There are some important, but confusing, terms that emerge over the course of a bankruptcy case. Here is a quick, non-exhaustive summary of these terms. Anyone considering bankruptcy will make the best ultimate decision that personally suits them if they know as much as possible about the bankruptcy process.
The definitions contained in this blog are not comprehensive. The purpose of this blog is to provide simple common definitions that laypersons can use and understand. As with the content of any blog, the information contained herein should not be treated as legal advice. Consult an attorney if you have specific questions and an immediate need for answers.
ADEQUATE PROTECTION PAYMENTS. Creditors with claims secured by collateral are subject to the collateral depreciating while awaiting distributions under Chapter 11 and Chapter 13 plans. Adequate protection payments compensate creditors for losses in the value of their collateral.
AUTOMATIC STAY. An injunction that automatically takes effect at the precise moment a bankruptcy petition is filed. It stops all collection efforts, including foreclosures, garnishments, and civil lawsuits.
BANKRUPTCY. A uniform system under the Federal bankruptcy code that enables a natural person or other legal entity to 1) reorganize debts and pay creditors over three to five years or 2) surrender all nonexempt assets to the trustee for the benefit of the creditors and obtain a release from any further liability to creditors. There are four types of bankruptcy under Chapters 7, 11, 12, and 13 of the Bankruptcy Code.
BANKRUPTCY CODE. The informal name for Title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal law governing bankruptcy.
BANKRUPTCY PETITION. A formal request for relief under the bankruptcy code. The filing of the petition causes the court to assign a case number, which immediately invokes the protection of the automatic stay.
BANKRUPTCY TRUSTEE. A private individual (or even corporation in some instances) appointed in all chapter 7, chapter 12, and chapter 13 cases to represent the interests of the bankruptcy estate and the debtor’s creditors. A bankruptcy trustee is affiliated with the U.S. Trustee’s Office, which is part of the Department of Justice.
BEST INTEREST OF CREDITORS TEST. The best interest of creditors test requires that debtors must propose a Chapter 11 or 13 repayment plan that pays general nonpriority unsecured creditors at least as much as they would have received in a Chapter 7 liquidation bankruptcy case.
CHAPTER 7: Available to individuals and business organizations. This is a straight liquidation for an individual and a closing of operations for a company, corporation, partnership, or proprietorship. Any current and fixed nonexempt assets are liquidated, and the proceeds are distributed to creditors pro-rata based on priorities as the final satisfaction of an outstanding obligation.
CHAPTER 7 TRUSTEE. An individual appointed in a Chapter 7 case to represent the interests of the bankruptcy estate and unsecured creditors. Trustees review the debtor’s petition and schedules, liquidate the nonexempt property of the estate, make distributions to creditors, and, when necessary, bring actions against creditors or the debtor to recover property of the bankruptcy estate.
CHAPTER 11: This is a reorganization for individuals and business organizations. Some individuals are required to file a Chapter 11 because they do not qualify for a Chapter 13 reorganization. Creditors are paid pursuant to a court-approved plan in amounts no less than those that would have been received in a Chapter 7 bankruptcy case. In many Chapter 11 bankruptcy cases, the estate is administered by the debtor as a debtor-in-possession (DIP), who holds all the powers of a trustee.
CHAPTER 12: This bankruptcy is specifically formulated and provided for family farmers who need to reorganize. Other requirements include 80% of debt must have been incurred by farming operations, and an excess of 50% of the petitioner’s income during the last taxable year must have been generated by farming. The Family Farmer Relief Act raises the total debt limit in a Chapter 12 case from $4.3 million to $10 million.
Most debt collectors assume that consumers are unaware of their rights and protections under federal law. However, Theron Morrison cares about protecting your rights. Theron Morrison has the necessary experience to ensure that all consumers receive the full benefit of the protections afforded them by federal and state law. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.