Don’t let the legal terms used by your bankruptcy attorney confuse you. We’ve compiled a glossary of the most commonly used words that you’ll hear during your bankruptcy process.
Amendment – any change that is made to bankruptcy paperwork after a case is filed, which must be filed with the Court.
Arrears – the amount that you are behind on your mortgage payment(s) or car payment(s).
Asset – anything that you own that has value including tangible property, money, intellectual property, accounts or an interest in a business.
Automatic stay – protection that takes effect immediately upon the filing of the bankruptcy, which makes it illegal for your creditors to contact you, try to collect money from you or take your property from you unless they get permission from the Bankruptcy Court first.
Bankruptcy – a collection of laws that allow individuals or businesses to either restructure or eliminate debts.
Collateral – a piece of property, such as a house or car, that you put up as assurance that you will pay a loan; if the payments are not made, the collateral may be taken.
Collection agency – a business that buys debts from other companies for pennies on the dollar and then tries to collect the money themselves.
Conciliation conference – a meeting that is held concerning a Chapter 13 bankruptcy, either shortly after filing a case or after a change has been made to the plan, to make sure that you are still on track to pay all of the debts that must be paid.
Confirmation – an Order of Court determining that no changes to your Chapter 13 bankruptcy plan are necessary, or if changes are necessary, outlining what the changes are.
Credit counseling – a class that must be taken, through a Court-approved provider, before you can file a bankruptcy case.
Creditor – someone that you owe money to.
Debtor education class – a class that must be taken, through a Court-approved provider, after your bankruptcy is filed; it is required in order for you to receive a discharge of your debts, also known as a Financial Management Course.
Deed-in-Lieu of Foreclosure – signing a home over to the mortgage company instead of having the home go through foreclosure.
Default – failure to show up at a hearing or respond to a lawsuit.
Deficiency balance – the amount of money that you still owe on a secured debt after the collateral is sold; for instance, if you owed $15,000 on a car loan and the car is repossessed and sold for $5,000, the deficiency balance would be $10,000.
Discharge – a determination by the Bankruptcy Court that eligible debts have been eliminated and there is no longer any legal responsibility to repay those debts.
Dismiss – to end a bankruptcy case without having debts forgiven; protection from creditors ends immediately upon dismissal.
Equity – the difference between what an item is worth and what you owe on it.
Exemption – the amount of real or personal property that the bankruptcy laws allow you to keep while still getting rid of your debt.
Financial management course – see Debtor education class.
Foreclosure – a legal process that a mortgage company must go through in order to sell a house at sheriff’s sale if payments on the mortgage have not been kept current.
Judgment – a decision given by a court, usually that a certain amount of money is owed to a creditor.
Lien – an interest in property that is obtained in order to secure the repayment of a debt.
Liquidate – to sell real or personal property.
Loan Modification — Working with the mortgage company to adjust the terms of your loan (monthly payment, total balance, interest rate).
Loss Mitigation – Working with the mortgage company to either get a loan modification, short sale or deed-in-lieu of foreclosure
Means Test – a test based on your income that determines whether you should have disposable income with which to repay creditors; except for extreme circumstances, you must pass this test in order to file for Chapter 7 bankruptcy.
Meeting of Creditors – in both a Chapter 7 and Chapter 13 bankruptcy, a meeting that is held approximately one to two months after the case is filed in order to determine whether the filers have been truthful on all of the information that has been submitted to the Court; an attorney appointed by the Bankruptcy Court (called a “trustee”) and any interested creditors may inquire about the case at this time.
Objection – a document that is filed with the Bankruptcy Court when either a creditor does not agree with the amount of money that you say they are owed, or when you do not agree with the amount that a creditor says you owe them.
Personal property – anything that you own that does not fall into the category of real property.
Petition – the paperwork that is submitted to the Court outlining your debts, assets, income, expenses and a recent financial history; if the information in the petition is not the truth charges of perjury or bankruptcy fraud could be filed.
Plan – a document that is submitted for a Chapter 13 bankruptcy case, which outlines how much your creditors will be paid.
Preference – when you choose to pay back one creditor, usually a friend or family member, and don’t pay back your other creditors.
Priority debt – debt that is not secured, but either not discharged in a Chapter 7 bankruptcy or must be paid in full through a Chapter 13 bankruptcy; examples include most income taxes and domestic support obligations.
Proof of Claim – a document that creditors submit in a Chapter 13 or a Chapter 7 where there are assets available for distribution if they want to get paid through the bankruptcy; states what the creditor was owed as of the date that the case was filed.
Reaffirmation agreement – an agreement between a borrower and a lender where the borrower agrees to continue to make payments on the loan until it is paid off even though the debt was listed on a bankruptcy; usually reaffirmation agreements are signed for vehicles.
Real property – land and any buildings on that land.
Schedules – a detailed listing of everything you own, everyone that you owe money to, how much money you make and how much money you spend.
Secured debt – money that is owed to a creditor where the borrower has put up collateral as assurance that the loan will be paid; if the loan is not paid, the creditor may sometimes take the collateral without any legal proceedings taking place.
Security deposit – an amount requested by a utility company, usually after a customer has missed payments or filed for bankruptcy, which must be paid in order to restore service or maintain service.
Sheriff’s sale – the sale of either real or personal property where the proceeds are used to pay off debts.
Statement of Financial Affairs – an in-depth questionnaire concerning recent financial transactions including lawsuits, sales of property and business ventures.
Statement of Intention – a listing of real property and vehicles that are owned by a person filing a Chapter 7 bankruptcy that are not paid off; the person must state whether he/she is going to continue to pay the loan in order to keep the property or whether the property will be surrendered.
Surrender – to give up a piece of property (usually a house or vehicle) in order that you do not have to pay the debt associated with it.
Tax sale – the sale of real property to pay for delinquent real estate taxes.
Trustee – an attorney who is appointed by the bankruptcy Court to review bankruptcy cases in order to determine that the laws are being followed.
United States Trustee’s Office – an arm of the Department of Justice that is in charge of monitoring the trustees and the people that file for bankruptcy in order to ensure that the laws are being followed and cases being handled in the most efficient way possible.
Unsecured debt – money that is owed to a creditor where no collateral has been put up as assurance that the loan will be paid; if the loan is not paid, the creditor must take legal action and get a judgment against the borrower before he/she can be forced to turn over money or property; most credit card debt and medical bills fall into this category.
Wage attachment – in a Chapter 13 bankruptcy, an order from the Bankruptcy Court requiring your employer to deduct a certain amount of money out of each one of your paychecks in order to make your Chapter 13 payment.