BANKRUPTCYÂ
GLOSSARY
NOTE: none of the information published here should be considered legal advice. Not every case is the same and without an attorney who knows the specifics of your situation, a mistake could cost you dearly. Set up a consultation with ELC if you want to start the bankruptcy process.
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The Bankruptcy Estate
When someone files for bankruptcy, all of their assets and debts are formed into a temporary trust, also known as the bankruptcy estate.
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Trustee
a bankruptcy trustee is a neutral attorney, assigned by the bankruptcy court, who takes control of the bankruptcy estate for the purpose of deciding what assets are protected and what debts are discharged
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The Bankruptcy Court
the bankruptcy court is a special court in the federal system that exclusively handles bankruptcy cases, if a dispute or lawsuit emerges from the bankruptcy proceedings that case is handled separately in the US District Court system
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Debtor
The debtor is the person who files for bankruptcy protection because their debts have overwhelmed their resources and challenged their ability to provide for their family. ELC’s bankruptcy clients are called debtors by the court.
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Creditor
A creditor is anyone the debtor owes money to, creditors can be banks or mortgage lenders, or even an associate of the debtor who loaned them money. Creditors can also be a government the debtor owes taxes to, or a plaintiff who has won a money judgment against the debtor.
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Asset
Assets are any and all property that the client owns. Assets include both “real” property (houses, cabins, rental properties, etc.) and “personal” property (possessions, household goods, cars, etc.). Additionally, if a client has a guaranteed right to a future payment (pensions, lottery winnings, court awarded damage payments, etc.) these future payments are also considered assets.
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Debt
Debts are money that the client owes to a creditor. This includes late mortgage payments, credit card debt, taxes owed to the government, and money damages awarded to someone who sued the debtor.
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Secured Debt
A secured debt is a debt that is connected to property (aka. “collateral”) that the creditor can take possession of if the debt is not paid. For example, mortgages and car loans are secured debts because if the debt is not paid, the debtor must give up possession of the home or car.
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Unsecured Debt
An unsecured debt is a debt that is not connected to other property (e.g. there is no collateral). For example, credit card debt is usually unsecured.
ELC Questionnaire
The ELC Questionnaire is our own secure, digital, easy-to-use form the client (debtor) uses to provide their attorneys with their financial information (income, debts, assets, etc.) the attorneys use to prepare the bankruptcy petition.
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The ELC Questionnaire is a lot like using TurboTax or other software that makes an otherwise incomprehensible government form a lot simpler to fill out. But ELC is like your personal accountant in that sense. We are happy to talk you through every step of the Questionnaire as much or as little as you need.
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Petition
The bankruptcy petition is an official court document, prepared and filed by the attorney, containing all information about the client’s financial life (debts, creditor information, income, assets, etc.). The client signs and swears under penalty of perjury that the information in the petition is true and complete. The filing of the petition is what kicks off the bankruptcy process.
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With ELC, preparing the petition is our job. You won’t even have to look at it until it’s already completed and ready for you to read and sign.
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Automatic Stay
When a bankruptcy petition is filed, the creditors are automatically prevented from taking any actions to attempt to collect on the debt or obtain any further payments from the debtor during the bankruptcy case. This is known as the automatic stay.
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Motion for Relief (from Automatic Stay)
Sometimes a creditor can ask the court for permission to continue taking collection actions or attempting to obtain payments on the debt, despite the automatic stay. We refer to this as a motion for relief. If the judge finds that there is good reason for the creditor to continue attempting collection (your attorney will explain the reasoning in your specific case), they will issue an “order for relief.”
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NOTE: You might see elsewhere an “order for relief” defined as the bankruptcy petition or automatic stay itself. (Non-ELC) lawyers love to be confusing! But in California, the “order for relief” almost always refers to an order the creditor asks the court for.
