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If you don't understand the terminology, bankruptcy
can seem even more overwhelming and frightening -- or at least frustrating.
Here are definitions of some of the most frequently used bankruptcy
terms.
Affirmation -- A debtor's
agreement to continue paying certain dischargeable debts after bankruptcy.
Assets -- Personal possessions of value,
including cash, real estate and investments.
Asset case -- A bankruptcy proceeding
in which there are nonexempt assets that might be available to pay
the claims of creditors.
Automatic stay -- An injunction
that stops lawsuits, foreclosure, garnishments and all collection
activity against the debtor the moment a bankruptcy petition is
filed.
Bad debts -- Money you can't collect.
Businesses are allowed to deduct bad debts under certain circumstances.
If a bad debt is personal, it may be deducted in some cases as a
short-term capital loss. Loans between family members generally
are classified as nonbusiness.
Bankruptcy -- A legal proceeding that
protects a debtor from legal action by some creditors. There are
two basic ways of filing for personal bankruptcy. A Chapter 7 bankruptcy
declaration gets rid of all debts (except some taxes and maybe alimony
payments). Chapter 13 allows a borrower with a steady income to
pay off bills over a 36- to 60-month period.
Bankruptcy Code -- The informal name for
Title 11 of the United States Code (11 U.S.C. § 101 - 1330),
the federal bankruptcy law.
Bankruptcy trustee -- A private individual
or corporation appointed in all Chapter 7, Chapter 12, and Chapter
13 cases to represent the interests of the bankruptcy estate and
the debtor's creditors.
Cash collateral -- The proceeds of cash
collected from the sale of liquid assets while in bankruptcy.
Chapter 7 -- Also known as liquidation,
allows individuals or businesses to give up nonexempt assets and
walk away from most debts.
Chapter 9 -- This section
allows municipalities to reorganize debt.
Chapter 11 -- For individuals and, more
commonly, businesses to reorganize debt. It is similar to Chapter
13, in that it allows the filer to draft a plan to repay some debt
while retaining assets. Chapter 11 has no debt limits, but is much
more complicated, and therefore expensive, making it financially
feasible mainly for businesses and very wealthy individuals.
Chapter 12 --
Allows family farmers to reorganize debt. It works very much like
Chapter 13, but with higher debt limits.
Chapter 13 -- For individuals who need
to restructure their debt load. Some creditors will be paid back
in full with interest, others in full and the remainder will be
repaid a percentage of the debt.
Charge off -- Term used to indicate that
a creditor does not expect a debt to be paid and is listing it as
such. This does not mean that the debt no longer exists or that
there will not be further attempts to collect it.
Confirmation -- Approval by the bankruptcy
court of a plan of reorganization that has met the many requirements
of code section 1129. Once approval is given, all of the debtors'
pre-petition debts are discharged (eliminated) as provided by the
plan.
Creditor -- One who is owed money.
Creditor meeting -- ("341 meeting")
The meeting that takes place three to six weeks after the bankruptcy
petition is filed, at which time the debtor may be questioned by
the court-appointed trustee and the debtors' creditors about the
information provided by the debtor on the bankruptcy petition.
Credit scoring system -- A numerical system
designed to measure the likelihood that a borrower will repay a
debt created by assigning scores to various characteristics connected
to creditworthiness.
Debtor -- Technically, a
person who has filed a petition for relief under the bankruptcy
laws. More generally, anyone who owes.
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