Bankruptcy Terms

Like almost every other field of practice, bankruptcy law has its own set of terms that can sound foreign to people unfamiliar with the terms. Following, in no particular order, are some terms that bankruptcy lawyers, judges and trustees use routinely and their plain language meanings:

Bankruptcy Code / Title 11: The main body of bankruptcy law is codified at Title 11 of the United States Code (U.S.C.)

Automatic Stay: As soon as your bankruptcy case is filed, a stay arises automatically by operation of law, 11 U.S.C. § 362. The stay provides the debtor with broad protections against acts of creditors. For instance, if someone is suing you to collect a debt, all court action must stop until the stay ends or is lifted by the bankruptcy court. Likewise with wage garnishments. If someone is garnishing your wages at the time you file bankruptcy, the garnishment must stop. The protections provided by the stay are limited in some ways however. For instance, wage withholding for domestic support obligations (e.g. child support, alimony, separate maintenance) will continue.

Secured Debt: Secured debt is a financial obligation that is backed by some sort of collateral. For instance, when you purchase a car with a loan from the bank, the bank will notate its lien on the title to your vehicle. If you fail to make your car payments, the bank can repossess the car and sell it to pay the debt. Secured debt can be dealt with in bankruptcy in a number of ways, including surrendering (giving back) the collateral to the creditor and discharging the debt, among other options. Common examples of secured debt are car notes and home mortgages.

Unsecured Debt: Unsecured debt is a financial obligation that is not backed by collateral. In most cases, this type of debt is discharged (wiped out). Common examples of unsecured debts are credit cards and personal loans.

Non-Dischargeable Debt: Non-dischargeable debts are debtsthatsurvive the bankruptcydischarge. Whereas most debts are discharged (wiped out) by the bankruptcy discharge, non-dischargeable debts are not. Common examples of non-dischargeable debts are most student loans (with some very limited exceptions) and debts incurred by fraud or false pretenses. 11 U.S.C. 523

Priority Debt: The bankruptcycode provides certain types of debts with priority status. This means that if there is any payment to creditors through the bankruptcy, the priority creditors get paid first. Priority debts must be paid in full under a Chapter 13 plan, unless the creditor agrees to other treatment. 11 U.S.C. § 1322(a)(2). Common examples of priority debts are taxes and unpaid wages.

§341 Meeting / Meeting of Creditors: Unless your appearance is waived for a very pressing reason, you will be required to attend a meeting with the trustee. Your attorney will be present with you at the meeting. The trustee will verify your identity, place you under oath and ask you questions about the information contained in your bankruptcy petition. The trustee will verify with you your address, your employment, your earnings, the number of dependants that you are claiming, etc. Creditors are also permitted to appear and ask questions, but they rarely do. Unless your case is very complex, these meetings typically last 5 minutes or less and go very quickly. Since the onset of the COVID-19 pandemic, these meetings are being conducted by telephone conference.

Judgement: In the bankruptcy context, a judgement is a type of court order declaring that money is owed to a party. For instance, Mr. P sues Mr. D for money that P says he is owed. The case goes to court and the court finds in Mr. P’s favor. P will get a judgment that the money is owed. The judgment can then be used as a lien against D’s property, to garnish his wages and to attach money in D’s bank accounts.

Equity: Equity refers to the amount by which the value of an asset exceeds the amount of liens against it. For instance, if your house is valued at $100,000, but the bank has a mortgage lien against the house for $75,000, then you have $25,000 of equity in your house. This equity amount is used to determine.

Bankruptcy is a complex area of the law and all but the simplest of cases will require the assistance of an attorney. Paul Caston has practiced bankruptcy law for over 30 years. Give us a call for a free consultation.