Below you will find various bankruptcy terms and an explanation of each term. The Law Offices of Kristy Qiu, P.A. is committed to assisting individuals in the Ft. Lauderdale area that are in bankruptcy proceedings or are considering filing bankruptcy. Our firm will work closely with you to determine the best path to take and can provide personalized legal counsel, support, and representation in chapter 7, chapter 11, and chapter 13 filings.
There are some very significant differences between the three different bankruptcy chapters and it is crucial for any individual in financial trouble to consult the expertise of a professional Ft. Lauderdale bankruptcy lawyer who can provide valuable insight and guidance into the process.
Adversary Proceeding: A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Federal Rules of Bankruptcy Procedure Section 7001.
Arrearage: The state of being behind in the fulfillment of obligation or being over due in payment; a payment owed. For example, if your mortgage payment is $3,000 per month and you are 3 months behind, you are $9,000 in arrears.
Assets: Property owned by a person. This includes tangibles such as real estate, cars, and jewelry, and intangibles, such as business goodwill, the right to sue someone, stock, options, or future interests in a will.
Assume or Assumption: The act of taking to or upon oneself.
Automatic Stay: An injunction under the Bankruptcy code prohibiting creditors from beginning or continuing proceedings for collecting owed amounts from the person or entity filing for bankruptcy. It goes into effect automatically and immediately upon filing for bankruptcy. It also stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor.
Avoidance: The ability to remove a lien. The bankruptcy code allows certain types of liens to be avoided, such as judgment liens if they impair an exemption claimed in the bankruptcy case.
Avoidance Powers: Power of the Trustee under the Bankruptcy Code to recover certain transfers of property such as preferences or fraudulent transfers, or to void liens created prior to filing a bankruptcy case.
Bankruptcy Court: A division of the United States District Courts with exclusive and original jurisdiction for cases filed under the Bankruptcy Code (Title 11 of the United States Code). It also has nonexclusive jurisdiction to hear civil proceedings arising under the Bankruptcy Code.
Bankruptcy Estate: The legal, fictional entity that comes into being when one files bankruptcy. It is composed of all the (non-exempt) assets (tangible and/or intangible) that you have to surrender to the Trustee for liquidation upon filing for bankruptcy.
Bankruptcy Judge: A judicial officer of the United States district court who is the court official with decision-making power over federal bankruptcy cases. Bankruptcy Judges are appointed for a term of 14 years.
Bankruptcy Petition: The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) in which the person asks the court to open a bankruptcy case. Unlike traditional legal petitions, bankruptcy petitions are standard fillable forms provided by the court.
Business Bankruptcy: A case in which the majority of the total debts owed are business-related.
Chapter 7: The chapter of the Bankruptcy Code providing for “liquidation,” the selling of all of the debtor’s non-exempt assets and the distribution of proceeds to the creditors.
Chapter 9: The chapter of the Bankruptcy Code providing for reorganization of municipalities such as cities and towns, villages, counties, tax districts, municipal utilities, water districts, and school districts.
Chapter 11: The chapter of the Bankruptcy Code providing for business (corporations, partnerships, etc.) reorganization. It also provides for reorganization of individual debtors owing more than $360,475 in noncontigent, liquidated and unsecure debts, and $1,081,400 in noncontigent, liquidated and secured debts.
Chapter 12: The chapter of the Bankruptcy Code providing for adjustment of debts of family farmers and family fishermen.
Chapter 13: The chapter of the Bankruptcy Code providing for adjustment of debts of individuals with debts less than $360,475 in noncontigent, liquidated and unsecure debts, and $1,081,400 in noncontigent, liquidated and secured debts who earn a regular monthly income. Chapter 13 allows debtors to keep property and repay debts over time, usually 36 to 60 months.
Chapter 15: The chapter of the Bankruptcy Code that deals with cross-border insolvencies.
Claim: A creditor’s assertion of a right to payment from the debtor or security against debtor’s property.
Confirmation: Bankruptcy judge’s approval of a reorganization or a liquidation plan in Chapter 11, or a payment plan in chapter 12 or 13.
Consumer Bankruptcy: A case in which the debtor is an individual whose debts are primarily consumer debts.
Consumer Debts: Debts incurred for personal needs.
Contested Matter: Disputed matters and claims that do not amount to adversary proceedings.
Contingent Claim: Claims that depend on the occurrence of future events.
Creditor: One to whom the debtor owes money.
Creditors’ Meeting: Also known as 341 meeting. It’s a meeting set up the Trustee. The purpose of the meeting is to ensure that the debtor has fairly and honestly represented his/her assets, income and debts in his/her bankruptcy filing. The Trustee can ask questions, under oath, concerning all of the debtor’s property and debtor’s financial situation. Creditors and security lien holders may show up and ask questions as well. Debtors will not be asked to justify filing bankruptcy. Debtors must attend the meeting or their cases will be dismissed. The court will not and may not take part or attend the meeting.
Current Monthly Income: Average monthly income from all sources that you receive during the six-month period ending on the last day of the calendar month preceding your bankruptcy petition date. It does not matter whether the income is taxable, regular payments made by another entity to you for household expenses, contributions to living expenses made by a relative or friend, or from any other source must be included. By contrast, income from any type of Social Security benefits does not have to be counted for this purpose.
