The following glossary explains in laymen terms some of the most commonly used legal phrases in the bankruptcy field.

  • Automatic Stay: This refers to the legal injunction against all collection activity that is put into place automatically once a bankruptcy case is filed. There are limited exceptions to the automatic stay for those individuals with a previous bankruptcy filing.
  • Adversary Proceeding: There are several types of issues that could result in the filing of an adversary proceeding which is a lawsuit. The lawsuit is started by filing a complaint with the bankruptcy court that requests certain relief. An example of an adversary proceeding is the filing of a complaint against discharge wherein the creditor alleges the debtor obtained money loaned through fraud.
  • Bankruptcy:  A legal procedure at the federal level that is filed to discharge or reorganize certain debts.  Bankruptcy is governed by federal law under title 11 of the U.S. Code known as the bankruptcy code.
  • Bankruptcy Court: Every state has at least one federal bankruptcy court. Colorado has just one bankruptcy court that handles all bankruptcy matters throughout the state.
  • Bankruptcy Estate:  If the value of the debtor’s non-exempt assets is large enough (over $1000) the bankruptcy trustee may place these assets in a bankruptcy estate which is like a trust account. The trustee must carefully track how the funds are spent from the account and file a final report with the court explaining how the funds were used (which creditors were paid).
  • Bankruptcy Petition: This is the official bankruptcy form that starts the process of filing for bankruptcy. It provides basic identifying information for the debtor and a summary of the debtor’s financial situation.
  • Chapter 7 Liquidation: This is a popular form of bankruptcy for consumer debtors because it is more cost-effective than a chapter 13 and provides a quicker fresh start. Some individuals should not file a chapter 7 either because they would lose valuable non-exempt property, or because their income is too high. Although chapter 7 is the liquidate chapter, most cases do not involve the liquidation of assets. Colorado has generous exemption laws which protect certain assets from liquidation in bankruptcy.
  • Chapter 13 Reorganization. This form of bankruptcy is beginning to overtake chapter 7 bankruptcy filings for two main reasons: 1) as wages have increased in recent years, many Americans make too much to qualify for a chapter 2) most homeowners cannot file a chapter 7 because they have too much equity in their home. In a chapter 13, the debtor files a proposed reorganization plan with the court which explains to all parties how the debtor intends to pay back certain debts and which debts will not receive payment or payment in full.
  • Claim: Some bankruptcy cases result in a distribution to creditors. All chapter 13 cases involve a distribution and some chapter 7 cases do only if the trustee opens an estate. In order to receive payment, a creditor must file a claim with the bankruptcy court along with supporting documentation of the debt.
  • Collateral: Property that is used by a creditor to secure a debt. The creditor may repossess the collateral if the debtor fails to pay.
  • Confirmation: All chapter 13 plans of reorganization must be approved by the bankruptcy court after the parties (trustee, creditors) have had an opportunity to object. If there are objections to the plan, those must be resolved before the court may confirm the plan. Some objections may be decided by a judge at a contested hearing.
  • Consumer Debtor: A debtor is anyone who has filed for bankruptcy. A consumer debtor is someone whose debts were incurred primarily for non-business purposes.
  • Creditor: This is a person or entity (bank) that is owed money by the debtor.
  • Credit Counseling Courses: Before filing bankruptcy, all consumer debtors must complete an online (or telephone) course in consumer credit counseling from an approved agency. The course takes approximately one-hour to complete. After filing bankruptcy, all debtors musts complete a second online course in personal financial management before receiving a discharge.
  • Debtor – an individual who has filed a consumer bankruptcy petition under the bankruptcy code.
  • Discharge Order – A court order that releases the debtor from all dischargeable debts listed in the bankruptcy petition. The order prevents creditors from attempting to collect on a discharged debt. The court enters the discharge approximately 90 days after the filing.
  • Dischargeable Debt – Most debts can be discharged under the bankruptcy code including but not limited to: credit cards, personal loans, unpaid utility bills, medical bills, and auto loan deficiency balances. Section 532 of the US Bankruptcy Code provides a list of debts that cannot be discharged. These debts include obligations incurred as a result of fraud, personal injury to another as a result of drunk driving, student loans absent showing of undue hardship, domestic support obligations, and most debts owing to government entities.
  • Equity – A value that represents the debtor’s interest in property (e.g. home or car) after all liens and mortgages have been subtracted from the fair market value (FMV). To calculate equity simply subtract all liens and mortgage from the FMV of the home. Example: A home worth $100,000 has a mortgage of $50,000 against it and a judgment lien of $10,000. The debtor’s equity in the property is $40,000.
  • Exemptions and Exempt Property: Exemptions are created at the state level. Each state has its own exemption laws that protect a debtor’s property up to a certain value from liquidation by debt collectors. Colorado’s exemptions laws.
  • Joint Petition: A single bankruptcy petition filed by both spouses.
  • Lien: Provides a creditor legal recourse to repossess and liquidate certain collateral as a result of non-payment.
  • Liquidation: Selling certain collateral/property to satisfy a debt.
  • Means Test: The bankruptcy code requires debtors to complete certain financial forms depending on which chapter of bankruptcy they are filing. If filing under chapter 7, the debtor will the “Chapter 7 Statement of Income and Presumption of Abuse.” This form determines whether the debtor’s income is too high for a chapter 7. If filing under chapter 13, the debtor will file a “Chapter 13 Statement of Income and Calculation of Commitment Period.” The form determines the minimum amount that must be paid to unsecured creditors in a chapter 13 plan and the form determines the duration (3 or 5 years) of the debtor’s plan.
  • 341(a) Meeting of Creditors: After the filing of a consumer bankruptcy petition, the court’s automated system generates the date, time, and location of this meeting. The meeting generally takes place approximately 30 days after the filing. Although creditors are invited to attend, in most cases the debtor will answer a set of routine questions posed by the bankruptcy trustee. It is rare for creditors to show. The meetings usually take about 10 minutes.
  • Trustee: A private lawyer who is contracted by the US Trustee’s program to oversee the consumer bankruptcy cases assigned to them. The trustee will conduct the meeting of creditors and will liquidate any non-exempt assets.
  • Relief from Stay: A motion filed by creditors seeking permission from the court to liquidate collateral secured by a defaulted loan that was included in the bankruptcy filing.