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Bankruptcy and Foreclosure Law Terms Explained

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(Numbers in blue at the end of each definition refer to Bankruptcy Code sections.)

  341 Meeting  See Meeting of CreditorsTOP 

  Adversary Proceeding  A lawsuit brought in bankruptcy court to deal with an issue related to a case.  A common example is a lawsuit brought in bankruptcy court by a creditor to try and keep a debt from being discharged due to fraud or some other reason.  TOP 

  Affidavit of Debt  A statement that the bank, after getting a judgment, files with the foreclosure court setting down the total amount due on your mortgage, including principal, interest, late charges, attorneys fees, court costs and reimbursement for any taxes or insurance payments made by the bank.  TOP 

  Arrearage  The amount that you are behind in making payments.  If your monthly mortgage is $1000 and you are 4 payments behind, your arrearage is $4000, plus any late charges.  TOP 

  Assets Everything you own that has value.  Examples include real estate, jewelry, cars, bank accounts, cash, furniture, pension plans and personal injury claims.  TOP 

  Automatic Stay  A bankruptcy court order that stops most collection actions against you, including foreclosure, wage garnishments, lawsuits, bill collector's telephone calls and the mailing of bills.  This order enters immediately and automatically when you file for bankruptcy.  If you have a bankruptcy case dismissed and file again, however, the automatic stay will only be temporary or may not even enter unless you ask the court for permission.  If a creditor wants to continue a foreclosure, lawsuit or other collection action after the automatic stay enters, the creditor must ask permission from the bankruptcy court by filing a Motion for Relief from Stay§362  TOP 

  Avoid  The power of the bankruptcy trustee to bring property that has been transferred back into the bankruptcy estate and make it available to pay creditors.  The most commonly avoided transfers are preferences, fraudulent conveyances, and unperfected security interests (a lien against property that has not been legally completely to be effective, such as a mortgage that has not been recorded on the land records).  A debtor may avoid certain liens, such as judgment liens, that reduce the amount of equity that can be exempted (protected) from creditors.  §522(f);  §544 to §548  TOP 

  Bankruptcy Code  The federal law that governs bankruptcy.  The law is found in Title 11 of the United States Code.  Cornell University Law School has an Code onlineTOP 

  Bankruptcy Estate  Everything you own at the time you file bankruptcy, including your rights to property or money, including inheritances, life insurance proceeds and personal injury lawsuits.  However, property that you have the right to keep through bankruptcy exemptions and property that the trustee abandons because it has little or no value, such as a home with little or no equity, drop out of the bankruptcy estate.  In a Chapter 7 Bankruptcy, anything that may be left in the bankruptcy estate comes under the control of the bankruptcy trustee and the trustee will use it to pay your creditors.  In a Chapter 13 Bankruptcy, you keep control of your property as the debtor-in-possession.  TOP 

  Bankruptcy Rules  The rules that the attorneys, judges, debtors, creditors and trustees must follow in bankruptcy cases.  Cornell University Law School has the Rules online.  TOP 

  Bankruptcy Trustee  A lawyer who will supervise your bankruptcy case by interviewing you at the meeting of creditors and reviewing your petition, schedules and other paperwork to see if it appears accurate and complete.  In a Chapter 7 Bankruptcy, any property that you cannot keep by using your bankruptcy exemptions will be used by the trustee to pay your creditors.  In a Chapter 13 Bankruptcy, the bankruptcy trustee will review your Chapter 13 Bankruptcy Plan to see if it seems likely that you will be able to make the payments, will recommend to the bankruptcy judge at the confirmation hearing whether or not to approve your Plan, and will receive your monthly payments and send the money to your creditors according to the Plan.  Plan payments include a 10% fee to the trustee.  The Chapter 13 trustee in Connecticut is Attorney Molly Whiton§323;  §704;  §1302  TOP 

