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Definitions

Adversary Proceeding - A lawsuit filed by a creditor or interested party in a debtor's bankruptcy case. For example, a creditor may file an adversary proceeding to request the court find its debt to be non-dischargeable.

Arrears or Arrearage - The amount a debtor is past due or behind in payments as of the bankruptcy petition filing date.

Assets - Items owned by a debtor, including personal property (cars, money in bank accounts, stock) and real property.

Automatic Stay - The automatic stay is an injunction that arises on the filing of every bankruptcy petition and which stops lawsuits, foreclosure, garnishments, and all collection efforts against the debtor.

Bankruptcy Code - Bankruptcy laws are found in Title 11 of the United States Code. Bankruptcy is a federal law.

Bankruptcy Estate - All property the debtor owns at the time of the filing of the bankruptcy case. Certain property of the bankruptcy estate can be claimed as exempt by an individual debtor. Exempt property is excluded from property of the bankruptcy estate.

Chapter 7 - Chapter 7 is commonly referred to as a "liquidation bankruptcy" or "straight bankruptcy" in which a debtor obtains a fresh start approximately 4 months after the bankruptcy filing date. Chapter 7 will eliminate or discharge most types of unsecured debts.

Chapter 11 - Chapter 11 is a provision under the Bankruptcy Code for reorganization of the debtor's financial affairs or business. Chapter 11 is available to all forms of individuals, partnerships, corporations, limited liability companies, and certain other business entities.

Chapter 12 - A reorganization chapter in the Bankruptcy Code for family farmers whose debts fall within certain limits.

Chapter 13 - A payment plan bankruptcy that lasts for a period of 3 to 5 years, depending on the types and amounts of debt involved. Chapter 13 is frequently used to stop foreclosure proceedings on real property or stop repossession of a vehicle. Chapter 13 can be used to pay delinquent income taxes or child support at 0% interest over 3 to 5 years.

Claim - A contention that money is owed by the debtor to a creditor.

Confirmation - The judicial process by which a bankruptcy judge approves a plan of reorganization of a debtor in Chapter 11, 12, and 13 cases. Each chapter has different criteria that must be met in order to confirm a plan.

Consumer Debt - Debt incurred by an individual primarily for personal, family, or household purposes.

Conversion - The act of changing (converting) a bankruptcy from one chapter to another (i.e. Chapter 7 to Chapter 13 or Chapter 13 to Chapter 7).

Creditor - Any person or business to which a debtor owes money on or before the bankruptcy petition filing date.

Debt - A liability on a claim.

Debt for Child Support - A debt owed for maintenance or support of a child of the debtor.

Debtor - A person who owes money or services to another person or entity.

Default - Breach of duties owed under a loan or contract, such as failure to make payments on time, failure to pay property taxes, or failure to maintain property insurance.

Delinquency - Failure to make payments when payments are due. A loan is considered delinquent when the payment is not made on the due date.

Denial of Discharge - A court order that prevents a debtor from wiping out his or her debts. Misconduct, dishonesty, or lack of cooperation of a debtor can lead the bankruptcy court to deny the debtor's discharge.

Dischargeable - Debtors file bankruptcy anticipating most of their debts can be eliminated in a bankruptcy. Certain debts are not dischargeable, which means the bankruptcy will not eliminate those debts. Examples of non-dischargeable debts in Chapter 7 are debts owing under a divorce decree (including both child support and property settlement), loans fraudulently obtained, and recent income taxes. Usually student loans are not dischargeable but there are rare exceptions.

Discharge - The elimination of all dischargeable debts that occurs when the bankruptcy court enters an Order of Discharge at the conclusion of a bankruptcy case. When a debt is discharged, the debt is no longer enforceable against a debtor. It is a violation of the bankruptcy discharge injunction for creditors to attempt to collect a discharged debt.

Equity - The value of property (real or personal) over and above the indebtedness against it. For example, if a vehicle is worth $10,000 and the vehicle creditor is owed $8,000, there is $2,000 of equity in the vehicle.

Exemptions - A debtor can claim exemptions in certain types of property. "Exempt" property is property the law permits you to keep when you file bankruptcy. Click here to see the most common Oregon exemptions.

