Bankruptcy Glossary - Massachusetts

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Bankruptcy can be a confusing and scary process. But it doesn't have to be!

Below you will find simple definitions for many of the common terms you can expect to encounter when learning about bankruptcy.

If you would like more information or don't see a definition you're looking for please do not hesitate to call us at 508.655.5980, e-mail us.

Definitions

341(a) Meeting: The first meeting of a debtor's creditors and equity security holders, presided over by the U.S. Trustee where the debtor may be examined under oath.

Accounts Receivable: An account reflecting a balance owed by a debtor; a debt owed by a customer to an enterprise for goods or services.

Administrative Proceeding: A hearing, inquiring, investigation, or trial before an administrative agency, usually adjudicatory in nature but sometimes quasi-legislative.

Adversary Proceeding: A lawsuit that is brought within a bankruptcy proceeding, governed by special procedural rules, and based on conflicting claims usually between the debtor and a creditor or other interested party.

Allowable Expenses: Any monthly expense regularly incurred by the debtor which will not be objected to as unnecessary by creditors or the bankruptcy trustee. Allowable expenses including such things as housing expenses, food and clothing expenses, child care expenses, automobile expenses, and, in the case of Chapter 13, contributions to a qualified retirement plan.

Answer: To respond to a pleading or a discovery request.

Attachment: The seizing of a person's property to secure a judgment or to be sold in satisfaction of a judgment.

Asset: An item that is owned and has value.

Assignment: The transfer of rights or property.

Automatic Stay: A bar to all judicial and extrajudicial collection efforts against the debtor or the debtor's property.

Avoidance Action: A type of adversary proceeding filed by the debtor or bankruptcy trustee against one or more creditors to recover funds which were paid to that creditor, to the detriment of other creditors.

Bankruptcy: The statutory procedure, usually triggered by insolvency, by which a person is relieved of most debts and undergoes a judicially supervised reorganization or liquidation for various types of bankruptcy under federal law.

Budget: A statement of an organization's estimated revenues and expenses for a specified period, usually a year.

Chapter 7: The chapter of the bankruptcy code allowing a trustee to collect and liquidate a debtor's property, either voluntarily or by court order, to satisfy creditors and discharge any remaining unsatisfied debt.

Chapter 7 Trustee: A person appointed in a chapter 7 case to represent the interests of the bankruptcy estate and the unsecured creditors. (The trustee's responsibilities include reviewing the debtor's petition and schedules, liquidating the property of the estate, and making distributions to creditors. The trustee may also bring actions against creditors or the debtor to recover property of the bankruptcy estate.)

Chapter 13: The chapter of the bankruptcy code allowing a person's future earnings to be collected by a trustee and paid to unsecured creditors, and, after conclusion of a period of repayment, discharge any remaining unsatisfied debt.

Chapter 13 Plan: The chapter of the bankruptcy code allowing a person's future earnings to be collected by a trustee and paid to unsecured creditors.

Co-debtor: One that shares liability for a debt; a fellow debtor

Complaint: The initial pleading that starts a civil action and states that basis for the court's jurisdiction, the basis for the plaintiff's claim, and the demand for relief.

Consumer Debt: A debt incurred by someone primarily for a personal, family, or household purpose.

Contested Matter: Those matters, other than objections to claims, that are disputed but are not within the definition of an adversary proceeding contained in Rule 7001.

Contingent Claims: A claim that has not yet accrued and is dependent on some future event that may never happen.

Cramdown: Court confirmation of a Chapter 11 Bankruptcy plan despite the opposition of certain creditors. Also, refers to the discharge of a wholly-unsecured second mortgage on the debtor's primary residence in a Chapter 13 case.

Credit Card: An identification card used to obtain items on credit usually a revolving basis.

Credit Counseling Course: This course is required under the Federal Bankruptcy Code to be taken within 180 days prior to filing a bankruptcy petition. It must be provided by a court approved agency. With limited exception, the debtor is not eligible to file a bankruptcy petition unless certification of the credit counseling course has been filed with the court.

Creditor: One to whom a debt is owed; one who gives credit for money or goods.

Creditor Matrix: A creditor matrix contains each creditor's name and mailing address. This information is used for noticing and also for claims information when applicable.

Debt Collector: An employee of an original creditor or collection agency who tracks down debtors to get them to pay what they owe. Many debt collectors are hired by companies that are owed money. The collector's job is to track down the individuals who owe money, charging a fee or a percentage of the total amount of debt collected. Some are actually debt buyers, which means they purchase the debt at a fraction of what it's worth in order to attempt to collect the full amount.