  Chapter 7  A bankruptcy case filed under Chapter 7 of the Bankruptcy Code that cancels most unsecured debt, such as credit cards and medical bills.  See the Chapter 7 Bankruptcy page.  TOP 

  Chapter 11  A bankruptcy case filed under Chapter 11 of the Bankruptcy Code that allows businesses to reorganize their debt through a plan approved by the court.  Individual debtors who want to file a repayment plan but have too much debt to qualify for Chapter 13 Bankruptcy (over $336,900 in unsecured debt or $1,010,650 in secured debt) may be able to file bankruptcy under Chapter 11.  Chapter 11 cases are much more complex and difficult to complete than Chapter 13 cases.  Creditors and the U.S. Trustee take more active roles in Chapter 11.  Monthly income and expenses statements must be filed in a Chapter 11 and these are reviewed by the U.S. Trustee at monthly meetings.  TOP 

  Chapter 13  A bankruptcy case filed under Chapter 13 of the Bankruptcy Code that allows you to get caught up on mortgages, car loans and other secured debt by having a 3 to 5 year repayment plan approved by the bankruptcy court.  See the Chapter 13 Bankruptcy page.  TOP 

  Chapter 13 Plan  The repayment plan filed in a Chapter 13 Bankruptcy that allows you to get caught up on mortgages, car loans and other secured debt by making monthly payments.  The plan must be approved by the bankruptcy court at a confirmation hearing.  The plan can last from 3 to 5 years.  Depending on your income and expenses, you may have to pay part or all of your unsecured debt through the plan.  §1321 to §1330  TOP 

Codebtor  Someone, such as a co-signer, who is responsible along with you for a particular debt, such as a car loan.  If you file a Chapter 7 Bankruptcy, the creditor for that debt can go after your codebtor for payment.  If you file a Chapter 13 Bankruptcy, the creditor cannot go after your codebtor unless the debt was for the purchase of an item and your codebtor got the item (for example, you co-signed a car loan for your child to have a car).  §509;  §1301(c)    TOP 

  Collateral  Property that is used to guarantee the repayment of a loan.  For a mortgage, the collateral is real estate.  For a car loan, the collateral is the car, which is why the bank will hold the title to the car until the loan is paid.  For a furniture loan, the collateral is the furniture.  Real estate can be taken by foreclosure and cars and furniture can be repossessed if you fall behind on your loan payments.  The loan is a secured debt up to the value of the collateral.  If the owe more then the value of the collateral, the difference is unsecured debt.  TOP 

  Committee  See Foreclosure Committee.  TOP 

  Confirmation Hearing (Bankruptcy)  The bankruptcy court hearing in a Chapter 13 Bankruptcy to have your repayment plan approved.  For the plan the approved, you must prove a number of things, including that you have enough income to make the payments, that you have made all your monthly mortgage payments and plan payments after filing bankruptcy, that you are not behind with any child support or alimony payments, that your creditors will be receive as much as if you filed a Chapter 7 Bankruptcy, and that the plan is your best effort.  The bankruptcy trustee usually will ask the bankruptcy court to dismiss your case or convert it to Chapter 7 if your repayment plan is not approved.  Your must provide the trustee with the documentation necessary to have the plan approved before the hearing.  If the trustee is satisfied with the documentation, he or she will recommend to the judge that your repayment plan be approved and the judge usually will accept the recommendation and approve the plan.  See the Chapter 13 Bankruptcy page for more information.  §1324§1325 TOP 

  Confirmation Hearing (Foreclosure)  The Superior Court hearing, held after the foreclosure auction, to approve the sale of the property to the successful bidder.  The hearing is usually held 2 to 4 weeks after the sale.  Once the court approves the sale, the title to the property passes to the bidder and it is then too late to file a bankruptcy to save the property from foreclosure.  (See the Stopping Foreclosure page.)  TOP 