Family Farmer - An individual or married couple engaged in a farming operation whose debts do not exceed certain limits which arise out of a farming operation owned or operated by the individual or married couple and the individual or married couple derive more than 80% of their gross income from the farming operation during the taxable year immediately preceding the filing of the bankruptcy case. Certain corporations and partnerships can also be family farmers if more than 50% of the outstanding stock or equity is held by 1 family, or by 1 family and the relatives of the members of such family, and such family or such relatives conduct the farming operation and more than 80% of the value of the assets consist of assets related to the farming operation.

Fair Market Value - The price at which a buyer would be willing to buy and a seller would be willing to sell property. Bankruptcy assets are typically valued at their liquidation, fire sale, or garage sale values.

Garnishment - Method by which a creditor collects on a judgment by requiring an employer or bank to turn over funds belonging to the debtor to the garnishing creditor. The creditor can "garnish" (collect) from any third party that is holding money belonging to the debtor or from any third party that owes money to the debtor.

General Unsecured Claim - Creditor's claim for payment for which the creditor holds no security or collateral. Common types of general unsecured claims are medical bills, credit cards, and unsecured personal loans.

Insolvent - A financial condition such that the sum of a person or entity's debts is greater than the value of the person or entity's assets.

Judicial Lien - Lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.

Lien - A claim or encumbrance on property (real or personal) to secure payment of a debt or performance of an obligation. Examples are mortgages, trust deeds, or UCC security interests.

Lien Avoidance - The process by which a debtor can wipe out certain kinds of liens that impair an allowed exemption. Judgment liens that have attached to the debtor's home can often be avoided. Any debtor with judgment liens against their homestead should consult with a lawyer to see if the liens can be avoided.

Liquidated - A debt is liquidated when the amount owing is a fixed, determined amount that is not subject to any legitimate dispute.

Means Test - A complex formula applied under the Bankruptcy Code to determine whether a Chapter 7 filing by an individual debtor with primarily consumer debts may be presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case to another chapter. The Means Test requires a comparison of the debtor's income during the six calendar months before the bankruptcy filing to the median income for individuals with the same household size in the debtor's state. If the debtor's income exceeds the state median, then the debtor may take deductions for living expenses and certain debt payments to determine if any income is available to pay general unsecured claims. If the available income exceeds the limit in the Bankruptcy Code, then the Chapter 7 filing is presumed to be an abuse. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income. Debtors who "flunk" the Means Test are not permitted to file a case under chapter 7 of the Bankruptcy Code. Instead, their case is dismissed or, if the Debtor consents, converted to a case under Chapter 13 or Chapter 11 of the Bankruptcy Code. Both Chapter 13 and Chapter 11 require the Debtor to make payments to the creditors, usually over a period between three to five years in length.

Non-Dischargeable - A debt that cannot be eliminated in bankruptcy is considered a non-dischargeable debt. Debts that are non-dischargeable survive the bankruptcy discharge and can be collected by a creditor without regard to the filing of the bankruptcy.

No Asset Case - A Chapter 7 case where a trustee determines that there are no significant non-exempt assets to liquidate, and declines to pursue the assets. The debtor retains all real and personal property in a no asset case.

Personal Property - Property that is not real property. Examples of personal property are vehicles, furniture, clothing, jewelry, and stocks.

Petition - The document that is signed by a debtor to commence a bankruptcy case.

Post-Petition - Claims or events arising after the filing of a petition in bankruptcy.

Preference - Certain transfers or payments that are valid outside of a bankruptcy can be undone by a bankruptcy trustee. A debtor cannot treat certain creditors more favorably than other creditors before a bankruptcy. A creditor who has received a greater amount of money than other similarly situated creditors can be required to return the payment to the trustee if paid within the preference period, which is 90 days for non-insider creditors and up to one year for relatives or insiders.

Pre-Petition - Claims, events, or debts arising before a bankruptcy petition was filed.

Priority - Section 507 of the Bankruptcy Code sets out the order in which unsecured claims against the debtor are to be paid. All claims in a higher priority must be paid in full before claims with a lower priority receive any distribution.

Priority Claims - Certain debts, such as domestic support obligations and income taxes, are considered "priority claims" and must be paid in full before general unsecured claims are paid. In a Chapter 13, all priority claims must be paid in full before a debtor can complete his or her Chapter 13 case and receive a discharge.

Proof of Claim - Document filed by a creditor that shows how much money is owed by the debtor. Creditors are required to attach evidence of the claim and amounts owed. The court fixes a deadline for filing a proof of claim.