Debt Counseling/Credit Counseling: Generally refers to two events in individual bankruptcy cases: (1) the "individual or group briefing" from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the "instructional course in personal financial management" in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.

Debtor: A person who files a voluntary petition or against whom an involuntary petition is filed.

Default Judgment: A judgment entered against a defendant who has failed to plead or otherwise defend against the plaintiff's claim, often by failing to appear at trial.

Discharge: The release of a debtor from monetary obligations upon adjudication of bankruptcy.

Execution: The act of carrying out or putting into effect.

Executory Contract: A contract that remains wholly unperformed or for which there remains something still to be done on both sides, often as a component of a larger transaction and sometimes memorialized by an informal letter agreement, by a memorandum, or by legal agreement. Examples may include a residential apartment lease or automobile lease agreement.

Exemptions: In bankruptcy, property which may not be taken by a bankruptcy trustee to pay to creditors or satisfy debt.

Expenses: An expenditure of money, time, labor, or resources to accomplish a result. In bankruptcy, the amount of money each month expended by the debtor to maintain his or her household.

Federal Exemptions: Exemptions permitted under federal law, specifically, Section 522 of the Bankruptcy Code. Generally, these will differ from the state exemptions in the amount of value or equity that the debtor is allowed to exempt. Many times the debtor may not be able to use the state exemptions and instead must use the federal exemptions. Your attorney will use the appropriate exemptions in your bankruptcy petition.

Financial Management Course: This course is required under the Federal Bankruptcy Code to be taken after the debtor files the bankruptcy petition. It must be provided by a court approved agency. Usually, the debtor takes the financial management course through the same agency that (s)he used for the credit counseling course. There is usually a time limit in which you must take this course, and the debtor is not eligible for a discharge unless certification of the financial management course has been filed with the court.

Foreclosure: A legal proceeding to terminate a mortgagor's interest in property, instituted by the lender either to gain title or to force a sale in order to satisfy the unpaid debt secured by the property.

Garnishment: A judicial proceeding in which a creditor (or potential creditor) asks the court to order a third party who is indebted to or is bailee for the debtor to turn over to the creditor any of the debtor's property (such as wages or bank accounts) held by that third party.

Gift: The act of voluntarily transferring property to another without compensation.

Gross Income: Total income from all sources before withholdings, deductions, exemptions, or other tax restrictions.

Home Equity Line of Credit: A loan secured by equity value in the borrower's home.

Household Goods and Furnishings: Goods that are used in connection with a home.

Income: The money or other form of payment that one receives usually periodically, from employment, business, investments, royalties, gifts, and the like.

Involuntary Bankruptcy: A bankruptcy proceeding initiated by creditors (usually three or more) to force the debtor to declare bankruptcy or be legally declared bankrupt.

Judgment: A court's final determination of the rights and obligations of the parties in a case.

Judicial Lien: A type of lien obtained by judgment on a debtor's nonexempt property.

Lawsuit: A suit conducted according to the common law or equity, as distinguished from statutory provisions.

Lease: A contract by which a rightful possessor of real property conveys the right to use and occupy that property in exchange consideration, usually rent.

Liquidated Asset/Liquidated Debt: An asset or a debt that is for a known and fixed amount.

Loan: An act of lending; a grant of something for temporary use.

Massachusetts Exemptions: Exemptions permitted under Massachusetts law, specifically, chapters 235 and 246 of the Massachusetts General Laws. Generally, these will differ from the federal exemptions in the amount of value or equity that the debtor is allowed to exempt. Many times the debtor may not be able to use the state exemptions and instead must use the federal exemptions. Your attorney will use the appropriate exemptions in your bankruptcy petition.

Means Test: A test which evaluates the debtor's income, and is applied to determine whether an individual debtor's filing can be presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case.

Median Income: Median income is the amount which divides the income distribution into two equal groups, half having incomes above the median, half having incomes below the median. The medians for households, families, and unrelated individuals are based on all households, families, and unrelated individuals, respectively.

Mortgage: A conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms.

Motion: A written or oral application requesting a court to make a specified ruling or order.

Motion for Relief from Stay: A request by a creditor to allow the creditor to take an action against a debtor or the debtor's property that would otherwise be prohibited by the automatic stay.

