This page presents a glossary of bankruptcy terms. Bankruptcy has its own jargon so it may be helpful to familiarize yourself with some of the words you may hear over the course of your bankruptcy case.
Adversary Proceeding: this is a lawsuit filed within your bankruptcy case. There can be any number of reasons for filing a lawsuit but we most often use adversary proceedings to pursue your rights under the Bankruptcy Code and other consumer protection statutes.
Arrears (mortgage): the amount of money that you are behind on your mortgage piror to filing bankruptcy. This sum will be paid through your bankruptcy plan in a chapter 13 case in order to catch up what you are behind on your mortgage. When you complete your chapter 13 plan, you will then be current on your house mortgage.
Automatic stay: the automatic stay is a term used for an order of the court that goes into effect immediately upon the filing of a bankruptcy petition. It stays or stops all creditor actions without further request from the court (hence, automatic). The automatic stay lasts for the duration of your bankruptcy case and creditors are not allowed to contact you or take any action without asking the court’s permission first. If a creditor contacts you or does something to collect a debt after you filed bankruptcy, it is called a violation of the automatic stay.
Conduit case (mortgage payment inside the plan): Since January 1, 2010, our district has had a “conduit” mortgage plan where you pay your mortgage through your chapter 13 plan while you cure whatever amount that you are behind through the plan, too. There are some advantages to this in that there is record of mortgage payments and the mortgage creditor cannot secretly tack on fees. There are some limited instances when we can ask the court to allow payment of a mortgage “direct” to the creditor or “outside the plan.”
Cram-down: a term often used in bankruptcy in connection with a secured claim. In bankruptcy, a secured claim can be split into two components–one part representing the value of the collateral and the remaining part is the amount of the debt remaining over and above the value of the collateral such as for a car, if the car is worth $8,000.00 and owe $12,000.00. A cram-down means that you pay for the value of the collateral through your bankruptcy plan as opposed to what you owe on it.
Chapter 7: commonly referred to as a liquidation or straight bankruptcy. In exchange for a discharge of your debts, you surrender all non-exempt assets to a trustee. The chapter 7 trustee then sells or “liquidates” all of the debtor’s non-exempt assets to generate money to pay the debtor’s creditors.
Chapter 13: sometimes referred to as a wage-earner’s plan where you pay money every month to the Chapter 13 trustee. The trustee will take that money and pay your creditors according to a set plan. At the end of your case, any remaining debts dealt with through your plan will be discharged.
Discharge: A “discharge” is an order from the court eliminating your debts dealt with through your bankruptcy case. The discharge order is the goal of your bankruptcy case. If a creditor attempts to collect a discharged debt, it violates the bankruptcy court’s discharge order.
Exemptions or “exempt property”: Because we do not want to leave people completely destitute, you are allowed to keep a certain amount of property from your creditors in a bankruptcy case. This is called “exempt property” or an “exemption.” Different exemptions may apply in any particular case but North Carolina’s exemptions are discussed under the FAQs.
“Inside the plan”: Bankruptcy lawyers often use this term to mean that the debt will be paid through your chapter 13 plan. Most debts are paid or dealt with “inside the plan” but some debts, may be left “outside the plan” and you continue to make those payments yourself.
Means test: a calculation that we must use for above-median income debtors to see if you qualify to file a chapter 7 case or how much money you must pay to your unsecured creditors in a chapter 13 case. The means test uses IRS allowances for routine expenses like housing, food, transportation expenses and also allows deductions for secured claims.
Mortgage “strip-off”: a mortgage strip-off is available in a chapter 13 case when there are two or more mortgages on the residential property. If you owe more on your first mortgage that what your home is worth, then there is no equity for the second mortgage to attach to so, in a chapter 13, we can treat the second mortgage as “unsecured” and “strip it off.”
Motion to Dismiss: this motion is filed typically by the Chapter 13 trustee asking that your case be dismissed. Usually, this motion is filed when you have not made your chapter 13 plan payments. This motion may also be filed if the trustee thinks that your chapter 13 plan does not comply with the rules or if too little will be paid to certain creditors like secured creditors or tax claims.
Motion for Relief from the Automatic Stay: the automatic stay is the court order that prohibits creditors from taking any action. If the creditor takes action, it will first file a document with the court (a “motion”) asking the court to allow them (“relief”) to do what they want with regards to their collateral. If you are making house payments directly to your mortgage creditor as part of your bankruptcy case and do not make the payments, you will receive one of these.
Post-petition: anything that happens after you file for bankruptcy protection. For example, if you are making your house payments directly to your mortgage creditor but get behind, this would be called your post-petition arrears to distinguish from your pre-petition arrears which is the amount that you were behind on your mortgage before you filed bankruptcy.
Pre-petition: this term is often used to mean anything that occurred prior to your filing for bankruptcy protection. For example, the amount that may be behind on your house before you file bankruptcy would be called a pre-petition arrears.
Priority debts: Priority debts are accorded a special status in bankruptcy cases and must be paid in full through a chapter 13 bankruptcy plan. Examples of priority debts include income taxes owed; property taxes; child support arrearages and past-due wages you may owe to your employees.
Projected Disposable Income (PDI): this term refers to the amount of money left over after all deductions are taken under the means test and is the money theoretically available to pay to your unsecured creditors every month through your chapter 13 plan.
Proof of claim: a document filed by your creditors in your bankruptcy case asserting their right to payment. If a creditor does not file a proof of claim in your case, they will not share in any distribution of money made by the chapter 13 trustee.
Secured claim: a secured claim is an obligation that has collateral associated with it. If you were not to pay the debt prior to bankruptcy, the creditor would be able to foreclose on the collateral or repossess the collateral. Typically, secured claims consist of a house, car, sometimes furniture purchases financed through the store where you purchased the furniture.
Trustee: the trustee is the person in charge of your bankruptcy case or who administers your case. The trustee has an obligation to ensure a fair distribution to your creditors and to ensure your bankruptcy plan complies with the Bankruptcy Code.
Unsecured claim: an unsecured claim is any debt or obligation that does not have collateral associated with it. Typically, unsecured claims are credit cards, medical bills, promissory notes/signature loans.