Debt: Financial obligations that you owe to another person or entity.
Debtor: A person who has filed a petition under the Bankruptcy Code for debt relief.
Debtor-in-Possession: A debtor in a Chapter 11 case. In Chapter 11 cases, Trustees are appointed only when necessary. The debtor in those cases retains control over the bankruptcy estate.
Debt Relief Agency: A debt relief agency is a fictional designation that Congress created as part of the Bankruptcy Reform Act of 2005 and is defined in 11 U.S.C. 101(12A) to include “any person who provides any bankruptcy assistance to an ‘assisted person’ in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer…”.
Defendant: The legal entity against whom a lawsuit is filed, could be a person or a business.
Denial of Discharge: In any bankruptcy case, a party in interest may file a complaint to challenge the discharge of a debtor if they can prove that there is material misrepresentation in the bankruptcy petition. If the challenge is successful, the discharge will be denied and debtor will remain liable on the obligations.
Discharge: A release of a debtor from personal liability of any obligation to pay.
Dischargeable Debt: A debt that the Bankruptcy Code allows to be discharged. Dischargeable debts vary by chapter.
Disclosure Statement: A written document prepared by Chapter 11 debtors or other plan proponents that is designed to provide adequate and sufficient information which enables creditors to evaluate the Chapter 11 plan of reorganization.
Dismissal: The termination of a case without adjudication. After dismissal, everything goes back to the way they were before filing the bankruptcy petition. No debt is discharged and creditors can resume collection efforts.
Disposable Income: Any income left over each month after all necessary expenses are paid off that could be used to repay debts.
Domestic Support Obligation: Alimony, maintenance, or support to a child, spouse, or other entity for support or maintenance of a child or spouse.
Equity: Fair market value – (minus) the sum of all liabilities on the property (liens, mortgages, and other security interests) = equity.
Executory Contract or Lease: Contracts or leases under which all parties involved have duties to perform. In executory contracts or leases, a debtor may assume it or reject it.
Exemptions, Exempt Property: Properties that a debtor is allowed to keep in the event of bankruptcy vary by state. Florida Exemptions are very generous.
Fraudulent Transfer: Transfers of the debtor’s property made with intent to defraud or deceive. It usually involves a debtor who as part of an asset protection scheme donates or sells his assets in a substantially below the market value to another person (usually an insider), and leaves himself nothing to pay his creditors.
General Unsecured Claim: A claim by a creditor against a bankrupt debtor that is not secured by collateral and has no priority for payment. All general unsecured claims are treated the same in bankruptcy cases.
Insider (of individual debtor): Someone with a close relationship to the debtor, usually a relative.
Insider (of corporate debtor): A director, officer, or person in control of the indebted entity; a partnership in which the individual debtor is a general partner; a general partner of the indebted entity; or a relative of a general partner, director, officer, or person in control of the indebted entity.
Involuntary Petition: A bankruptcy case in Chapter 7 and Chapter 11 can be involuntary. Creditors in those cases are the petitioners, they’re asking the court to put the debtor in bankruptcy due to unfulfilled financial obligations. The aggregate debt must be more than $134,750. If there are more than 12 creditors, at least 3 of them must join.
Joint Administration: A court-approved mechanism under which two or more cases with common assets can be administered together. For example, if husband files for bankruptcy first, and wife files for bankruptcy later, the court will not join the two cases together. But the bankruptcy estates of the two cases can be administered together.
Joint Petition: The bankruptcy petition filed jointly by husband and wife.
Judgment: Final adjudication of an adversary case. The winner will be granted the right to collect against the losing party and employ judicially allowed mechanisms (garnishment, seizure of assets, foreclosure, levies, etc.) to collect the judgment amount.
Judgment Proof: A judgment proof debtor is an uncollectible debtor, usually because the all of the debtor’s assets and income are exempt, so that a creditor cannot collect anything from the debtor even if they obtain a court judgment against the debtor.
Lien: The right to take and hold or sell the property of a debtor as security for debts.
Lien Stripping: Refers to getting rid of a lien. For example, if the fair market value of the property is $100,000, and there are 3 liens on the property. First one is $80,000, second one is $30,000 and third one is $15,000. The value of the property can cover the first lien, so it will be treated as a secured claim and will have to be paid off completely. After paying off the first lien, there is only $20,000 left, not enough to cover the second lien. The $20,000 will pay off 2/3 of the second lien, leaving 1/3, or $10,000 will be stripped and treated as a general unsecured claim. The third lien will be stripped completely – it will be treated as a general unsecured claim.
Liquidation: To liquidate something is to sell something.
Liquidated Claim: A claim that has a fixed amount of debt, or the amount can be readily determined.
Means Test: Designed to prevent abusive filing a case under Chapter 7 when the debtor should really be filing a Chapter 13 case. To keep it simple, you need to figure out your “current monthly income.” This is the average monthly income from all sources that you receive during the six month period ending on the last day of the calendar month preceding your bankruptcy petition date. It does not matter whether the income is taxable, regular payments made by another entity to you for household expenses, contributions to living expenses made by a relative or friend, or from any other source must be included. By contrast, income from any type of Social Security benefits does not have to be counted for this purpose. If your current income falls below the state’s median family income, then the Means Test does not apply and you will be eligible for Chapter 7.
