Massachusetss Bankruptcy 101
There are many terms involved in bankruptcy you may not be familiar with. Here at the Law Office of Brian R. Lewis, we hope to educate you about the process of bankruptcy, including all the vocabulary used in the proceedings.
Adversary Proceeding – A lawsuit within the Bankruptcy Case. Commonly used by creditors to object to the debtor’s discharge, or relief from, a specific debt.
Automatic Stay – An injunction that automatically stops lawsuits, foreclosures, garnishments and collection activities against the debtor as soon as a bankruptcy petition is filed.
Bankruptcy – A legal declaration of an individual’s or businesses’ inability to pay creditors.
Bankruptcy Administrator – An officer of the judiciary serving in the judicial districts in the geographic area where you file, like the U.S. Trustee, is responsible for supervising the administration of bankruptcy cases, estates and trustees; monitoring plans and disclosure statements; monitoring creditors’ committees; monitoring fee applications; and performing other statutory duties.
Bankruptcy Court – The bankruptcy judges in regular active services in each district; a unit of the district court.
Bankruptcy Estate – All legal or equitable interests of the debtor in property at the time of the bankruptcy filing. The estate includes all property in which the debtor has an interest, even if it is owned or held by another person.
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 Petition – The document filed by the debtor (in a voluntary case) or by the creditors (in an involuntary case) that opens the bankruptcy case. There are official forms used for bankruptcy petitions.
Chapter 7 Bankruptcy – Commonly referred to as ‘straight bankruptcy,’ in Chapter 7 Bankruptcy the debtor does not set up a payment plan to repay creditors. Instead, the debts are simply eliminated, although some exceptions apply. However, if the debtor has assets that are not protected, they will be sold for the benefit of the creditors. In most consumer cases, assets are protected and the debtor does not lose any assets or property.
Chapter 13 Bankruptcy – Chapter 13 Bankruptcy is often referred to as ‘reorganization bankruptcy’ in which the debtor attempts to pay back creditors using a court-approved payment plan, which is typically set for 3-5 years. In most cases, a Chapter 13 Bankruptcy is chosen when a debtor wishes to stop a foreclosure or because their income is too high to qualify for Chapter 7 Bankruptcy.
Chapter 11 Bankruptcy – The most complex type of bankruptcy filing is Chapter 11 Bankruptcy. Although individuals may file a Chapter 11 Bankruptcy, it is also the one filed most often by troubled businesses. During a Chapter 11 Bankruptcy, the debtor will continue to function and maintain ownership of all assets while trying to figure out an organized plan to pay off creditors.
Chapter 12 Bankruptcy – Chapter 12 Bankruptcy is specifically designed for farm owners who will continue to own and control their assets while working out a repayment plan with their creditors.
Credit Counseling – A simple program that consumer debtors must complete before a bankruptcy case is filed and again prior to closing the case. This requirement can be completed on the phone or the internet and lasts approximately one hour. Log on to www.bkcert.com for details.
Credit Report – This is a complete record of your current debt, your past borrowing and your repayment habits. Credit reports also contain information about your past names and addresses, as well as some public records, such as foreclosures, repossessions, judgments and bankruptcies. The common credit reports come from companies, such as Equifax, Experian and Transunion. They use a formula to generate a credit score, which creditors use to determine whether or not they will extend credit to you, at what terms and at what interest rate. A bankruptcy stays on your credit report for ten years. However, you can begin rebuilding your credit immediately following the bankruptcy.
Creditor – Someone a debtor owes money to, such as a credit card company, a bank, or a mortgage company.
Debt – Money, property, or obligations that are owed to a creditor. Common debts in a bankruptcy are credit card debts, medical bills, lines of credit, car payments, house payments, judgments, repossessions and foreclosure deficiencies.
Debtors – A person or business that owes a debt. In bankruptcy, it is usually the person who is filing for bankruptcy.
Discharge Order – The court order at the end of the bankruptcy that eliminates all of the debtor’s dischargeable debts. This is one of the final steps in the bankruptcy process, and it is important for the debtor to keep a copy of the discharge to prove completion of the bankruptcy.
Exempt Property – Property that is ‘protected’ in the bankruptcy – in other words, property that is protected by law from being taken by the trustee and sold off during the bankruptcy. In most bankruptcy cases, all of the debtor’s property turns out to be exempt.
Foreclosure – The legal proceeding in which your mortgage company takes your house away from you because you failed to make the required payments.
Judgment – In a bankruptcy context, a judgment is a determination by a court that a debtor owes a creditor a certain amount of money. The creditor gets the judgment after winning a lawsuit against you. The creditor will then use the judgment to ‘collect’ against you by having the sheriff or constable levy your bank accounts and any other non-exempt property they can find. Bankruptcy will eliminate most judgments.
Means Test – A complicated ‘test’ used to determine if someone qualifies for Chapter 7 Bankruptcy. The test examines a debtor’s past six months of income and compares that to the common living expenses as defined by the U.S. Trustee and the I.R.S. Most people pass this test, but an attorney should be consulted to know for sure.
Meeting of Creditors – Also called a ‘341 Meeting,’ this is a mandatory meeting a debtor must go to and briefly tell the trustee why they had to file for bankruptcy. Creditors are allowed to show up and ask the debtor questions. It is recommended you are represented by an attorney at this meeting.
Personal Property – This refers to ‘movable’ property, such as cars, furniture, books, stocks, bonds, etc. – any property other than ‘real property.’
Reaffirmation Agreement – An agreement signed by the debtor and creditor to waive the discharge on a certain debt, notwithstanding the bankruptcy. In other words, you are agreeing to keep a certain debt out of the bankruptcy. This is usually done for a car or house that you want to keep, therefore you agree to keep the debt, and continue to keep making regular payments.
Real Property – This is real estate, such as houses, condos, timeshares or land.
Repossession – The process by which a secured creditor takes back their collateral. A common example is when an automobile lender repossesses your car because you quit making payments.
Secured Creditor – A creditor that has a security interest in collateral for the debt owed to it. For example, your automobile lender is a secured creditor because the debt you owe it is ‘secured’ by your car. If you no longer make payments, they have a right to take your car.
Trustee – The person in your bankruptcy who is responsible for collecting and selling any non-exempt assets and for making sure laws and procedures are followed correctly. The trustee usually runs the Meeting of Creditors.
Unsecured Creditor – This is a creditor that does not have any security for the debts owed to it. For example, a credit card debt is an unsecured debt. If you quit making payments, they cannot repossess any specific item of yours because you have not put up any collateral for the debt. However, they can still sue you and try to collect from you in other ways, such as taking money from your bank account.
Trying to understand the terms and laws associated with bankruptcy can be very difficult. Having someone on your side of the court can be very beneficial to your financial situation. Contact the Law Office of Brian R. Lewis for your free initial consultation today.