  Conversion  Changing a bankruptcy case from one chapter to another.  A Chapter 13 Bankruptcy case can always be converted to a Chapter 7 Bankruptcy.  A Chapter 13 case can be converted to Chapter 11 unless the debtor has failed to file tax returns or the Chapter 13 plan has already been confirmed.  A Chapter 7  case can be converted to Chapter 13 unless the case was previously converted to Chapter 7 from Chapter 11 , Chapter 12 (family farm reorganization), or Chapter 13.  §348;  §706;  §1307  TOP 

  Cramdown  In a Chapter 13 Bankruptcy , reducing (or cramming down) the amount of a mortgage that is secured.  The mortgage gets split into 2 parts, the secured part is equal to the value of the property and the rest is treated as unsecured debt.  If your Chapter 13 Plan pays unsecured creditors less than 100%, then the unsecured part of the mortgage is paid the same percentage amount as your other unsecured debt.  The property involved cannot be your home unless one of these three things is true:  (1) you live in a multi-family residence, (2) the mortgage is also against another property, or (3) the mortgage is a second mortgage and the first mortgage is more than the value of your residence, in which case the entire second mortgage becomes unsecured although the lien still remains against the property.  Congress is considering changing the law to allowing cramdowns on homes. (bills HR 3609, S 2636).  Cramdown example:  if the mortgage is $200,000, your property is worth only $150,000 and your Plan pays your unsecured creditors 10%, then (1) the secured part of the mortgage is reduced to $150,000, (2) the other $50,000 becomes unsecured, and (3) you only have to pay $5,000 of the unsecured part.  §1322(b)   TOP 

  Credit Counseling  Seeking professional advice on ways to handle credit and debt.  You cannot file bankruptcy unless you have undergone credit counseling within 180 days before filing.   §109(h)  TOP 

  Creditor  Anyone (people, banks, credit card companies, doctors, hospitals, the government)  to whom you owe money.  Creditors can be secured or unsecured, depending on whether they hold collateral (property to guarantee payment of the debt).  TOP 

  Debtor  In bankruptcy law, a person who files for bankruptcy.  More generally, anyone that owes money.  TOP 

  Debts  The money that you owe.  A debt can be secured, unsecured, or a combination of secured and unsecured.  TOP 

  Deed in Lieu of Foreclosure  An agreement in which you turn your property over to the bank that holds your mortgage and the bank cancels the mortgage.  This is generally a good idea if you have little or no equity in the property as it avoids bankruptcy and is better for your credit.  Usually, however, banks prefer to put a property through foreclosure to make sure that they get the property free and clear of second mortgages or any other liens.  (See the Stopping Foreclosure page.)  TOP 

  Default Judgment  A court judgment entered against someone for failure to do something in the court case, such as not filing an appearance form or other document or not showing up for a court hearing.  TOP 

  Defendant  The person or entity against whom a lawsuit is brought.  In a foreclosure case, the bank that has sued you is the plaintiff and you are the defendant.  TOP 

  Deficiency Judgment  A court judgment requiring someone to pay the difference between what a creditor has been able to receive from taking back collateral and the total amount of the debt.  For example, if a mortgage balance is $250,000 and a bank forecloses on property worth only $200,000, the bank can ask the court to enter a deficiency judgment for the $50,000 difference.  A deficiency judgment is an unsecured debt and can be discharged in bankruptcy.  TOP 

  Discharge  The legal term for wiping out your debt through bankruptcy. When a debt is discharged, it cannot be legally collected, although a lien that secures the debt is not automatically wiped out.  A successful bankruptcy case results in a discharge.  §727;  §1328  TOP 

  Dischargeable Debt A debt that can be cancelled by filing bankruptcy.  TOP 

  Dismissal  Having your bankruptcy case terminated by the court before a discharge enters or a Chapter 13 Plan is completed.  An unsuccessful bankruptcy case results in a dismissal.  A dismissal may keep you from being able to file bankruptcy again for a while or from getting all the protection that a bankruptcy case normally brings.  Your bankruptcy case may be dismissed if, for example, you do not file the right documents on time, fail to attend required bankruptcy hearings, or do not make your Chapter 13 Bankruptcy Plan payments.  §109(g);  §349;  §707;  §1307  TOP 

