Bankruptcy Terminology

This page contains general information. Contact a WBG attorney for specific advice.

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Bankruptcy Explained
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341 Meeting: A short (10-15 minutes) conversation between the trustee and the debtor. The trustee will ask questions about your assets, debts, and other financial matters. Creditors are allowed to attend and question the debtor, but they rarely do. Named after section 341 of the Bankruptcy Code, it is also known as the Meeting of Creditors (although creditors rarely appear) or Trustee Meeting. Wisconsin 341 meetings take place in Eau Claire, Green Bay, Kenosha, La Crosse, Madison, Milwaukee, Oshkosh, Superior, and Wausau.
Read more about 341 meetings.  — Back to top

Adversary Proceeding: A lawsuit within a bankruptcy case. As with an ordinary lawsuit, an adversary proceeding begins when a plaintiff serves a summons and complain on a defendant.
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Automatic Stay: A temporary injunction that stops most creditor collection efforts. The stay begins automatically and immediately upon the filing of a bankruptcy case. The stay will remain in place as to the debtor until the earlier of the judge (a) granting a discharge, (b) giving a creditor “relief” from the stay, or (c) closing the case.
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Chapter 7: Named after Chapter 7 of the federal Bankruptcy Code, a Chapter 7 bankruptcy is a relatively quick process. For individuals who qualify the result is almost always a discharge of debt. Entities cannot receive a Chapter 7 discharge.
Read more about Chapter 7.  — Back to top

Chapter 13: Named after Chapter 13 of the federal Bankruptcy Code, a Chapter 13 bankruptcy is a three to five year payment plan. Entities cannot file a Chapter 13.
Read more about Chapter 13.  — Back to top

Chapter 128: A state court plan that allows payment of most creditors over three years without interest or penalties.
Read more about Chapter 128.  — Back to top

Credit Counseling Course: A course that the law requires individuals take before filing a bankruptcy. After filing the individual must take a financial management course.
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Creditor: Someone who is owed money. In bankruptcy, it’s often a bank or credit card company. Freund Law Office represents creditors in bankruptcy cases.
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Debtor: Someone who owes money. In bankruptcy, it’s the individual or entity that files for bankruptcy relief. Both Attorney Bret Nason and Freund Law Office represent debtors in bankruptcy cases.
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Debt Relief Consultation: A meeting with a lawyer to review your entire financial situation, explore available solutions, and determine the best strategy to solve your financial problems. For a debt relief consultation contact a WBG attorney.
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Deficiency Judgment: A money judgment for the amount not covered by the value of the repossessed collateral. Example: Debtor owes Creditor $15,000 for a car loan. Debtor defaults on the loan. Debtor’s car is repossessed and sold by Creditor at auction for $5,000. Creditor may then be entitled to a deficiency judgment of $10,000, the difference between the value of the car and the amount owed. Deficiency judgments are unsecured debts.
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Discharge: A permanent injunction that prevents creditors from collecting debts. As a practical matter that means the discharge injunction wipes out debt. But some debts are excepted from the bankruptcy discharge. And a creditor with a mortgage, security interest, or other lien may recover its collateral if the borrower doesn’t pay the discharged debt.
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Dividend: The percentage of claims that will get paid to general unsecured creditors by a bankruptcy trustee on a pro rata basis. If the dividend is set at 5%, all general unsecured creditors that file claims will receive 5% of the amount they are owed.
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Equity: The value of an asset in excess of the amount of any liens. If your car is worth $15,000 and you still owe $6,000 on the loan, you have $9,000 of equity in the car.
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Exemptions: A list of property that bankruptcy debtors are allowed to keep. In Wisconsin, debtors may use either the federal exemptions or the Wisconsin state exemptions. Your bankruptcy attorney can help you decide which list benefits you the most.
Read more about exemptions.  — Back to top

Financial Management Course: A course that the law requires individuals take before receiving a bankruptcy discharge. This requirement is separate from the pre-bankruptcy credit counseling course.
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Foreclosure: The legal process by which a creditor with a mortgage forces a sale of the mortgaged real estate.
Read more about foreclosure.  — Back to top

Judgment: For our purposes, a determination by a judge that an amount is owed. In most cases a creditor must first have a judgment before collecting by garnishment or other judicial means.
Read more about judgment enforcement.  — Back to top

