Bankruptcy Key Words

Petition Date: Date of filing of the bankruptcy petition. Petition by debtor requests protection under one of the Chapters of the Bankruptcy Code, depending on the financial status of the debtor. Starts the bankruptcy case. Starts the automatic stay.

Chapter 7: Personal liquidation. Chapter 7 Trustee gathers all of the debtor’s assets and pays off all debts. Typically, a debtor who files for Chapter 7 protection has no assets. Secured creditors either receive the security in payment or are foreclosed by a senior secured creditor. Once a junior secured creditor is foreclosed, it becomes an unsecured creditor. Unsecured creditors typically are paid nothing (in a no assets chapter 7 case) or all unsecured creditors share pro-rata in the assets.

Chapter 13: Personal reorganization. Debtor proposes reorganization plan to pay off pre-petition unsecured debts over a 48- or 60- month period to some extent (a percentage of the total unsecured pre-petition debt). Payments are made to the Chapter 13 Trustee who distributes the payments (like credit consolidation). Secured obligations are usually handled outside the plan. Debtor must pay all secured obligations and post-petition obligations during the pendency of the case.

Automatic Stay: Injunction against creditors during pendency of bankruptcy case (i.e., prior to dismissal or termination). No creditor may pursue collection activity without permission of court. Stay ends upon dismissal or termination.

Relief from Automatic Stay: Request made to court for permission to pursue collection activity.

Secured Debt: Debt as to which there is a recorded security interest (e.g., deed of trust or mortgage, assessment lien). Secured creditors enjoy seniority in the order of recordation of the liens. Assessment lien is always junior to bank’s mortgage lien.

Unsecured Debt: Debt as to which there is no recorded security interest (e.g., credit card debt).

Prepetition Debt: Debt which accrues up to the date that the bankruptcy case is filed.

Postpetition Debt: Debt which accrues after the date that the bankruptcy case is filed.

Discharge: Order of the court that all prepetition (unsecured) debt is not subject to collection. Includes permanent injunction against creditors from collecting prepetition debt.

Termination: The end of the bankruptcy case. Stay no longer applies, except as to discharged debts. Bankruptcy case terminates either when all assets have been administered (e.g., all assets in a Chapter 7 case have been distributed to creditors, or all payments have been made to the Chapter 13 Trustee under the plan).

Dismissal: The end of the bankruptcy case by Order of the Court, either upon its own motion or motion brought by some other interested party. Typical bases for dismissal are legal insufficiency of the debtor (e.g., too many bankruptcy filings in a specified period, or no stream of income with which to make Chapter 13 plan payments), or the debtor’s failure to make payments under the Chapter 13 plan.

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