  Domestic Support Obligation  Alimony or child support payments that you owe to an ex-spouse, to a parent or guardian of your child(ren), or to a town or state that has supported your child(ren), your children's parent or guardian, or ex-spouse.  You cannot cancel your liability for a domestic support obligation by filing bankruptcy.  The bankruptcy court will not confirm your Chapter 13 Bankruptcy if you are behind in your payments on a domestic support obligation.  (See support and alimony on the FAQ page and the Divorce & Bankruptcy page.)  §101(14A);  §523(a)(5);  §1325(a)(8);  §1328  TOP 

  Equity  The difference between what your house (or any other asset) is worth and the total of all the mortgages or other liens against the property.  If you house is worth $250,000 and you owe $200,000 on your first mortgage and $10,000 on a second mortgage, your equity is $40,000.  TOP 

  Exempt  Property that is protected in bankruptcy from creditors§522(d)  TOP 

  Exemptions  A list of the property that you have protected in bankruptcy§522(d)  TOP 

  Foreclosure A lawsuit filed in state court by a bank or other holder of a mortgage or lien to take the real estate that secures the loan.  In Connecticut, there are two types of  these lawsuits, Foreclosure by Sale, in which the property is sold at auction, and Strict Foreclosure, in which title to the property passes directly to the bank.  Filing bankruptcy, particularly Chapter 13 Bankruptcy, may be an effective way to stop foreclosure.  (See the Stopping Foreclosure page.)  TOP 

  Foreclosure by Sale  A lawsuit filed in state court by a bank or other holder of a mortgage or lien to have the court auction off the property securing the loan so that the bank can get paid.  (See the Stopping Foreclosure page.)  TOP 

  Foreclosure Committee  An attorney appointed by a state court in a foreclosure lawsuit to auction off mortgaged property.  (See the Stopping Foreclosure page.)  TOP 

  Fraudulent Transfer  Giving property to someone else for less than it is worth to try and keep the property safe from creditors.  TOP 

  Garnish To attach wages or other property to pay a debt.  TOP 

  Garnishment  A court order allowing wages or other property to be attached to pay a debt.  TOP 

  Insider  Any person to whom the debtor is related (by blood, marriage, adoption or step relationship) within three degrees of consanguinity according to the common law (in Connecticut, this would be a parent, child, brother or sister, grandparent, aunt or uncle, or grandparent, but it is possible a court may include other relatives); any general partner of the debtor, any partnership in which the debtor is a general partner, and any business (such as a corporation or limited liability company) in which the debtor is a director, officer, or person in control.  §101(31); §101(45)  TOP 

  Judgment  The final ruling of a court in a lawsuit.  TOP 

  Judgment Lien  A document placed on the land records to secure payment of a debt that a court has determined you owe.  The person who places the judgment lien against you is a secured creditor.  Hospitals often sue for unpaid medical bills and place judgment liens against property.  TOP 

  Law Days  Deadlines in a strict foreclosure lawsuit to pay off the entire mortgage balance (to "redeem") in order to keep the property.  The court sets the law days when it enters judgment.  The first law day is for the owner of the property.  This day has to be at least 20 days after the date of judgment.  If there are other mortgages or liens against the property, then the holder of the last mortgage or lien recorded on the land records gets the second law day, the holder of the next-to-last mortgage or lien gets the third law day, and so on.  When the last law day passes, the bank or other lender that brought the foreclosure case gets title to the property.  When the last law day passes, it is then too late to file a bankruptcy to save the property from foreclosure.  (See the Stopping Foreclosure page.)  TOP 

