- Bankruptcy Questions and Answers
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- Eliminating Tax Debts in Bankruptcy
- Colorado State Exemptions
- Bankruptcy Glossary
Bankruptcy can be very confusing. To help you understand the bankruptcy process here is a brief definition of those terms in the Bankruptcy Code. It is not intended to replace a consultation with a bankruptcy attorney.
Adequate protection: Payment to a secured creditor to protect the value of the creditor’s lien during the bankruptcy proceeding. Commonly it is intended to protect a secured from loss, due to depreciation during a Chapter 13 repayment plan. Typically in Colorado the adequate protection payment is equal to 1% per month of the value of collateral until the secured creditor begins receiving plan payments.
Adversary proceeding: A creditor or the debtor may bring a lawsuit in the in the bankruptcy court which is related to the debtor’s bankruptcy case. Examples are complaints to determine the discharge ability of a debt complaints to determine the extent and validity of liens or for the violation of the automatic stay.
Assets: Assets are all the property the you own. Examples include real estate (your home), cars, and furniture. Other types of property are intangible things as business goodwill; the right to sue someone; or stock options. All assets must be disclose in the bankruptcy schedules.
Automatic stay: When a bankruptcy is filed, creditors must stop trying to collect on debts that existed before the bankruptcy petition was filed. Examples include that creditors must stop: garnishments, foreclosures, calling your home or employer The injunction issued automatically upon the filing of a bankruptcy. See Relief from Stay on terminating the injunction.
Avoidance: A. debtor to eliminate (avoid) some kinds of liens that interfere with (or impair) an exemption claimed in the bankruptcy. Judgment liens that have attached to the debtor’s home can be avoided if there impair the debtors homestead. This is sometimes called “lien stripping.” For more, see Lien Avoidance and Lien Stripping.
Avoidance powers: The bankruptcy trustee (or the debtor in possession in a Chapter 11) can recover certain transfers of property such as
preferences or fraudulent transfers or to void liens created before the commencement of a bankruptcy case. More on preferences.
Bankruptcy Code: Title 11 of the United States Code is a matter of federal law governs bankruptcy proceedings. Bankruptcy and is, with the exception of exemptions, the same in every state.
Bankruptcy estate: The estate is all of the property that you have when the case is filed. This includes all legal and equitable interests of the debtor. An individual debtor can claim certain property exempt; The bankruptcy trustee can sell the remaining property to pay his expenses (administrative costs) and the claims of creditors according to their priority.
Chapter 7: Most people will file a Chapter 7 Bankruptcy. Chapter 7 case is a available to individuals, married couples, partnerships and corporations. It is not available to same-sex couples even if their marriage is recognized in their state of residence.
Chapter 11: A reorganization proceeding that used primarily by businesses.
Chapter 12: Provides a simplified reorganization plan for qualifying family farmers..
Confirmed: A plan of reorganization which binds all parties in Chapter 11, 12 or 13 which has been approved by the Court.
Chapter 13: A repayment plan for individuals with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income over 3 to 5 years. Chapter 13 is most used of save homes, pay taxes of if a debtor has non-exempt property.
Charged Off: This is an accounting term that means the creditor does not expect to collect on the debt. A creditor can still collect on the debtor or assign the debt to collection agency.
Collateral: Property that is subject to a lien. The Bankruptcy code gives a secured creditor additional protections in the Bankruptcy Code for the claim secured by collateral.
Confirmation: The court order which makes the terms of the reorganization plan in a Chapter 11, 12 or 13 binding. The rights and obligations for pre-petition debts for the debtor and creditors are set forth in the confirmed plan.
Consumer Debt: Debts incurred by an individual for personal, family or household purposes. Taxes are not consumer debts; neither are business loans. The means test only applies to those with primarily consumer debt.
Contingent: Debts or obligation that may arise in the future.
Conversion: The bankruptcy code that you may change the Chapter of your bankruptcy filing under certain conditions. For example you may want to convert from Chapter 13 to Chapter 7 if you are unable to make your Chapter 13 Plan payments.
Creditor: The person or business whom a debtor owes money.
Debtor: The debtor can be a person, partnership or corporation who is owes money for debts, and who is the subject of a bankruptcy case.
Debtor in Possession: In a Chapter 11 case, the debtor usually remains in possession of its assets and assumes the duties of a trustee. The debtor in possession is a fiduciary for the creditors of the estate, and owes them the highest duty of care and loyalty.
Denial of discharge: Penalty for debtor misconduct with respect to the bankruptcy case or creditors as a whole. A bankruptcy discharge can be revoked if a debtor fails to comply with a court order The grounds on which the debtor’s discharge may be denied are found in 11 U.S.C. 727. When a discharge is denied or revoked, the debts that could have been discharged in that case cannot be discharged in any subsequent bankruptcy. The administration of the case, the liquidation of assets and the recovery of avoidable transfers, continues for the benefit of creditors. .
Discharge: The legal elimination of debt through a bankruptcy case. When a debt is discharged, it is no longer legally enforceable against the debtor.Secured creditors retain their lien on collateral securing they debts.
Dischargeable: Debt that are eliminated bankruptcy. Some types of debts are not dischargeable; that it, they may not be discharged through bankruptcy or may only be discharged through Chapter 13. Examples iof non-dischargeable debts include, some types of taxes, family support and criminal restitution of debts which cannot be discharged.
Dismissal: The termination of the case without either the entry of a discharge or a denial of discharge; after a case is dismissed, the debtor and the creditors have the same rights as they had before the bankruptcy case was commenced. Dismissal is the penalty for many essentially minor infractions of bankruptcy procedures under the 2005 amendments.
