Understanding Bankruptcy Terms in Your Area

Automatic Stay

• The period in a bankruptcy proceeding where creditors are prohibited from collecting debts from the debtor. The automatic stays begins immediately upon the filing of the bankruptcy petition. Generally, the automatic stay prevents foreclosures (temporarily at least), wage garnishments, lawsuits pending against the debtor, evictions, calls and/or any contact from any creditors/collection agencies to collect on a debt. The creditor can ask the bankruptcy judge for relief from the automatic stay in order to proceed with the collection process, and unless objected by the debtor, the relief is usually granted.

Asset 

• Property owned by a debtor such as a car, bank account, cash, wearing apparel, furniture, etc.

Creditor

• A person or entity that has extended credit to the debtor. There are several types of creditors i.e.: secured creditor, w1 secured priority creditor and unsecured non-priority creditor.

Disposable Income

• For chapter 7 bankruptcy purposes, it is the amount of money left to the debtor at the end of the month after all monthly necessary expenses are deducted from the debtor's net monthly income.

Dependent

• A person dependent on you for support that lives with you at least 50% of the time. A typical dependent could be a biological child, a parent, a sibling, or any other person that meets the definition of dependent. Note that a person who does not depend on support from you but lives in your home (i.e. a roommate) is not a dependent. It is imperative to know the exact number of dependents in your case as this is one of the factors used to determine your ability to qualify for bankruptcy.

Equity

• Equity is the residual value or interest in an asset after all liabilities are paid. Illustration 1: you have a car that could sell in today's market for $5,000.00. The car is paid off and there are no liens on it. The equity in your vehicle is $5,000.00. Illustration 2: you have a car that could sell in today's market for $5,000.00. The car has a lien on it in the amount of $3,000.00. The equity in your car is $2,000.00. Illustration 3: you have a car that could sell in today's market for $5,000.00. The car has a lien on it in the amount of $6,000.00. The equity in your car is negative ($1,000.00} or in other words there is no equity in the car at all.

Exemption

• Exemptions allow a debtor to keep property in a bankruptcy proceeding. Generally, whenever a debtor files for chapter 7 bankruptcy, the debtor agrees to allow the bankruptcy trustee to take all the property of the debtor and sell it in order to pay the debtor's creditors. Exemptions allow a debtor to keep property, in turn preventing the trustee from touching any or most of the debtor's assets. In Virginia there are several exemptions that allow a debtor to keep property during a bankruptcy proceedings such as the homestead exemption, a motor vehicle exemption, a gun exemption, household furniture exemption, wedding and engagement ring exemption, etc. Exemptions in Virginia are very specific and there are strict limits on how much equity in assets a debtor can retain. Consult with your attorney in order to determine whether you will be able to keep all of your assets if you file for bankruptcy.

Garnishment

• A  legal tool that allows a creditor to collect directly from the debtor's wages in order to satisfy a judgment against the debtor.

Means Test

• A test used to determine whether a person qualifies for bankruptcy. The means test is triggered if a debtor's income exceeds the median income in Virginia based on household size. The means test is very complex, and a debtor should not attempt to navigate through the means test without proper legal advice. Failure to complete the means test properly could mean dismissal of the bankruptcy case or conversion to a chapter 13 proceeding.

Meeting of Creditors

• It is also known as 341 hearing. It is a meeting schedule post-bankruptcy filing where the debtor is required to appear in front of a bankruptcy trustee in order to answer any questions that tl1e trustee or any creditors of the debtor that show up may have. It is noteworthy to highlight that creditors rarely show up to these hearings and usually, the debtors ended interacting with the bankruptcy trustee only.

Nondischargeable Debt

• Debts that are not wiped out in a bankruptcy proceeding. Nondischargeable debts include domestic support obligations, federal and state liability, debt procured through fraudulent means, student loans, etc.

