Bankruptcy Terminology

In United States bankruptcy law, an automatic stay is an injunction against certain creditors to collect debts from a debtor who has declared bankruptcy. Under section 362 of the United States Bankruptcy Code, the stay begins at the moment the bankruptcy petition is filed.

Courts are federally administered courts existing to carry out proceedings in bankruptcy chapters. They exist independently from other courts.

Created upon filing of bankruptcy, the bankruptcy estate consists of the debtor’s property. It is its own legal entity.

In bankruptcy Chapter refers to sections of the U.S. Bankruptcy Code.

Section 101(8) of the Bankruptcy Code defines a consumer debt as "debt incurred by an individual primarily for a personal, family, or household purpose." Many bankruptcy courts have developed a "profit motive" test. ... Less than 50% of total scheduled debt was incurred for personal, household or family.

A person or company to whom money is owed.  "Creditor" is an entity that has a financial claim against the debtor that took place at the time of or previous to the order of relief concerning the debtor.

A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts. In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.

A lien is a charge upon specific property to secure payment of a debt. Although a debtor is not personally liable for discharged debts, a valid lien that has not been voided (i.e., made unenforceable) in the bankruptcy case will remain after the bankruptcy case. Therefore, a secured creditor may enforce the lien to recover the property secured by the lien.

A bankruptcy discharge is an order releasing a debtor from personal liability for certain types of debt specified in a filed Chapter bankruptcy. Once the discharge order is filed creditors are not permitted to contact nor go after debtors for the outstanding debt. While the timing may vary, a discharge order is normally granted as soon as possible.

A domestic support obligation is any ongoing payment that a person is obligated to pay to their child or former spouse because of a divorce or separation. ... For bankruptcy law purposes, only ongoing payments like alimony or child support are considered domestic support obligations.   

While a bankruptcy discharge releases one from personal liability for specified debts, the injunction prevents creditors from collecting on those and other pre-petition debts. It is a permanent order.

The bankruptcy means test determines who can file for debt erasure through Chapter 7 bankruptcy (ie personal debt). It considers your income, expenses and family size to determine whether you have enough disposable income to repay your debts.

It was created by Congress to have an objective standard for permitting only consumers not “abusing” the privileges of bankruptcy to file for Chapter 7 relief. 

An order for relief in a voluntary bankruptcy is the bankruptcy petition itself.

In an involuntary bankruptcy the order of relief is Form B 2530. This separate form allows the debtor to contest the involuntary bankruptcy. When the debtor does so successfully the court will dismiss the bankruptcy. If the debtor is not successful in contesting the involuntary bankruptcy, Form B 2530 becomes a straightforward order of relief.

In Chapter 11 the plan is a proposed reorganization proposed by the debtor’s attorney in order to pay creditors over time, thereby keeping the business operational.

In Chapter 13 the Plan is the repayment plan created by the debtor’s attorney and proposed to the bankruptcy trustee, creditors, and court.

This test is applied by many bankruptcy courts to determine whether debts are considered consumer or business while filing for Chapter 7 bankruptcy. In filing Chapter 7 primarily (generally meaning more than 50% ) must be consumer debt. The profit motive test defines debt incurred with an eye towards making a profit as business debt.

Secured debt is money owed to a creditor which is guaranteed by a specific piece of real property such as a house or land, or personal property such as a car or boat. If the creditor doesn't receive monthly payments under the terms of the secured loan, they can take the property instead.  

The Bankruptcy trustee is appointed by the court to represent a debtor’s estate upon filing of bankruptcy. The majority of bankruptcy cases will have a trustee appointed to it. While the trustee can evaluate and make recommendations about various debtor demands, none can be acted upon without the court’s approval.

In Chapter 7 the role of the trustee is to manage the sale of non-exempt property, then to administer the proceeds to creditors.

In Chapter 11 the trustee reorganizes a debtor’s business obligations, debts, and assets in order for the business to emerge from bankruptcy and continue to operate.

In Chapter 13, the trustee receives the debtor’s monthly payments and distribute them to creditors on a payment plan created by the debtor’s bankruptcy attorney.

The Trustee is an experienced bankruptcy attorney appointed by the United States Trustee of the Department of Justice. The appointments are for life, and not more than one attorney in a firm can act in this role. 

When a debt exists without guarantee of real property behind it, the creditor becomes an unsecured creditor. Examples of unsecured creditors are credit card companies, utility companies, and medical providers. credit card companies, utility companies, and medical providers.

Unsecured debt refers to loans that are not backed by collateral. If the borrower defaults on the loan, the lender may not be able to recover their investment because the borrower is not required to pledge any specific assets as security for the loan.