Commonly Used Terms
- Adequate Protection (A.P.):
- Adversary Proceeding:
- Automatic Stay:
- Bankruptcy Estate:
- Business Bankruptcy:
- Chapter 11:
- Co-Debtor Stay:
- Cram Down:
- Deficiency Balance:
- Discharge Injunction:
- Foreclosure and notice of Default:
- Lien Avoidance:
- Means Test:
- Meeting of Creditors / 341:
- Non-Purchase Money Debt:
- Non-Recourse & Recourse-Debt:
- Notice of Trustee Sale:
- Objection to Confirmation / Plan:
- Pay Advice:
- Priority Debt:
- Purchase Money Debt:
- Relief From Stay:
- Ride Through:
- Secured Debt:
- Stay Violation:
- Unsecured Debt:
- U.S. Trustee:
- 910 Car Claim:
Adequate Protection (A.P.):
This term is used to describe the process by which a creditor’s interest in property is protected. If the property is a vehicle, A.P. approximates monthly depreciation of that vehicle in a Chapter 13 case. A.P. can also be described as the equity cushion existing in any asset. (An equity cushion is the net equity existing in the asset.) A.P. is an important term when a debtor is having difficulty making ongoing payments to a creditor with a lien against property.
An adversary proceeding is a complaint filed in an underlying bankruptcy case that asks for specific relief. This is like a separate law suit filed in a bankruptcy case. The relief requested can include a declaratory judgment that certain debts are excepted from the discharge or that a student loan debt is dischargeable among other possible causes of action.
The automatic stay is like a shield against your creditors. The automatic stay protects property from foreclosure, repossession, garnishment and levy. Once a bankruptcy case is filed, all of a debtor’s property is included in their case, and the automatic stay protects that property. The stay is automatic, as it’s name implies, in the first bankruptcy filing of a debtor, however if the debtor has multiple filings pending within one year the stay has a limited scope of protection. It is possible to extend the protection of the stay in subsequent filings by asking the court to find that the cases have been filed in good faith.
The bankruptcy estate is created upon each and every filing of a case. It includes all assets of the debtor whether listed or not. This includes community property of the non-filing spouse as well as income of both the debtor and the spouse.
Depending upon how the business is set up, a bankruptcy can be used to restructure the business debt and assets for increased profitability or to save a business. In some cases, a corporate Chapter 7 can be filed thereby liquidating the corporate debt and allowing the underlying principals to establish a new corporate entity.
Chapter 11 is used for corporations or L.L.C.s in order to reorganize and continue to run the business. Sometimes a Chapter 11 case will have to be filed on behalf of individuals due to the debt limitations of a Chapter 13 filing.
A case closure accompanies every discharge. First, the debt is discharged and then the case is closed.
If a secured creditor wants to foreclose on your home or repossess your car (or move on other secured debt) they need to ask the court for relief from the automatic stay. The co-debtor stay is additional protection that is given to a co-signer on secured debt. This additional protection means that if, for instance, the creditor wants to foreclose on your home but your non-filing spouse is a co-signer then the creditor will need to not only ask the court for relief from the automatic stay but also relief from the co-debtor stay.
Confirmation is the goal of a Chapter 13 or Chapter 11 case. It means that the plan comports with all bankruptcy law and that any objections have been resolved. When a case is confirmed, the repayment schedule has basically become fixed.
To convert is to move from one chapter to another. Conversion in some circumstances is an absolute right of the debtor and in others conversion is a contested matter. Conversion is used as a tool when an individual’s facts and circumstances have changed since the case was filed which makes a different chapter a better fit for the debtor.
For individuals with purchase money debt secured against property, the court in certain circumstances allows the repayment on that debt be equal to the value of that property on the date the case was filed. For vehicle loans that are secured against a debtor’s personal vehicle, the car may be crammed down to its value on the date of filing if the individual has owed on the debt for longer than 910 days. If the underlying property is a vehicle not purchased for personal use or is other than a vehicle the waiting period is one year
A deficiency balance is the sum remaining as owed to the creditor after the creditor has sold the underlying asset or property. For example, if your vehicle is repossessed and the creditor sells the vehicle at an auction for ½ of what you owe, the creditor will assess the remaining balance to you
Discharge is the ultimate goal of most bankruptcy cases. It means that the debt that can be wiped out is no longer collectible against the debtor.
The discharge injunction serves to protect people who have filed for bankruptcy and have received a discharge from further collection action. If any one creditor pursues collection of a discharged debt, they may be subject to fines and penalties for violating the federal discharge injunction.
A case is dismissed for a variety of reasons. In some circumstances cases are dismissed for non-payment or failure to qualify under the chapter filed.
An exemption is provided by state or federal law and is used to protect a debtor’s personal and real property.
Foreclosure and notice of Default:
Foreclosure is the process that a mortgage creditor must pursue when a debtor has breached the contract by failing to make ongoing mortgage payments. The foreclosure process is different from state to state and there are different types of foreclosures. A large percentage of the foreclosures in the state of California are the standard trustee sale foreclosures. The standard trustee foreclosure takes 120 days to complete and is begun with the recording of a notice of default at the county recorder’s office where the property sits. The filing of bankruptcy will prevent the foreclosure from occurring (although the creditor may seek relief from the automatic stay.
Garnishment is a collection remedy for a creditor. It is the process in which a creditor attaches a debtor’s wages directly through the employer. Generally speaking creditors can garnish up to 25% of a debtors earnings. Total garnishment of all creditors cannot exceed 50% at a time.