If your current income is above the median family income, however, you must proceed to determine whether you have any “disposable income” (net monthly income), income left over after paying certain allowed living expenses that could be used to make payments on your debts. After applying the numbers to a complicated formula, if your disposable income is less than $117.08 per month, then you will have “passed” the Means Test and you will be eligible to file for Chapter 7 relief. If the disposable income exceeds $195.41, then you will not be eligible to file for Chapter 7 unless you can demonstrate special circumstances, such as a serious medical condition or a call to active military duty, and only to the extent that the special circumstances justify an increase in expenses. If the disposable income falls between $117.08 and $195.41, you cannot file a Chapter 7 case if your disposable income over the period of 60 months exceed 25% of your non-priority (general) unsecured debt.
Net Income: Income left over after paying off expenses. Also referred to as disposable income.
No-Asset Case: A Chapter 7 case where there are no assets available to satisfy any portion of the creditors’ unsecured claims.
Non-dischargeable Debt: A debt that cannot be eliminated in bankruptcy. Examples include debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving under influence of alcohol or drugs, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime.
Noncontingent Debt: Debts that do not depend on the occurrence of a future event. Debt that can be readily determined.
Objection to Dischargeability: An objection raised by the Trustee or the creditors against a debt that the debtor is trying to discharge.
Objection to Exemptions: An objection raised by the Trustee or creditors as to the debtor’s claim that certain properties are exempt.
Petition Preparer: A person or business that prepares bankruptcy petitions for debtors. They are not authorized to practice law and will not be able to answer you legal questions or give you legal advice.
Plan: A debtor’s detailed description of how the Chapter 9, 11, 12, and 13 debtor proposes to pay creditors’ claims over a fixed period of time, usually from 36 to 60 months.
Plaintiff: A person or business that files a formal complaint with the court.
Postpetition Transfer: A transfer of the debtor’s property made after the commencement of a bankruptcy case.
Preference or Preferential Debt Payment: A payment more than $600 (for individual debtors) or $5,475 (for business debtors) made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor is an insider) that gives the creditor more than the creditor would be entitled to in the debtor’s Chapter 7 case.
Pre-Petition: Before petition; before the commencement of the bankruptcy case.
Post Petition: After petition; after the commencement of the bankruptcy case.
Presumption of Abuse: Abuse arises where the debtor tries to manipulate the bankruptcy system by filing under Chapter 7 when he/she has the resources to file under Chapter 13. In that case, the debtor will have the burden of providing proof to the contrary. The presumption of abuse arises when the debtor fails to meet the means tests.
Priority: The ranking that determines the order in which creditors will be paid.
Priority Claim: An claim that is entitled to be paid ahead of other claims that are not entitled to the priority status.
Proof of Claim: A written verification of the debt, usually a contract or a legally enforceable “I Owe You” letter signed by the debtor. The bankruptcy court provides official forms for this purpose, but it may be accompanied by supporting documents.
Property of the Estate: All non-exempt legal or equitable interests of the debtor in the property (tangible or intangible) as of the commencement of the case.
Reaffirmation Agreement: An agreement negotiated between the debtor and creditor confirming or modifying an existing agreement, often so that the debtor can keep his/her non-exempt property for the consideration of future monthly payments. Debtors do not have to enter into such agreements with creditors if they wish to surrender the property. Creditors cannot under any circumstances force debtors to enter into such an agreement. Although attorney assistance during the negotiation is not required, it is highly recommended. When the parties enter into a reaffirmation agreement, the debt is considered post-petition debt and therefore will not be discharged by the bankruptcy. If the debtor falls behind on a payment, the creditor will have all the collection resources against the debtor as if no bankruptcy has been filed. This is true for any debt that the debtor takes on after bankruptcy.
Real Property: Land and any fixture on the land.
Relief from Automatic Stay: An application by the creditor asking the court to terminate the automatic stay, often with the argument of lack of adequate protection, therefore decreasing the proceeds that the creditor would receive. There are four types of reliefs, Termination, Annulment, Modification, and Condition.
Schedules: Lists filed by the debtor along with (or within 15 days after filing) the petition showing the debtor’s assets, liabilities, and other financial information.
Secured Creditor: A creditor with the benefit of a security interest over some or all of the debtor’s assets. In the event of a bankruptcy, a secured creditor can enforce security against the assets of the debtor and avoid competing for distribution on liquidation with the unsecured creditors.
Secured Debt: Debt supported by a mortgage, pledge of collateral, or another lien; debt for which the creditor has the right to pursue specific property upon default, including but not limited to home mortgages, auto loans, and tax liens.
Security Interest: A property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually a payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets. Such rights vary according to the type of security interest, but in most cases, a holder of the security interest is entitled to seize, and usually sell, the property to discharge the debt that the security interest secures.
Statement of Financial Affairs: An official form with questions that the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc.