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Wednesday, March 19, 2014

Common Bankruptcy Terms

           Although I try to write the posts to this blog in understandable terms since bankruptcy is a complex area of law it can be difficult at times not to use terms that may not be readily understandable by the average consumer. I have listed below some common terms used in bankruptcy with their simple definitions to help resolve this issue.

Debt- monetary obligation owed to another individual or entity. Common examples are credit card, mortgage, car loan and medical debt

Debtor-individual or entity that owes debts and debtor is primary term used to describe individual or entity filing bankruptcy.

Creditor-individual or entity who is owed a debt by debtor.

Secured Creditor- this creditor is owed a debt which is secured by collateral which they can take action to take possession of and sell to satisfy debt owed if debtor fails to pay debt. One common example is lender holding secured mortgage on home, which is the collateral and lender has right to foreclose if debtor defaults on mortgage. Another example is auto loan where vehicle is collateral which lender can repossess and auction of if debtor defaults.

Unsecured Creditor-there is no collateral securing this creditor's debt- most common example credit card debt.

Real Property- land with or without home or other building located on it.

Asset-personal or real property owned by debtor. In bankruptcy assets that need to be disclosed can take many forms from the obvious like bank accounts and homes to less obvious like potential tax refunds and law suits brought by debtors against other parties.

Bankruptcy Estate-upon filing bankruptcy all of the debtor's property becomes property of the bankruptcy estate

Exemptions-certain property of the debtor can be exempted out of the bankruptcy estate using state or federal exemptions allowing debtor to keep exempt personal and real property. Common examples are homestead exemption for a debtor's principal residences and motor vehicle exemptions. A debtor must choose at the time of filing to use either the federal exemptions which are uniform in all states or state exemptions which vary by state.

Chapter 7 Trustee-attorney assigned by court from local panel of trustees whose main function is to determine if Chapter 7 debtor has non-exempt assets he can sell for the benefit of unsecured creditors. This trustee conducts the Meeting of Creditors prior to which he will have reviewed requisite financial documents provided by debtor's counsel and at the meeting question the debtor under oath with his counsel present to determine the accuracy and completeness of the information listed in their bankruptcy schedules. It is very unusual for actual creditors to attend the meeting of creditors since bankruptcy has evolved to have the Chapter 7 trustee represent their best interests at this meeting.

Discharge-this describes the goal sought by the debtor by filing bankruptcy. The issuance of the notice of discharge which occurs 60 days after the meeting of creditors terminates all debts owed by the debtor which are subject to discharge. For example this includes unsecured debt like credit cards and medical bills. There are exceptions to discharge and distinctions to be made by the effect of discharge on unsecured vs. secured debt which I shall make a topic of a future post to this blog.

     This post was an attempt to help consumers understand some common bankruptcy terms and only scratches the service of this complex area of law. I hope you found it helpful and will continue to try to provide more helpful information with future posts to this blog.