income The amount of after-tax money that is available for spending or saving.

Domestic Support Obligation a debt and any interested associated with the debt that accrues before, on, or after the date of the order for relief under the Bankruptcy code and is in the form of alimony, maintenance, or support for a spouse, former spouse, or child of the debtor or such child’s parent.

Exempt Assets These are assets that you must list report with your petition and that you may shield from your unsecured creditors. The assets that you may protect in this way are defined by federal and state law. In about fifteen states you may chose either of the two laws, while in most states you may use only the state exemptions. Florida allows Federal and state exemptions to be used in conjunction.

Florida Homestead Exemption A right granted by the Florida Constitution that allows a debtor to protect an unlimited value in their home (property cannot exceed ½ acre in municipality or 160 contiguous acres elsewhere). The new BAPCPA has limited this provision to $125,000 if the homestead was not established at least 1,215 days (about 3 years and 4 months) prior to filing. Those debtors who have switched homesteads in Florida within this time frame might also be able to enjoy the unlimited exemption.

Foreclosure The legal process by which an owner’s right to a property is terminated, usually due to default. Typically involves a forced sale of the property at public auction, with the proceeds being applied to the overdue mortgage. It is possible to prevent foreclosure by filing for Bankruptcy.

Garnishment A court-ordered process that takes property from a person to satisfy a debt. For example, a person who owes money to a creditor may have their wages automatically deducted and diverted from their paycheck.

Lis Pendens A Lis Pendens means “suit pending” and is filed to put the world on notice that there is a lawsuit pending associated with a piece of property. It acts as an encumbrance on that piece of property until any payments are made to the lender (or filer of the lis pendens).

Means Test The BAPCPA added the Means Test to the Code in 2005 in an effort to force debtors to pay back more of their debts. The means test is intented to screen out those filing Chapter 7 who are supposedly able to repay some part of their debts. Debtors who fail the means test may convert their case to another chapter of bankruptcy. More about how the means test works.

Non-Exempt Property Are those assets that do not qualify for “exempt” status either the applicable rules (either federal or your state). If an asset is non-exempt than the trustee may seize this asset to help pay your creditors.

Notice of Default A Notice of Default is send by a lender or other older or a loan agreement letting the borrower know that they are not current on their payments.

Perfected When a secured creditor has taken the required steps to perfect his lien, the lien is senior to any liens that arise in time after perfection. A mortgage is perfected by recording it with the county recorder; a lien on personal property is perfected by filing a financing statement with the secretary of state. An unperfected lien is valid between the debtor and the secured creditor, but may be behind liens created later in time, but perfected earlier than the lien in question. An unperfected lien can be avoided by the trustee.

Priority Claims Certain debts, such as unpaid wages, spousal or child support, and taxes are granted preference in the payment hierarchy under the Code. Priority claims must be paid in full before general unsecured claims are paid.

Reaffirmation The debtor can chose to reaffirm debts that would otherwise be discharged by the bankruptcy. Generally, when a debt is reaffirmed, the parties to stand in the same shoes they would have just as if no bankruptcy had been filed. They have the same rights and liabilities that each had prior to the bankruptcy filing: the debtor is obligated to pay and the creditor can sue or repossess if the debtor doesn’t pay.

Redemption Redemption is the statutory right in the foreclosure process whereby the borrower can pay in full the amount due to the lender at any time after foreclosure proceedings have initiated to regain the home and stop the foreclosure.

Secured Debt A debt becomes secured by a lien on the debtor’s property by reason of the debtor’s agreement or an involuntary lien such as a judgment or tax lien. The creditor’s claim may be divided into a secured claim, to the extent of the value of the collateral, and an unsecured claim equal to the remainder of the total debt that exceeds the value of the property. Generally a secured claim must be perfected under applicable state law to be treated as a secured claim in the bankruptcy.

Trustee The court appoints a trustee in every Chapter 7 and Chapter 13 case to review the debtor’s schedules and represent the interests of the creditors in the bankruptcy case. The role of the trustee is different under the different chapters.

Unsecured Debt A claim or debt is unsecured if there is no collateral that is held as security for the debt. Most consumer debts are unsecured.

You can find more definitions at § 101 of the Bankruptcy Code.