Judgment Proof: A person whose assets and income are all exempt from collection. A creditor can obtain a judgment against a judgment proof debtor but can’t take anything away from that person. Sometimes called collection proof.
Read more about options for judgment proof individuals.  —Back to top

Marital Property (and Marital Debts): Wisconsin is a community property state. So almost all income that spouses earn during marriage is marital income. And almost all assets they obtain with that income are “marital property.” By the same token, almost all debts the spouses incur become “marital debts.” Creditors can collect marital debts from marital income and assets.
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Means Test: A financial test designed by Congress to determine whether debtors can file a Chapter 7 bankruptcy or must pay a minimum amount in a Chapter 13. The test has two parts: First, whether the debtor’s income during the six months before the bankruptcy is above or below the state median income. Second, whether that income minus allowed expenses leaves enough left over to pay creditors.
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Median Income: Half the families in a state have income above the median, and half have incomes below the median. Periodically the United States Trustee office reports the official state-by-state median income figures for bankruptcy cases. These figures are used in the means test.
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Petition: A document a debtor files with the court to start a bankruptcy case. The petiton requests relief from debts.
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Preference: A payment a debtor makes to a creditor before bankruptcy. The trustee may recover a payment (a) made within a certain time before the bankruptcy if (b) the amount was above a certain minimum. The time varies depending upon whether the creditor was an “insider” of the debtor. The amount varies depending upon whether the debtor had predominately business debts.
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Priority Debt: The Bankruptcy Code provides that some unsecured debts must be paid ahead of – given priority over – other unsecured debts.
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Pro Se: Appearing in a court proceeding or filing documents on your own behalf, without an attorney representing you. Individuals may represent themselves in bankruptcy cases; corporations, partnerships, and other entities may not.
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Reaffirmation Agreement: A contract which reimposes the personal liability that the bankruptcy discharge would otherwise eliminate. The Agreement states that the debtor will keep the collateral and keep making the payments, just as if the bankruptcy had never happened. If the debtor defaults on payments after signing a reaffirmation agreement, the creditor will have the right to sue for a deficiency judgment.
Read more about reaffirmation agreements.  —Back to top

Secured Credit Card: A credit card issued based on your deposit of money with the card company. So you might give the company $500 and then it would issue you a card with a $500 credit limit. Over time, the credit card company will raise your credit limit and refund your deposit.
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Secured Debt: Debt to a creditor who has a lien on your assets, a/k/a “collateral.” The most common secured debts are vehicle and home loans. Secured debt has two elements: the debt and the lien. If you default on a secured debt, the lender may sue you on the debt, to recover the collateral, or both. Bankruptcy can eliminate your personal obligation to pay the debt but very rarely can it eliminate liens. So, if a debtor defaults on a secured debt after receiving a bankruptcy discharge the lender will most likely still be able to recover its collateral. However, it will not be able to sue the debtor for any money. Compare with unsecured debt.
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Short sale: A sale for less than the amount of the lien. The lender may waive the deficiency – or may not. And the sale or deficiency waiver may give rise to tax consequences. So be careful out there.
Read more about avoiding foreclosure.  — Back to top

Strip Off: Treating a wholly unsecured second or more junior lien as an unsecured debt. Example: House worth $80,000 with a $90,000 first mortgage and a $20,000 second mortgage. Because the house is worth less than is owed on the first mortgage, the second mortgage may be stripped off in a Chapter 13 bankruptcy. The second mortgage holder would be paid the same dividend by the trustee as all the other unsecured creditors. At the end of the plan, the unpaid balance would be discharged and the second mortgage lien would be released.
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Trustee: In Chapter 7, an individual charged with attempting to obtain a dividend for unsecured creditors. In Chapters 12 and 13, an individual charged with protecting the interests of unsecured creditors and asking as a disbursement agent for plan payments. In Chapter 11, an office (the United States Trustee) charged with monitoring the debtor’s activities and protecting the interests of unsecured creditors.
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Unsecured Debt: Debt to a creditor who does NOT have any collateral securing the debt. If you default on an unsecured debt, the lender may sue you for the personal liability, but cannot repossess and sell any particular debtor asset. Typical unsecured creditors include credit card issuers, medical providers, and payday lenders. Some unsecured debts have priority over others. Compare with secured debt
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This page contains general information. Contact a WBG attorney for specific advice.
Wisconsin Bankruptcy Guide is provided by law firms designated as Debt Relief Agencies by the federal government because we help people file for relief under the Bankruptcy Code. We also provide other types of debt relief options.

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