Bankruptcy can be an intimidating process for many people, but like many things in life, fear comes from the unknown. By educating yourself, you will have a better understanding of the bankruptcy process and a greater control of your financial future. The following are some bankruptcy terms to become familiar with:
Automatic Stay-An automatic stay is an injunction that automatically stops foreclosure, wage garnishments, lawsuits and all collection activity against the debtor as soon as the bankruptcy petition is filed.
Bankruptcy Petition-A formal request for the protection of the federal bankruptcy laws. This official application will declare the debtor “bankrupt.”
Chapter 7-The most common form of bankruptcy, a Chapter 7 case is a liquidation proceeding, available to individuals, married couples, partnerships and corporations.
Chapter 11-A re-organization bankruptcy in which the debtor may continue in business or in possession of its property as a fiduciary.
Chapter 12-A simplified reorganization plan for family farmers whose debts fall within certain limits.
Chapter 13-A repayment plan for individuals with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income.
Claim-A written statement from a creditor claiming a right to payment from a debtor or the debtor’s property if money becomes available through the bankruptcy process.
Contingent Claim-A claim that may be owed by the debtor under certain circumstances, for example, where the debtor is a cosigner on another person’s loan and that person fails to pay.
Discharge-A discharge is a very important term in bankruptcy proceedings, as it is the release of a debtor from liability for certain dischargeable debts. A discharge prevents those creditors from taking any action against the debtor or the debtor’s property to collect the debts.
Disclosure Statement-A written document prepared by the chapter 11 debtor designed to provide “adequate information” to allow a typical creditor to make an informed decision about the chapter 11 plan of reorganization.
Equity-The remaining value of a debtor’s interest in property that after liens and other creditors’ interests are considered.
Executory Contract or Lease-Contracts or leases under which one or both parties have unfulfilled obligations. In many bankruptcy cases the debtor is given the option to continue with (assume) or cancel (reject) these contracts.
Exemption-Property that the Bankruptcy Code or applicable state law allows a debtor to keep and is not used for distribution to creditors.
Fraudulent Transfer-A transfer of a debtor’s property made at far less than fair value. This term does not necessarily imply criminal fraud, however, the trade has placed the asset out of the creditors’ reach.
Joint Petition-A shared bankruptcy petition filed by a husband and wife together.
Lien-A charge upon specific property designed to secure payment of a debt or performance of an obligation.
Liquidation-The sale of a debtor’s property with the proceeds to be used for the benefit of creditors.
Liquidated Claim-A creditor’s claim for a fixed amount of money of the liquidated assets.
For more important bankruptcy terms, please continue reading Part Two at our Waco and Killeen bankruptcy attorney blog.
Jeff Davis is the Owner of the Davis law firm and a highly experienced Waco and Killeen bankruptcy attorney. To find out more information about a Waco or Killeen bankruptcy lawyer, please visit www.jeffdavislawfirm.com.