341 Meeting: A short (10-15 minutes) conversation between the trustee and the debtor. The trustee will ask questions about your assets, debts, and other financial matters. Named after section 341 of the Bankruptcy Code, it is also known as the Meeting of Creditors (although creditors rarely appear) or Trustee Meeting. See THIS POST for more info.
Automatic Stay: A temporary injunction that stops most creditor collection efforts. The stay begins automatically and immediately upon the filing of a bankruptcy case. The stay will remain in place as to the debtor until the earlier of the judge (a) granting a discharge, (b) giving a creditor “relief” from the stay, or (c) closing the case.
Deficiency Judgment: A money judgment for the amount not covered by the value of repossessed collateral. Example: Debtor owes Creditor $15,000 for a car loan. Debtor defaults on the loan. Debtor’s car is repossessed and sold by Creditor at auction for $5,000. Creditor may then be entitled to a deficiency judgment of $10,000, the difference between the value of the car and the amount owed. Deficiency judgments are unsecured debts.
Discharge: A permanent injunction that prevents creditors from collecting debts. As a practical matter, the discharge injunction wipes out debt. But a creditor with a mortgage, security interest, or other lien may recover its collateral if the borrower doesn’t pay the discharged debt.
Dividend: The percentage of claims that will get paid to general unsecured creditors by a bankruptcy trustee on a pro rata basis. If the dividend is set at 5%, all general unsecured creditors that file claims will receive 5% of the amount they are owed.
Exemptions: A list of property that bankruptcy debtors are allowed to keep. In Wisconsin, debtors are allowed to use either the federal exemptions or the Wisconsin state exemptions. I can help you decide which list benefits you the most.
Means Test: A financial test designed by Congress to determine whether debtors can file a Chapter 7 bankruptcy or must pay a minimum amount in a Chapter 13. The test has two parts: First, whether the debtor’s income is above or below the state median income. Second, whether that income minus allowed expenses leaves enough left over to pay creditors.
Priority Debt: The Bankruptcy Code provides that certain unsecured debts must be paid ahead of – given priority over – other unsecured debts. Typical priority debts include Domestic Support Obligations and taxes.
Pro se: Appearing in a court proceeding or filing documents on your own behalf, without an attorney representing you. Individuals may represent themselves in bankruptcy cases; corporations, partnerships, and other entities may not.
Reaffirmation Agreement: A contract which reimposes the personal liability that the bankruptcy discharge would otherwise eliminate. The Agreement states that the debtor will keep the collateral and keep making the payments, just as if the bankruptcy had never happened. If the debtor defaults on payments after signing a reaffirmation agreement, the creditor will have the right to sue for a deficiency judgment. For more information, CLICK HERE.
Secured Debt: Debt to a creditor who has a lien on your assets, a/k/a “collateral.” The most common secured debts are vehicle and home loans. If a debtor defaults on a secured debt, the lender may sue on the debt, to recover the collateral, or both. Bankruptcy can eliminate the personal obligation to pay the debt but very rarely can it eliminate liens. If a debtor defaults on a secured debt after receiving a bankruptcy discharge, the lender will still be able to recover its collateral, but it will not be able to sue for any money.
Strip Off: Treating a wholly unsecured second or more junior lien as an unsecured debt. Example: House worth $80,000 with a $90,000 first mortgage and a $20,000 second mortgage. Because the house is worth less than is owed on the first mortgage, the second mortgage may be stripped off in a Chapter 13 bankruptcy. The second mortgage holder would be paid the same dividend by the trustee as all the other unsecured creditors. At the end of the plan, the unpaid balance would be discharged and the second mortgage lien would be released. In Wisconsin, debtors cannot strip off junior mortgages in Chapter 7.
Trustee: In Chapter 7, an individual charged with attempting to obtain a dividend for unsecured creditors. In Chapters 12 and 13, an individual charged with administering the bankruptcy estate, accepting plan payments from the debtor, and making payments to creditors.
Unsecured Debt: Debt to a creditor who does NOT have any collateral securing the debt. If you default on an unsecured debt, the lender may sue you for money, but cannot repossess any assets. Typical unsecured creditors include credit card issuers, medical providers, and payday lenders.