Personal Bankruptcy Glossary of Terms | Wisconsin Edition

Personal Bankruptcy Terms and DefinitionsWe know legal jargon can feel overwhelming, and especially during a stressful time like when you’re thinking about bankruptcy. That’s why we wrote up the glossary below, which contains common personal bankruptcy terms and simple definitions. If you still have questions about any legal terms, give us a ring or send us an email.

341 meeting: also known as a “meeting of creditors” or “trustee meeting,” the 341 meeting is the first meeting between the trustee, debtor, and the debtor’s bankruptcy attorney, after a petition for bankruptcy has been filed. At this meeting, the trustee assigned to the case asks the debtor yes/no questions about their assets, debts, and finances in general. Creditors are invited to this meeting, but they rarely attend. The meeting normally takes no more than 15 minutes and does not happen in front of a judge, though the debtor is required to swear they will tell the truth. 341 meetings take place at the federal courthouse in Milwaukee, Kenosha, Oshkosh, Green Bay, or Madison, depending on where you live.

Adversary proceeding: a special suit usually filed by a creditor, but very rarely and only if special circumstance apply.

Automatic stay: the moment a bankruptcy case is filed, an automatic stay goes into effect. This puts a temporary hold on all collection efforts by all creditors. The automatic stay remains in effect until the case is discharged, or the creditor is granted relief from the stay, based up a formal motion.

Chapter 7: also known “liquidation” bankruptcy, is the most common form. Chapter 7 bankruptcy helps debtors discharge most or all debts. Debt that cannot be discharged are any type of student loan, domestic support obligation, debts to governmental agencies, certain types of tax debts, and any debts for fraud or OUI.

Chapter 13: available to individuals with a regular source of income who intend to payoff some percentage of their debt over 3 to 5 years at no interest and no late fee. People can also pay off tax debt, interest, arrears, stopping a foreclosure or car repossession, etc.

Credit counseling course: a requirement to filing bankruptcy, this course is non pass-fail and is done over the internet or phone. There is also a second course call the Financial Management Course, which is also non pass-fail and is required in order to receive your discharge.

Creditor: the individual or organization to whom the debtor owes money.

Debtor(s): the person(s) filing for bankruptcy.

Debt relief consultation: this is an important step before filing for bankruptcy – a meeting with a lawyer to review your financial situation and discuss all the options available to you.

Deficiency judgment: a situation in which a creditor has repossessed some type of collateral, like a car, but the value of this collateral (say, $6,000 when sold at auction) does not cover the total amount of money owed (say, $16,000). This would be considered an unsecured debt, which is discharged when you complete the bankruptcy.

Discharge: when a debt is wiped out when you complete the bankruptcy. This sounds simple, but discharge is not a magical solution to debt troubles. However, not all debts are able to be discharged, such as any student loans, domestic support obligations, debts to governmental agencies, and certain tax debts.

Dividend: a percentage of debt owed that gets paid out to creditors proportionally in Chapter 13 bankruptcy.

Equity: when the amount still owed by a debtor on an asset, such as a car or house, is subtracted from the total value of that asset, the amount left over (the amount the debtor has paid off) is called equity. For example, if your home is worth $150,000 and you still owe $100,000, your equity in the home is $50,000.

Exemptions: this is the method by which a debtor is able to keep his/her property, such as a car, home, or other personal possessions. There are two general lists of bankruptcy exemptions: federal or Wisconsin state, which set limits to the amount of each exemption.

Financial management course: a financial learning course required for the debtor before debt can be discharged in a bankruptcy filing. This is the second required financial course in a bankruptcy case, after the credit counseling course (see above).

Foreclosure: when a creditor forces the sale of a mortgaged asset, such as a home, after the debtor defaults on their payments. Foreclosures can be stopped by filing bankruptcy. If you wished to still keep your home, you would file Chapter 13 bankruptcy to do so.

Judgment proof: a situation in which all of a debtors income and assets are exempt from collection efforts. In the case of a judgment proof, a creditor can take a debtor to court but is not legally allowed to repossess or use other means to collect on the debt.

Marital property (and marital debts): In Wisconsin, all marital income, property, and debts fall under “community property” law. This means that any income, property purchased with that income, or debts incurred during the marriage is the responsibility of both married parties. Debt resulting from community property is subject to collection efforts by creditors.

Means test: a legal determination of whether a debtor who files for bankruptcy is eligible for Chapter 7, or must file for Chapter 13. The debtors’ last six month gross income is annualized to see if they are above the median income based on family size.

State median income: a state-regulated threshold for income. Approximately half of Wisconsin residents have incomes above this threshold, and the other half have incomes below this threshold. This number is used when conducting a means test on the debtor.

Meeting of creditors: see 341 meeting, above.

Petition: a document requesting relief from debts filed by an individual. The filing of a petition opens a bankruptcy case, and execute an automatic bankruptcy stay.

Preference: a payment to a creditor made during the 90 days before a bankruptcy filing. The trustee in a bankruptcy case may be able to recover part or all of this payment if it meets certain requirements.

Priority debt: those debts whose payments to creditors are given priority over others, as determined by the Bankruptcy Code, such as tax debt.

Reaffirmation agreement: a legal contract that reinstates responsibility for a debt, usually a car or house loan. This agreement requires the debtor to continue making payments on the debt as though a bankruptcy discharge was never granted. If the debtor defaults on this debt, the creditor can reposes the collateral.

Secured credit card: a line of credit issued wherein the cardholder has put a certain amount down with the credit card company. For example, a debtor puts down $500 with the company and is issued a line of credit in the amount of $500. Over time and with responsible use, this line of credit may be extended and the initial deposit repaid.

Secured debt: a type of debt owed in which the creditor also has a lien on the asset. This is most common with cars and homes. In the case of secured debt, the creditor has the right to sue the debtor, recover the collateral, or both, should the debtor default on their payments. Even if the debtor defaults on payments of this debt after a discharge has been granted through bankruptcy, the creditor still has the right to repossess the collateral. However, in this case, they may not sue the debtor for any outstanding payments. See also unsecured debt, below.

Short sale: the sale of an asset, like a house or car, for less than the value of the lein. The creditor may still collect on the deficiency or they may choose to waive it. Be sure to consult your bankruptcy attorney about the tax implications of a short sale.

Trustee: a person appointed by the court who oversees different elements of a bankruptcy case, including the bankruptcy estate. The trustee acts on behalf of unsecured creditors, liquidates and distributes nonexempt assets, understands the debtor’s financial situation, determines the eligibility of creditors’ proof of claim, keeps all parties informed, files reports and tax returns and, if necessary, recommends civil or criminal legal proceedings against the debtor if they have committed fraud or another crime.

Trustee meeting: see 341 meeting, above.

Unsecured debt: debt owed to a creditor when there is no collateral securing the debt. When a debtor defaults on this type of debt, the creditor may sue but they do not have any collateral to withhold or sell. Unsecured debts include credit cards, medical bills, and payday loans. See also secured debt,