Bankruptcy Definitions

Some bankruptcy lawyers use words or phrases without remembering that you may not have heard them before, and sometimes a word means something different in bankruptcy than anywhere else. The following are some definitions of words you may hear your bankruptcy lawyer using. If you want any more information, contact Kate Owen for a free consultation with a Papillion bankruptcy lawyer.

Automatic stay: Filing a bankruptcy automatically "stays" (stops) your creditors from doing anything to collect on your debt. How long the stay lasts depends on the type of bankruptcy you filed, whether you have filed any other bankruptcies recently, and if the creditor is able to get the Bankruptcy Court to grant "relief" from the stay (allow the creditor to start collecting on your debt.) Relief from the automatic stay is commonly granted to secured creditors in a Chapter 7 and Chapter 13 bankruptcies when the debtor is behind on mortgage payments.
Avoid: Sometimes a bankruptcy debtor can get rid of a lien on personal property (like a household good, or car) or a house without having to pay the creditor anything! This is called avoiding the lien, since the debtor does not have to pay the amount owed to get title to the property. This is only available in limited circumstances, but is a very powerful tool in bankruptcy law.
Co-signor: Signing to be jointly responsible for a debt makes you a co-signor. Each co-signor on a debt is fully responsible to the creditor for the whole debt, so be very careful about who you co-sign for.
Collateral: Any property which you have agreed your creditor can take if you don't pay your debt as you promised. A creditor you made this kind of agreement with is a secured creditor.
Creditor: Anyone (person, collection agency, family member, credit card company, mortgage company, ex-spouse, the IRS or Nebraska Department of Revenue, the Department of Labor for unemployment benefits you shouldn't have received, for example) you owe money to now, or have some reason to believe you may owe in the future (like the person whose car you just rear-ended the day before you filed bankruptcy.)
Current monthly income: This is not what it sounds like. "Current monthly income" is not what you are going to earn this month. Instead, it is your average monthly gross income from employment, bonuses, child support, family members' gifts, and any other income (except Social Security benefits) in the six months ending the month before you file bankruptcy. So if you file bankruptcy in December, your Current Monthly Income is however much you received in "income" from June through November. Bankruptcy law on this concept is still fairly new, and bankruptcy lawyers are constantly fighting over what counts as income and what doesn't. "Current monthly income" is extremely important to your case because it affects what kind of bankruptcy you can file, and what your unsecured creditors may get from you. Make sure you tell your bankruptcy lawyer about any and all money, gifts, benefits of any kind, etc. you have received in the year before filing bankruptcy.
Debt: Any responsibility to pay a creditor, whether it is just your debt, a co-signed debt, a known debt (like a monthly car payment), an unknown debt (what you're going to owe for the car accident you caused the day before you filed bankruptcy), a government obligation, a promise to repay your mother for the money she gave you to make rent, or any other financial obligation.
Debtor: Outside of bankruptcy, this is just someone who has a debt. This term in bankruptcy means the person who filed the bankruptcy.
Discharge: The big reason to file bankruptcy, the discharge is what makes many types of debt go away once your bankruptcy is successfully completed. If your debt to a creditor discharges in bankruptcy, that creditor cannot take any action against you after the bankruptcy to collect on a debt. You can make payments voluntarily on a discharged debt. There are many types of debts which do not discharge, so you still owe them after the bankruptcy. The most common debts which do not discharge in bankruptcy are child support, most income taxes, any debt you reaffirmed, and any debt a creditor can prove you owe because of fraud.
Estate: When you file bankruptcy, an "estate" is created. In a Chapter 7, the Trustee has control over your estate until he or she either tells the court that you have no assets to liquidate to give to your creditors (and "abandons the estate"), or seizes your non-exempt assets and distributes their cash value to your creditors. In a Chapter 13, the debtor has control over his or her estate, but there are lots of limitations about what you can do with your property while still in bankruptcy.
Execution: A creditor which sues you, and gets a Court order saying that you owe money, can try different forms of execution to take your non-exempt property to pay off the money. Common types of execution are wage garnishment, bank account garnishment, seizure of personal property like cars, or a lien on your house.
Exempt: Every state has laws which protect ("exempt") a certain amount of property from being taken by creditors. Nebraska exempts 100% of your clothing for example, so a creditor can't take the shirt off your back.