Domestic Support Obligation: Debts for alimony, maintenance or support owed to child, spouse or governmental entity that paid for the support of the child or spouse.
Exempt: Property that is exempt is removed from the bankruptcy estate and is not available to pay the claims of creditors. The debtor selects the property to be exempted from the statutory lists of exemptions available under the law of his state. The debtor gets to keep exempt property for use in making a fresh start after bankruptcy.
Exemptions: The Colorado statutes set forth types and values of property that are legally beyond the reach of creditors or the bankruptcy trustee. If you have been Colorado resident for the past two years, in most circumstances you must claim the Colorado exemptions.
Fiduciary: one who is entrusted with duties on behalf of another. The law requires the highest level of good faith, loyalty and diligence of a fiduciary, higher than the common duty of care that we all owe one another. The debtor in possession in a Chapter 11 is a fiduciary for the creditors, owing loyalty to the creditors and not the shareholders of the debtor.
General, unsecured claim: Creditor’s claim without a priority for payment for which the creditor holds no security (or collateral). If the available funds in the estate extend to payment of unsecured claims, the claims are paid in proportion to the size of the claim relative to the total of claims in the class of unsecured claims.
Indemnify: to guarantee against any loss which another might suffer. In bankruptcy, it is used to describe the undertaking of one spouse in a divorce to assume certain debts of the marriage and to see that the other spouse is not forced to pay. Also called a “hold harmless” clause.
Lien: An interest in real or personal property which secures a debt; the lien may be voluntary, such as a mortgage in real property, or involuntary, such as a judgment lien or tax lien.
Liquidated: A debt that is for a known number of dollars is liquidated. An un-liquidated debt is one where the debtor has liability, but the exact monetary measure of that liability is unknown. Tort claims are usually un-liquidated until a trial fixes the amount of the liability of the tort feasor.
Means Test:, The means test is intended to screen out those filing Chapter 7 who are supposedly able to repay some part of their debts. The test is found in Official Form B22a and is designed to determine it a debtor is above or below the medium income. Debtor’s who are determined to be above the medium income must file a Chapter 13 or Chapter 11 bankruptcy.
Meeting of creditors The bankruptcy code requires that each debtor must appear at a meeting of creditors. The meeting is conducted by a bankruptcy trustee who under oath about asks questions about the debtors assets and liabilities. Creditors can but rarely do attend the meeting and ask questions. The meeting is sometimes called the 341 meeting.
Non-dischargeable: A debt that cannot be eliminated in bankruptcy. Non dischargeable debts remain legally enforceable after the bankruptcy discharge. The Code lists of non-dischargeable debts. Some non-dischargeable debts are automatically non-dischargeable and other non-dischargeable debts must be established in a adversary proceeding. The scope of the discharge in Chapter 13 differs from the discharge in Chapter 7.
Perfection: When a secured creditor has taken the required steps to perfect his lien, the lien is senior to any liens that arise after perfection. For example a home mortgage is perfected by recording it with the county recorder; a lien on a car is listed on the title, a lien in 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. An unperfected lien can be avoided by the trustee.
Personal property: Any tangle or intangible property that is not real estate or affixed to real property,
Petition: The document is filed with the bankruptcy court and starts your bankruptcy case. The filing of the petition constitutes an order for relief and institutes the automatic stay. Events that occur before your file your petition are described as “prepetition”. Events that happen after the filing of the are described as “post petition”.
Preference: A payment made on a existing debt made within certain time periods before the commencement of the case. Preferences may be recovered by the trustee for the benefit of all creditors of the estate. Payments to family members and insiders are treated differently then third party creditors.
Pre-petition: Events that occur before your file your petition are described as “prepetition”. Generally only pre petition debts may be discharged in a bankruptcy proceeding.
Priority: The Bankruptcy Code establishes the order in which claims are paid from the bankruptcy estate. All claims in a higher priority must be paid in full before claims with a lower priority receive anything. All claims with the same priority share pro rata. Claims are paid in this order: 1) costs of administration 2) priority claims and 3) general unsecured claims. Secured claims are paid from the proceeds of liquidating the collateral which secured the claim.
Priority claims: Certain debts, such as unpaid wages, spousal or child support, and taxes are elevated in the payment hierarchy under the Code. Priority claims must be paid in full before general unsecured claims are paid.
Proof of claim: The form filed with the court establishing the creditor’s claim against the debtor. If a creditor fails to time file a proof of claim then he will not be paid in the bankruptcy.
Property of the estate: Non-exempt and belongs to the bankruptcy estate. Property of the estate is usually sold by the trustee and the claims of creditors paid from the proceeds. .
Reaffirmation Agreement: A new contract where you give up bankruptcy protection and the lender agrees not to repossess the property so long as you continue to make payments. This new agreement replaces the original promissory note that was discharged in your Chapter 7 bankruptcy filing.
Relief from stay: A creditor can ask the judge to lift the automatic stay and permit some action against the debtor or the property of the estate. If the motion is granted, the moving party (but no one else) is free to take whatever action the court permits. Relief can be absolute, for example, permitting the creditor to foreclose on property, or limited, as for example, allowing the recordation of a notice of default. .
Schedules: The debtor must file documents showing his assets ,liabilities, property claimed exempt, income and monthly expenses.
Secured debt: A claim secured by a lien in the debtor’s property by reason of the debtor’s voluntary agreement such as mortgage or an involuntary lien such as a judgment or tax lien. The creditor’s claim may be bifurcated 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. 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: A claim or debt is unsecured if there is no collateral that is security for the debt. Most consumer debts are unsecured.
Further definitions are found in Section 101 of the Bankruptcy Code.
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