Law Office of Jason A. Nordsell
Law Office of Jason A. Nordsell

Bankruptcy Terminology

Means testing - The Bankruptcy Code uses this test to determine whether a Chapter 7 bankruptcy filing should be converted to a Chapter 13.  

Absent special circumstances, a Chapter 7 filing will be converted to a Chapter 13 if the debtor's aggregate current monthly income (see below), net of statutorily allowed expenses over the next 5 years, is more that either (a) $10,950, or (b) 25% of the debtor's nonpriority unsecured debt (if over $6,575).


Current Monthly Income (CMI) - An average of the debtor's current monthly income over the six calendar months before filing for bankruptcy.  This amount does not include social security income.


Exemptions / Exempt Property - Certain property of the debtor that the Bankruptcy Code or state law allows the debtor to keep from unsecured creditors (e.g., homestead exemption, trade tools exemption, etc.).


Automatic Stay - Stops all collection activity by creditors, including lawsuits, foreclosures and wage garnishments.  It is "automatic" from the instant you file the bankruptcy petition.


Relief from Stay - A creditor can ask the court to lift the stay to allow them to continue, for example, a foreclosure.  A court may grant their request, for example, where a debtor falls behind in their Chapter 13 payment plan.


Cramdown - In a Chapter 13 repayment plan, the court has the ability to reduce the amount you owe on secured debts (e.g., car loan).  


Secured debt - A debt backed by collateral that a creditor can pursue upon a debtor's default (e.g., a mortgage secures a home loan with the home itself; a lien secures a car loan with the car that is purchased, etc.).


Unsecured debt - A claim or debt that is based only on a borrower's promise to pay, with no automatic right to pursue the debtor's property upon default.


Confirmation - A bankruptcy judge's approval of a plan of reorganization or liquidation under Chapter 13 (as well as under Chapter11 (businesses) or 12 (farmers)).


Estate - More specifically, the "bankruptcy estate," is all the debtor's property and all interests a debtor has in property at the time of the bankruptcy filing.


Trustee - Represents the bankruptcy estate principally for the benefit of unsecured creditors and is supervised by the court and the U.S. trustee.  A trustee is appointed in all chapter 7 and 13 cases (as well as 12 and some 11 cases) and is responsible for reviewing the debtor's petition, reviewing the debtor's schedules, and bringing actions against creditors or the debtor to recover property of the estate.  In Chapter 7 cases, the trustee is also responsible for liquidated non-exempt property and distributing the proceeds to creditors.  In Chapter 13 cases, the trustee also receives the debtor's payments and distributes them to creditors.


Discharge - A release of a debtor from personal liability for dischargeable debts.

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