  Lien  A right to property to secure a debt.  A mortgage recorded on the land records is a lien against a house or other real estate.  A bank that makes a car loan keeps the title as a lien against the car.  §101(37)  TOP 

  Lien-Stripping  Reducing a lien through bankruptcy to the value of the collateral securing a debt.  See cramdownTOP 

  Luxury Goods  Any item not reasonably acquired for the support or maintenance of the debtor or a dependent of the debtorDebt of more than $500 from the purchase of luxury items 90 days before filing bankruptcy is not dischargeable.   §523(a)(2)(C)  TOP 

  Means Test  A calculation required by the 2005 Bankruptcy Act that will determine if you can file a Chapter 7 Bankruptcy and cancel your unsecured debt or whether you must file a Chapter 13 Bankruptcy and pay your part or all of your unsecured debt over time.  The calculation uses your income, your secured debt payments, what your other expenses should be according to the size of your household, and the amount of your unsecured debt.  (See the Means Test section of the page about 2005 Act.)  §707(b)  TOP 

  Meeting of Creditors  An interview with the bankruptcy trustee that anyone who files bankruptcy must attend.  The interview is sometimes called the 341 Hearing after the section of the bankruptcy law that requires it or the Meeting of Creditors because creditors have the right to appear and ask questions (which almost never happens except in cases where the debtor operates a business or has been sued).  The interview is conducted by the bankruptcy trustee, who is a lawyer not a judge, and takes place in a regular room instead of a courtroom.  (See the Trustee Hearing page.)  §341  TOP 

  Mortgage  A deed to a home or other real estate that is given to a bank to guarantee a loan. When you buy a home with a loan from a bank, you give the bank a mortgage, you are the mortgagor, and the bank is the mortgagee.  An equity line of credit is also a mortgage.  TOP 

  Mortgagee  The bank or other lender who makes a loan and gets back a mortgageTOP 

  Mortgagor  The borrower who gives a bank or other lender a mortgage on a home or other real estate to guarantee payment.  TOP 

  No-Asset Case  A Chapter 7 Bankruptcy case where there are no assets (property) that can be sold to pay unsecured debt.  Most Chapter 7 cases are no-asset cases because people who file bankruptcy usually have very little property and what they do have can be protected through bankruptcy exemptions.  TOP 

  Non-Dischargeable Debt  A debt, such as child support, that cannot be cancelled in bankruptcy.  (See the alimony & child support, taxes, and student loan sections of the FAQ page.)  §523(a);  §1328(a)  TOP 

  Personal Property  Anything you own that is not real estate.  TOP 

  Petition  The document that is filed with the bankruptcy court to start a bankruptcy case.  §101(42); §301  TOP 

  Plaintiff  The person or entity who files a lawsuit.  In a foreclosure case, the bank that has sued you is the plaintiff and you are the defendantTOP 

  Plan  See Chapter 13 PlanTOP 

  Preference or Preferential Transfer  A payment or transfer of property made so soon before filing bankruptcy that the bankruptcy law allows it to be avoided (taken back).  The bankruptcy trustee can get back the payment or property and divide it among all the unsecured creditors unless (1) it was for a secured debt such as a mortgage or car loan, (2) it was made more than 90 days before filing bankruptcy, (3) it was made more than 1 year before filing bankruptcy and was to a relative or other insider (such as a business partner), or (3) it was made in the usual course of business (for example, rent, utilities or supplies).  §547 to §548  TOP 

  Priority Debt  A debt that has to be paid in full through a Chapter 13 Bankrtupcy Plan.  Priority debts include taxes that became due during the 3 years before filing bankruptcy and child support§507;  §1322(a)(2)  TOP 

  Proof of Claim  A document that a creditor can file with the bankruptcy court stating how much the creditor was owed at the time the bankruptcy was filed, how much was overdue, whether there is any property held to secure the loan, and the value of any such property   A creditor who fails to file a Proof of Claim usually will not get paid through the bankruptcy.  §501;  §502  TOP 