Insider: A family member, friend, or other close associate, like a business partner. Insiders can't be given special treatment under bankruptcy law. A trustee will look for any preference paid to an insider in the year before you file bankruptcy.
Lien: A secured claim against your property because of a debt you owe. A creditor can get a lien on your real estate in Nebraska simply by getting a judgment against you, and recording it in the District Court for the county in which the property is located. Or, you will see that the bank which has your car loan is listed as a lienholder on your car title.
Non-exempt: Any property you can't protect under state law (or federal law, if you live in state which has chosen the federal exemptions.) Nebraska is an "opt out" state, meaning that state exemptions apply in bankruptcy.
Preference: Paying a creditor (including an insider) more money than bankruptcy law allows within 90 days for a creditor or 1 year for an insider before you file bankruptcy. The Trustee may decide to take the preference back for the benefit of your other creditors, so the one you paid isn't preferred over your other creditors.
Priority debt: Some debts are more important than others according to bankruptcy law. Priority debts are those which will be paid before other debts if the trustee liquidates property in a Chapter 7, and generally must be paid in full in a Chapter 13. Priority debts include the trustee's fees, domestic support obligations (spousal support and child support), many taxes, and wages owed to employees. It is very important to know what your priority debts are in a Chapter 13 case. Priority debts will generally not discharge in a Chapter 7.
Property interest: Any kind of ownership interest in personal property (like a bank account or car) or real estate (whether you own it outright, in tenancy in common, as a joint tenant) or even if you have a future interest in property (like you are expecting to receive it through inheritance in the next six months.)
Reaffirm: A secured creditor doesn't just go away in bankruptcy. If you want to keep the collateral (your house or car), you can sign a written agreement to reaffirm (repromise) the creditor that you want to stick to the terms of your deal. You have to make your monthly payments on time, although you may be able to negotiate slightly better terms in a reaffirmation. If you do reaffirm a debt, you are personally responsible for it after bankruptcy; it is like the bankruptcy didn't happen as to the creditor whose debt you reaffirm. So if you reaffirm a car loan in bankruptcy, and then fall behind on payments after bankruptcy, the car lender can repossess your car and come after you for a deficiency judgment (the difference between what you owed on your car when it was repossessed and what the lender sells your car for at auction.)
Redeem: Sometimes you can pay what your personal property is worth now, instead of what you owe on it, to a secured creditor. You can only redeem some types of personal items, but this is a powerful option when available. Imagine if you could pay a secured creditor the $500 you can prove your PC is worth now, instead of the $2,000 you still owe on it. To redeem property, your bankruptcy lawyer has to file a motion with the Court.
Secured debt: A debt for which you gave collateral, some property that the secured creditor has a lien on and can take from you if you don't pay as agreed on the secured debt. Common examples are home mortgages and car loans, although some department stores have security agreements buried in the terms and conditions of the store credit card you use.
Suggestion: A document filed for you in another court case telling the Court and the other party that you are in bankruptcy, and the automatic stay is in effect. This is the document which stops a creditor from execution without getting permission from the Court.
Surrender: You can decide to give a secured creditor its collateral back (like a car or house) and by surrendering the property in bankruptcy, you won't be responsible for any remaining debt on it after you get your bankruptcy discharge.
Transfer: Any transaction involving your assets can be considered a transfer, whether you sell property, give it away to someone, cash out a retirement account, sell shares in a corporation, or add another owner to a deed or title.
Trustee: The United States Trustee is responsible for protecting the integrity of the bankruptcy system. This means spotting and prosecuting fraudulent debtors or debtors' lawyers, reviewing bankruptcy filings to see if a debtor is trying to file a Chapter 7 but actually should pay some creditors back in a Chapter 13, and claiming and distributing non-exempt assets in a Chapter 7 and protecting the interests of unsecured creditors in a Chapter 13. The US Trustee appoints "standing trustees" to help out; there are currently two Chapter 7 Trustees and one Chapter 13 Trustee in Omaha bankruptcies.
Unsecured debt: Money you owe to a creditor which does not have a lien on any of your property to protect it if you stop paying on the debt. Credit cards, medical bills, payday loans (unless you pledged your car title), department store cards, phone bills, and personal loans are examples of unsecured debt.