Priority debt

• A type of nondischargeable debt that is not wiped out or forgiven in a bankruptcy proceeding. Generally, priority debt includes debts owed to the federal or state government and domestic support obligations.

Reaffirmation Agreement

• A contract which a debtor signs in a bankruptcy proceeding in order to take a debt accrued prior to the filing of the bankruptcy which would otherwise be discharge and renew such obligation so that the debtor would remain liable for such debt. Reaffirmation agreements are voluntary, and debtors cannot be forced or coerced into signing one. Debtors should be aware that by signing a reaffirmation agreement they will remain liable for the debt reaffirmed regardless of the bankruptcy. This means that if following the bankruptcy discharge, the debtor cannot make the payments for such reaffirmed debt, the creditor can attempt to collect, file suit against the debtor and garnish the debtor's wages. As if bankruptcy never happened.

Illustration

• You have a car which has a lien in the amount of $5,000.00. The lien holder is BB&T. You decide to file for bankruptcy. When you file for bankruptcy you must list your car as well as the $5,000.00 lien in your petition (even if you plan on keeping the car). Thus, after the bankruptcy, assuming it is successful and you are fully discharged, the $5,000.00 liability which you were liable for prior to the bankruptcy is also discharged. Even though the liability was discharged, most debtors will continue to make payments on the vehicle in order to keep the car because otherwise BB&T could come and take the car at any point. But they are not actually legally obligated to do so. The debtor is voluntarily making the payments so that they can keep possession of the vehicle. What the reaffirmation agreement does is, it revives the discharged debt, in this case the BB&T loan, making the debtor liable for that debt again post-bankruptcy.

Reaffirmation hearing

• A hearing held by the Bankruptcy court in order to determine whether a debtor should be permitted to enter into a reaffirmation agreement. Reaffirmation hearings are not always required. Consult with an attorney in order to see whether you will need to have a hearing or not.

Secured creditor

• A creditor that has a lien or security interest in your property. A secured creditor can be a bank that gives you a loan for your home (i.e. home mortgage) or a bank that provides you with a loan so that you can buy a car. A secured creditor is known as "secured" because in the event that the debtor fails to make the monthly payments, the creditor has the option of taking the property (known as collateral) back so that it can be sold in order to pay off the remaining loan balance. In many cases the collateral is sold for less than what the outstanding loan amount is and a deficiency amount will occur. Normally, the debtor is responsible for the deficiency amount, but the good news is that such deficiency amount can also be discharged in bankruptcy. Illustration: you go to CarMax and purchase a car for $10,000.00. You, however, don't have any money. So, CarMax finances the car for you, and they give you a $10,000.00 loan so that you purchase the car. Under these circumstances, CarMax is the secured creditor and the lienholder. The car is the collateral. You are the debtor. After a year of making payments you lose your job and can no longer afford the car. Eventually, CarMax exercises its right to take back the car and eventually sells the car for $5,000.00. At the time the car is sold you still owe CarMax $8,000.00 for the car. Thus, the sale of the car wasn't enough to cover the loan amount and there is a deficiency amount of $3,000.00. You are ultimately responsible for the $3,000.00 deficiency amount. CarMax can sue you and obtain a judgment against you and eventually it can garnish your wages in order to recoup the difference.

Trustee

• The person in charge of administering your bankruptcy case. Trustees are not judges. They are bankruptcy attorneys who are assigned by the Department of Justice to oversee your bankruptcy case.

Unsecured creditor

• A creditor that has offered you credit without taking a security interest in any of your property or assets. Unsecured creditors are generally credit card companies, medical providers, friends and family members that lend you money, etc. Warrant in debt: a lawsuit filed against a debtor in order to obtain a judgment for an unpaid debt. A warrant in debt is the first legal step taken by a creditor in order to collect unpaid debt. A warrant in debt generally gives rise to a judgment. Once a judgment is entered by the judge, the creditor can proceed to garnish the debtor's wages.