  Reaffirmation Agreement  An agreement in a Chapter 7 Bankruptcy in which you agree to keep paying a debt that you could discharge.  This is usually done to keep collateral, such as a car or a house, that secures a debt.  If you are represented by an attorney, he or she can certify to the bankruptcy court that reaffirming a debt would not be a hardship for you.  If your attorney feels he cannot make that certification, then the bankruptcy judge must approve the reaffirmation at a hearing in bankruptcy court.  You can cancel this agreement within 60 days or before or before bankruptcy discharge, whichever occurs later.  Reaffirmation is an alternative to redeeming or to surrendering (giving up) the property.  §524  TOP 

 Redeem (Bankruptcy)  In a Chapter 7 Bankruptcy, to pay a creditor that holds a lien on property the full value of the property at once to keep the property and cancel the balance due.  This may be a good idea if you owe more that the property is worth.  You may even be able to get a loan to make the payment.  Example:  You have a car worth $7500 but owe $10,000.  You can redeem the car by paying the lender $7500 and thereby cancel the balance.  Redemption is an alternative to reaffirming a debt or surrendering (giving up) the property.  §722  TOP 

Redeem (Foreclosure)  To save your home or other real estate by paying the bank or other creditor that has filed the foreclosure lawsuit the full amount of its debt.  Your chance to redeem is lost once your law day passes.  (See the Stopping Foreclosure page.)  TOP 

  Relief from Stay  A bankruptcy court order allowing a creditor to ignore the automatic stay and take some action to collect a debt, such as starting or continuing a foreclosure case.  (See the Stopping Foreclosure page.)  §362(d)  TOP 

  Schedules  The documents filed with your bankruptcy petition that list your assets, debts, income and expenses.  TOP 

  Secured Creditor  A creditor who has a right to some of your property in order to guarantee your payment of a loan.  Examples of secured creditors are a bank that holds a mortgage to your house, a finance company that holds the title to your car, and a hospital that has filed a judgment lien on the land records against your home.    TOP 

  Secured Debt  Money you owe where the payment is guaranteed by a right to some of your property.  Examples include a mortgage on your house or other real estate, a car loan where the bank holds the title to your car, and a judgment lien filed on the land records by someone who successfully sued you to collect a debt§506  TOP 

  Stay An order of a court forbidding something to happen until the court lifts the order or some specified event happens.  When you file bankruptcy, the bankruptcy court enters an automatic stay forbidding your creditors, with certain exceptions, from taking action to collect debts, such as starting or continuing a foreclosure.  TOP 

  Strict Foreclosure  A lawsuit filed in state court by a bank or other holder of a mortgage to have the court transfer to the bank (or other mortgage holder) the title to the home or other piece of real estate that secures the mortgage if the owner of the property does not pay off the mortgage in full (redeem) before a certain deadline.  The deadline, known as the law day, is set by the court when it enters judgment.  If there are other mortgages or liens against the property, the holder of these mortgages or liens also get law days.  When the last law day passes, it is then too late to file a bankruptcy to save the property from foreclosure.  (See the Stopping Foreclosure page.)  TOP 

  Summary Judgment  A judgment that a court can enter without holding a trial if the court believes that is has enough information from affidavits and other documents to decide the case.  To enter summary judgment, the court must decide that the affidavits and documents show that there is no genuine issue of material fact, that is, there are no facts that would require a trial to prove.  TOP 

  Trustee  See Bankruptcy TrusteeTOP 

  Unsecured Creditor  A person or company that does not have any rights to property to guarantee payment of a debt.  TOP 

  Unsecured Debt  A debt that is not linked to any rights to property to guarantee payment.  Most credit cards, doctors’ bills and personal loans are unsecured. TOP 

  United States Trustee  A lawyer with the U.S. Department of Justice who reviews bankruptcy cases to make sure that there are no violations of law or other irregularities.  §307  TOP   

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