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Just starting out in the Bankruptcy field? A basic knowledge of the terms of art is key to impressing your client or managing partner with your ability to handle Bankruptcy matters competently. Read on for a quick primer!
Adversary Proceeding: A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankr. P. 7001.
Automatic Stay: An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.
BAPCPA: The Bankruptcy Abuse Prevention and Consumer Protection Act
(BAPCPA) went into effect on October 17, 2005, and implemented substantial changes to bankruptcy practice, particularly consumer bankruptcy filings, making it more difficult for consumers to erase debt by forcing more people to file under Chapter 13, rather than Chapter 7.
Chapter 7: A form of bankruptcy for individual consumer debtors as well as businesses resulting in liquidation. For a business, this generally involves selling all of its assets and distributing the proceeds to creditors. For an individual, this results in the discharge of some debts (although some debts cannot be discharged, such as child support), the sale of some assets to repay creditors, and the retention of certain exempt property.
Chapter 11: A form of bankruptcy which permits reorganization of debts, used predominantly by corporations or partnerships. The company remains in business during the reorganization, pays creditors over time, and receives relief from some or all of its debts.
Chapter 13: A way for individual consumer debtors to reorganize their debts, paying back creditors over a 3 – 5 year period. In order for a Chapter 13 plan to be confirmed (approved), it must commit all of the debtor’s disposable income to repayment, and unsecured creditors must receive meaningful repayment and at least as much as they would have in a Chapter 7 liquidation.
Discharge: A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.)
Exemptions, Exempt Property: Certain property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor's primary residence (homestead exemption), or some or all "tools of the trade" used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives in.
Means Test: Post-BAPCPA, most individual debtors filing for Chapter 7 must complete a “means test” form, comparing the debtor’s average income to median state incomes for similar households. If the debtor passes the test, a Chapter 7 filing is permitted. If not, the case is either dismissed or converted to Chapter 13.
Motion to Lift the Automatic Stay: A request by a creditor to allow the creditor to take action against the debtor or the debtor's property that would otherwise be prohibited by the automatic stay.
Nondischargeable Debt: A debt that cannot be eliminated in bankruptcy. Examples include a home mortgage, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action.
Postpetition Transfer: A transfer of the debtor's property made after the commencement of the case.
Preference or Preferential Debt Payment: A debt payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an insider) that gives the creditor more than the creditor would receive in the debtor's chapter 7 case.
Priority: The Bankruptcy Code's statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full. For example, under the Bankruptcy Code's priority scheme, money owed to the case trustee or for prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.
Priority Claim: An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which these unsecured claims are to be paid.