Non-Consumer Debt: Any debt incurred on items meant to be lifetime investments. The primary items that fall under the category of non consumer debt are mortgage loans, student loans and back taxes.

Nondischargable Debt: A debt (such as one for delinquent taxes) that is not released through bankruptcy.

Nonposessory, Nonpurchase-money Security Interest: A security interest in collateral where the purpose of the loan is other than to purchase the collateral.

Note: A written promise by one party (the maker) to pay money to another party (the payee) or to bearer.

Personal Property: Any movable or intangible thing that is subject to ownership and not classified as real property.

Preference: The act of favoring one person or thing over another; the person or thing so favored.

Primary Residence: The dwelling where a person usually lives, typically a house or an apartment. A person can only have one primary residence at any given time, though they may share the residence with other people. A primary residence is considered as a legal residence for the purpose of income tax and/or acquiring a mortgage.

Promissory Note: An unconditional written promise, signed by the maker, to pay absolutely and in any event a certain sum of money either to, or to the order of, the bearer or designated person.

Proof Of Claim: A creditor's written statement that is submitted to show the basis and amount of the creditor's claim.

Purchase Money Security Interest (PMSI): A security interest that is created when a buyer uses the lender's money to make the purchase and immediately gives the lender security; a security interest that is either (1) taken or retained by the seller of the collateral to secure all or part of its price or (2) taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or the use of collateral if that value is in fact so used.

Reaffirmation Agreement: An agreement between the debtor and a creditor by which the debtor promises to repay a prepetition debt that would otherwise be discharged at the conclusion of the bankruptcy.

Real Property: Land and anything growing on, attached to, or erected on it, excluding anything that may be severed without injury to the land.

Repossession: The act or an instance of retaking of goods sold on credit when the buyer has failed to pay for them.

Schedule: A written list or inventory; especially a statement that is attached to a document and that gives a detailed showing of matters referred to in the document. In bankruptcy, a series of documents annexed to the Bankruptcy Petition describing the debtor's debts, assets, income, expenses, claimed exemptions, and other financial affairs.

Secured Claim: A claim held by a creditor who has a lien or a right of setoff against the debtor's property.

Secured Debt: A debt backed by collateral.

Security Deposit: The act of giving money or other property to another who promises to preserve it or to use it and return it in kind; especially the act of placing money in a bank for safety and convenience.

Seizure: The act or an instance of taking possession of a person or property by legal right or process; especially in constitutional law, a confiscation or arrest that may interfere with a person's reasonable expectation of privacy.

Set-Off: A debtor's right to reduce the amount of a debt by any sum the creditor owes the debtor; the counterbalancing sum owed by the creditor.

Statement of Financial Affairs: A document that an individual or corporate debtor must file to answer questions about its past and present financial status, including any previous bankruptcy, the location of any current accounts, and its recent or current debt.

Statement of Intention: A preliminary statement filed by the debtor in a Chapter 7 case, in which the debtor details whether property secured by consumer debt will be retained or surrendered and whether the property is claimed as exempt.

Tax Lien: A type of lien placed on property and all rights to property by the federal government for unpaid federal taxes.

Trustee: One who, having legal title to property, holds it in trust for the benefit of another and owes a fiduciary duty to that beneficiary. In bankruptcy, an individual appointed by the bankruptcy court to administer over the property of a debtor during the bankruptcy proceeding.

Unliquidated Asset/Unliquidated Debt: A debt where the debtor has liability, but the exact monetary measure of that liability is unknown. Tort claims, such as personal injury and breach of contract claims are usually unliquidated until a trial fixes the amount of the liability of the responsible party.

Unsecured Debt: A debt not supported by collateral or other security.

Unsecured Priority Claim/ Priority Debt: A claim by a creditor who does not have a lien or a right of setoff against the debtor's property, and the creditor's claim takes priority over all other claims as a matter of law. (Example: Unpaid child support, unpaid tax debt)

Unsecured Nonpriority Claim/Nonpriority Debt: A claim by a creditor who does not have a lien or a right of setoff against the debtor's property, and the creditor's claim does not take any priority over any other claims as a matter of law. (Example: Credit card debt).

U.S. Trustee: An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees, monitoring plans and disclosure statements, monitoring creditors' committees, monitoring fee applications, and performing other statutory duties.

Voluntary Bankruptcy: A bankruptcy proceeding initiated by the debtor.



Primary Source for Definitions: BLACK'S LAW DICTIONARY (7th ed. 1999)




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