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Reaffirmation Agreement
Under a reaffirmation agreement the debtor and a creditor agree that a particular debt secured by property the debtor wishes to keep will not be discharged in the bankruptcy, and the debtor will continue making payments. In California reaffirmation agreements only apply to personal property, not real property (land, homes, etc.).
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Adversary Proceeding
Sometimes disputes arise between the trustee or debtor and a creditor, or between creditors themselves, over how the estate should be handled. These adversary proceedings are separate lawsuits brought in a court separate from the bankruptcy court and can involve a wide range of causes of action.
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If the debtor is a party in one of these adversary proceedings, they will usually retain a different attorney who regularly practices litigation.
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Adversary proceedings are not common in your average chapter 7 or 13 case.
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Real Property
Real property is a type of property the debtor owns that is land, the buildings on it, and any fixtures on the land (objects or equipment attached to the real property that usually transfer ownership with a sale of the real property).
Personal Property
Personal property (also known as “chattel property” in legalese) is basically any property that is not considered real property. This includes movable objects (like furniture or clothing) and intangible assets like a savings account or retirement.
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Discharge
The discharge is the finish line, it’s the reason you filed for bankruptcy in the first place. A discharge is a court ordered forgiveness of what you still owe on the dischargeable debts in your bankruptcy estate. Once a debt is discharged, you are done dealing with that creditor.
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The order for discharge is usually granted by the court within a few months after the bankruptcy petition is filed.
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Dischargeable debt
Not all debt is wiped out by the order for discharge. Your attorney will discuss which specific debts are dischargeable in your case, and which are not. For example, if you are trying to keep your family home, then your mortgage will not be discharged.
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Additionally, child support payments and some back taxes are not dischargeable. Many times, however, even owed back taxes are dischargeable. Again, talk with your attorney about your specific situation.
Exemptions
The financial reset that bankruptcy provides does not mean that debtors need to start from scratch. While some property might be sold by the trustee to pay creditors, other property is exempt from bankruptcy liquidation, meaning you keep it when the bankruptcy process is over. In fact, the vast majority of bankruptcy filers do not lose any property at all.
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In California, state law dictates what types of property are exempted from bankruptcy liquidation. For example, your primary residence, your household personal property, cars, tools or equipment you use for work, retirement and social security payments, and court awarded money damages, are exempted and protected.
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Exceptions
Confusingly, in bankruptcy law, exceptions are different from exemptions. In fact, from the perspective of the debtor, they have opposite connotation. As mentioned above, some debts are not dischargeable at the end of your case. These non-dischargeable debts are known as exceptions.
Examples of exceptions to bankruptcy discharge are: certain types of taxes, property obtained through the debtor’s fraud, some money damages a plaintiff has won by successfully suing the defendant, and domestic support obligations.
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Means Test
The court uses a specific calculation, based on the average income of your county and your family living expenses, when determining whether someone is eligible for chapter 7 bankruptcy versus chapter 13. This calculation is known as the means test.
At ELC we do this means test for you and are usually able to give you results during or shortly after your free consultation.
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Chapter 7
Chapter 7 of the US bankruptcy code describes a type of bankruptcy known as liquidation bankruptcy. In chapter 7 bankruptcy, once the trustee has examined and verified the debtor’s finances, all non-excepted debts are wiped out and the debtor never has to repay them. Because the benefits of a chapter 7 bankruptcy are so great, only those below a certain income level are eligible to file under this chapter.
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Read more about the specifics of chapter 7 bankruptcy.
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Chapter 13
If a debtor is not eligible for chapter 7 bankruptcy, they usually have the option of filing for a chapter 13 bankruptcy instead. Under chapter 13 the trustee works with your attorney to devise a payment plan to pay your creditors. The monthly payment is determined not by what you owe, but by what you can afford based on your family income and living expenses. After a period of 3 to 5 years of the debtor making this monthly payment, all remaining debts are discharged as with a chapter 7 filing.
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Read more about the specifics of chapter 13 bankruptcy.