Levy is a collection remedy for a creditor. It is the process in which a creditor attaches the debtor’s bank account and seizes the entire contents. State law provides for certain exemptions.
There are a variety of types of lien avoidance. The most common lien avoidance actions are currently those to avoid a lien on a home. Debtors are able to wipe out (or strip off) a second mortgage, equity lien or other lien on a home if it does not attach to any equity. A debtor may also be able to avoid a lien on garnished wages depending on when the wages were garnished in relation to the bankruptcy filing.
The means test is an objective measure of the debtors budget in a bankruptcy filing. It has several purposes and functions.
- It is used to determine basic eligibility to file a Chapter 7 case.
- It is also used to determine the percentage of repayment to unsecured creditors in a reorganization case.
Meeting of Creditors / 341:
This is a mandatory hearing where the trustee will ask the debtor questions. Creditors will also be given the opportunity to examine the debtor at this hearing.
A case may be modified after it is confirmed if circumstances arise that make the debtor’s budget unfeasible or that require an increase or decrease in payment.
Non-Purchase Money Debt:
Non-purchase money debt is debt with a security interest that attaches to collateral or property in which the security interest has been created at some point after the original acquisition. For example, home equity line of credit or a second mortgage. Also for example, when you try to take out a personal loan and the bank asks for security against your car or other assets.
Non-Recourse & Recourse-Debt:
Non-recourse debt is an obligation in which the debtor does not have a personal obligation for the debt. That is to say that the creditor must look to the collateral or the property to satisfy the indebtedness. This term is used in the state of California to describe most purchase money debts secured against real property. Basically, there is no personal obligation to pay the debt, a creditor cannot bring an action against you in state court to get any balance owing after the property is sold.
A recourse debt is just the opposite. A creditor can sell the property and then seek the remaining balance from you in state court actions.
Notice of Trustee Sale:
A notice of trustee sale follows a notice of default and is recorded at the county recorder’s office 90 days after the Notice of Default. Once this notice goes out the creditor may foreclose in approximately 30 days. The filing of bankruptcy will prevent the foreclosure from occurring (although the creditor may seek relief from the automatic stay.
Notice of Default:
A notice of default is a legal term that describes the 1st step in the credentials process to foreclosure. This document will be recorded at the county recorders office and mailed to the debtor.
Objection to Confirmation / Plan:
The trustee or a creditor, in a Chapter 13 case may (and often do) object to confirmation or object to the plan. Your attorney will work to satisfy the various objections that may arise in your case. Once the objections are satisfied your case will be ready for confirmation.
This is your pay check stub.
The Bankruptcy Code requires that certain unsecured debts be paid in full unless an alternate agreement can be worked out with the creditor. Examples of priority debts include certain taxes, child support, alimony and earned and unpaid wages incurred within 90 days of the filing date.
Purchase Money Debt:
Purchase money debt is basically acquisition debt. This is when you take out money to purchase the particular piece of property. In the state of California, the civil code protects debtors, in most instances, from deficiency balances accruing when real property is lost if the underlying debt is purchase money, and is the debtor’s residence.
To reaffirm is to create a new personal liability that would otherwise be discharged in the bankruptcy. Reaffirmation agreements between debtors and creditors need to be approved by the bankruptcy court. Creditors most often pursue these agreements for debtors in a Chapter 7 case.
Your bankruptcy attorney may or may not represent you in this matter. Your bankruptcy attorney has a duty to only agree to the reaffirmation if it is in your best interests. The best interests test is a budget analysis. If the debt is not reaffirmed, it may be because the creditor allows for a ride through (see definition below).
Redemption is a right of a debtor in a Chapter 7 case to buy back an asset at the fair market value, rather than the contract amount owed. There are a number of companies that specialize in redemption financing. If qualified, a motion for redemption is set for hearing and if approved the underlying debt is bifurcated (split) into unsecured and secured portions. The unsecured portion is discharged and the secured portion is paid to the “new” creditor. Our office can provide you with a list of creditors who specialize in redemption financing.
Relief From Stay:
The bankruptcy stay protects assets or property that are a part of the bankruptcy estate from certain collection actions of creditors. If creditors want to continue seeking their state court remedies against you, the debtor, or your property then the creditor needs the bankruptcy court to lift the stay for the particular asset or issue the creditor would like to pursue.
A ride through is a term that defines the circumstance when a debtor does not reaffirm a secured obligation, such that the debtor’s personal liability is not renewed, and only the security interest in the asset remains to protect that creditor. The ride through is a term to describe the circumstance when a reaffirmation agreement is not completed, whether denied by the court or not pursued by the creditor. In this circumstance, the debtor continues to make their ongoing payments and the creditor accepts these payments as business as usual without the threat of repossession.
A secured debt means a debt that is attached to a specific piece of real or personal property. This can be your mortgage or it can be your car loan. Other examples include furniture or jewelry.
The automatic stay that serves to protect income and assets of an individual who has filed bankruptcy is violated if a creditor continues state collection remedies without seeking relief from the automatic stay. Knowingly violates stay rights subjects creditors to general and punitive damages.
A trustee is an officer appointed by the court who oversees and administers a bankruptcy case. In most cases the client’s only interaction with the court is with the trustee at the meeting of creditors.
An unsecured debt, most often credit card debt, does not attach to any specific underlying property. Examples of unsecured debt include credit cards, personal loans, some taxes, medical bills and student loans.
The U.S. Trustee is an arm of the Department of Justice that oversees and implements the bankruptcy process.
910 Car Claim:
See Cram Down.