AZ Bankruptcy
Beginning Bankruptcy Terms
Adversary proceeding: A lawsuit filed in the bankruptcy court that is related to the debtor's bankruptcy case. Examples are complaints to determine the dischargeability of a debt and complaints to determine the extent and validity of liens.
Automatic stay: The injunction issued automatically upon the filing of a bankruptcy case that prohibits collection actions against the debtor, the debtor's property or the property of the estate.
Bankruptcy Code: Title 11 of the United States Code governs bankruptcy proceedings. Bankruptcy is a matter of federal law and is, with the exception of exemptions, the same in every state.
Bankruptcy estate: The estate is all of the legal and equitable interests of the debtor as of the date the bankruptcy case was filed with the Court. From the estate, an individual debtor can claim certain property exempt; the balance of the estate is liquidated by the Chapter 7 Trustee and used to pay the administrative costs of the proceeding and the claims of creditors according to their priority.
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 reorganization proceeding in which the debtor may continue in business or in possession of its property. A confirmed Chapter 11 plan provides for the manner in which the debtor will pay the claims of creditors in whole or in part.
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 over 3 to 5 years.
Collateral: The property which is subject to a lien. A creditor with rights in collateral is a secured creditor and has additional protections in the Bankruptcy Code for the claim secured by collateral.
Creditor: The person or organization to whom the debtor owes money or some other form of legal obligation.
Debtor: The debtor is the entity (person, partnership or corporation) who is liable for debts, and who has filed for bankruptcy protection.
Debtor in Possession: In a Chapter 11 case, the debtor usually remains in possession of its assets and assumes the duties of a trustee. The debtor in possession owes creditors the highest duty of care and loyalty.
Discharge: A discharged debt is one that does not need to be paid. A creditor is in contempt of the federal restraining order and can be fined for its intentional collection conduct. Some debts cannot be discharged at all – such as child support, criminal restitution, and some student loans.
Dismissal: The termination of the case. If a case is dismissed then the debtor and the creditors have the same rights and remedies as they had before the bankruptcy case was filed.
Exempt: Property that is exempt is removed from the bankruptcy estate and is not available to pay the claims of creditors. The debtor selects the property to be exempted from the statutory lists of exemptions available under the law of his state. The debtor gets to keep exempt property for use in making a fresh start after bankruptcy.
Lien: An interest in real or personal property that secured a debt; the lien may be voluntary, such as a deed of trust on land, or involuntary, such as a judgment lien or tax lien.
Non dischargeable: A debt that cannot be eliminated in bankruptcy (such as child support and most student loans). Non-dischargeable debts remain legally enforceable despite the bankruptcy discharge. The Code's list of non dischargeable debts is found at 11 U.S.C. 523
Personal property: Property that is not land (real property) or affixed to land. Personal property includes cars, stock, furniture, etc.
Petition: The document that initiates a bankruptcy case. The filing of the petition constitutes an order for relief and institutes the automatic stay. Events that happened before or after the bankruptcy petition was filed are frequently described as "pre-petition" and "post petition".
Preference: A transfer to a creditor in payment of an existing debt made within certain time periods before the commencement of the case (anywhere from one year to 3 months prior to filing the bankruptcy). The Trustee may recover preferences for the benefit of all creditors of the estate. If a friend or relative is paid and not other creditors, the Trustee can demand that the friend or relative return all funds received within one year prior to filing the bankruptcy.
Pre-petition: The time before filing a bankruptcy. Usually, the only debts affected by a bankruptcy are those owed pre-petition.
Property of the Estate: The property that is not exempt and belongs to the bankruptcy estate. The trustee usually sells property of the estate and the claims of creditors are paid from the proceeds.
Reaffirm: The debtor can choose to reaffirm debts that would otherwise be discharged by the bankruptcy. Generally, when a debt is reaffirmed, the parties to the reaffirmed debt have the same rights and liabilities that each had prior to the bankruptcy filing: the debtor is obligated to pay and the creditor can sue or repossess if the debtor doesn't pay.
Schedules: The debtor must file the required lists of assets and liabilities to commence a bankruptcy case, collectively called the schedules.
Secured debt: A claim secured by a lien in the debtor's property by reason of the debtor's agreement or an involuntary lien such as a judgment or tax lien.
Unsecured claim: Claims (debts) that do not fall into the administrative or secured category. Usually, credit cards, medical bills and personal loans are general, unsecured claims. If the bankruptcy has funds, after paying administrative and priority claims, then unsecured claims will receive a pro-rata payment.