Diment’s Bankruptcy Glossary
Bankruptcy can be very confusing and there’s a lot of different terms that are used when talking about it. Our team at Diment & Associates has provided for you some definitions for some of the basic terms often used.
- 341 Meeting: A meeting of creditors at which the debtor is questioned under oath by creditors, a trustee, examiner, or the United States trustee about his/her financial affairs.
- Adversary Proceeding: A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the bankruptcy court.
- Automatic Stay: An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.
- Chapter 7: A type of bankruptcy useable by consumers AND businesses and is the most common type of bankruptcy. Your debts are mostly wiped out and, while you can hold on to a few essential assets, the rest can be sold to pay off creditors.
- Chapter 13: A procedure that allows an individual to keep all of their assets by reorganizing their debts into a payment plan, based upon how much they can afford to pay back over 3 to 5 years, and if all payments are made timely, the remainder of eligible debts will be discharged.
- Creditor: A person or business to which an individual owes money to.
- Debtor: The person or business (you) seeking protection from creditors under the bankruptcy laws.
- Discharge: The satisfaction or elimination of the debts owed by the bankruptcy court.
- Equity: The value of a debtor’s interest in property that remains after liens and other creditors’ interests are considered. (Example: If a house valued at $60,000 is subject to a $40,000 mortgage, there is $20,000 of equity.)
- Exemptions: The laws that protect protect assets, not assets themselves.
- Lien: An interest that the lender has against the property of someone else to secure repayment of a debt. (Example: a mortgage or car loan)
- Liquidation: A sale of a debtor’s property with the proceeds to be used for the benefit of creditors.
- Secured Creditor: Refers to the company or person that holds a lien against somebody’s property to ensure repayment of a secured debt.
- Secured Debt: Any debt that is backed by a mortgage, pledge of collateral or other lien. It is debt held by a secured creditor who has the right to pursue specific pledged property upon default.
- Trustee: An agent of the court who manages the property of the debtor for the benefit of the creditors.
- Unsecured Debt: A claim or debt for which a creditor holds no special assurance of payment; a debt for which credit was extended based solely upon the creditor’s assessment of the debtor’s future ability to pay.
- Unsecured Creditor: A creditor who extended credit to a debtor without collateral security. If the debtor files for bankruptcy, the unsecured creditors are paid on a pro-rata basis only after the claims of all secured creditors are satisfied.