Property of the Estate - Generally, property of the estate includes all property the debtor owns at the time of the filing of the bankruptcy case. From the bankruptcy estate, an individual debtor can claim certain property as exempt. In a Chapter 7 case, non-exempt property of the estate may be collected and sold by the bankruptcy trustee.

Reaffirm - In a Chapter 7 case, the debtor can (subject to court approval) voluntarily reaffirm a debt that would otherwise be discharged in bankruptcy. Usually, when a debt is reaffirmed, the same terms and conditions apply as in the original contract. If the debtor fails to pay on a reaffirmed debt, the creditor can collect any collateral (if a secured debt), sell the collateral, and collect on the deficiency. The bankruptcy court will generally deny a request for reaffirmation of the debt if the bankruptcy court believes that the debtor lacks the ability to pay the debt or that reaffirmation of the debt is not in the best interests of the debtor. Every debtor who requests reaffirmation of a debt must attend a reaffirmation hearing, at which time the court will question the debtor about the reasons for reaffirming the debt and the debtor's ability to pay the debt if reaffirmed. The bankruptcy judge will make a decision at the reaffirmation hearing whether to approve the reaffirmation or deny the reaffirmation request.

Relative - An individual related by affinity or consanguinity within the third degree as determined by common law, or individual in a step or adoptive relationship within such third degree.

Relief from Stay - A creditor can request the bankruptcy judge to lift the automatic stay and permit a specified action against the debtor. If the motion is granted by the judge, the moving party is free to take whatever action the court allowed.

Repossession - If debtor is in default of the terms of the security instrument, the creditor can repossess (take) its collateral, sell the collateral, and apply the proceeds from sale to the outstanding debt owed.

Retain - In a Chapter 7 case, in some instances, the debtor can retain property secured by a loan so long as the loan continues to be paid according to the terms of the contract. With respect to automobiles, even if the debtor is current on his or her payments, the creditor will be able to repossess the car if the debtor fails to request a reaffirmation of the loan. If the debt that has not been reaffirmed is not paid, then the creditor can repossess its collateral but can thereafter take no further collection activity against the debtor for the discharged debt. If a reaffirmed debt is not paid, the creditor can pursue a deficiency claim against the borrower if the borrower fails to pay the reaffirmed loan as agreed. The rules respecting the debtor's ability to retain property without reaffirmation are complicated and the prospective bankruptcy debtor should consult with a competent bankruptcy attorney as to whether he or she will be able to retain property without a court-approved reaffirmation. The lawyers at Vanden Bos & Chapman, LLP can assist in evaluating whether property can be retained without reaffirmation.

Schedules - The documents required to be filed by the debtor under penalty of perjury that list, among other things, the debtor's assets, liability, income, expenses, and financial affairs. Because the schedules are signed under penalty of perjury, it is important that each debtor be competently represented by a lawyer during their preparation and that each debtor fully, completely, and accurately discloses all of their assets and liabilities. Failure to make a full, complete, and accurate disclosure of assets and liabilities in the bankruptcy schedules is grounds for denial of the bankruptcy discharge. Deliberate falsification of bankruptcy schedules is punishable by fine or imprisonment.

Secured Debt - A creditor holds a secured claim against a debtor when the creditor has taken real or personal property as collateral for a loan. If the debtor fails to pay on the loan, then the creditor can exercise its rights under the security agreement and foreclose on or repossess its collateral.

Security Interest - A lien created by an agreement between the debtor and creditor.

Statutory Lien - A lien arising solely by force of a statute on specified circumstances or conditions.

Surrender - In a Chapter 7 or Chapter 13 case, a debtor can voluntarily surrender (turn over) collateral (such as a car) to the secured creditor.

Transfer - Every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property. The word "transfer" includes, but is not limited to, sales, assignments, deeds, mortgages, items sold at garage sales, and even gifts.

Trustee - In every Chapter 7 case an individual is appointed as the bankruptcy trustee. The bankruptcy trustee is in charge of administering the bankruptcy case. The bankruptcy trustee conducts an oral examination of every bankruptcy debtor. This oral examination occurs at a hearing known as the "341 hearing." The trustee is the representative of the unsecured creditors of the debtor. The trustee's job is to determine if the debtor owns any non-exempt assets that could be sold to generate funds to make a partial payment to the unsecured creditors on their claims against the debtor.

Unsecured - A claim or debt is unsecured if the creditor does not hold a consensual lien or a judicial or statutory lien against a debtor's property to secure payment of the debt.