The following is a guide to common bankruptcy and debt relief words and phrases, many of which appear throughout this site. Some issues relate specifically to Pittsburgh and Western Pennsylvania bankruptcy practice. Contact us to schedule a free consultation and get a deeper explanation of any term or issue.
Asset is a general term used in bankruptcy to describe any type of property. Obviously, this includes things such as real estate, cars, personal items, jewelry, and clothes. Perhaps less obviously, it also includes bank accounts, retirement accounts, tax returns, stocks/bonds, and insurance policies. The term asset is used very broadly in bankruptcy, it also includes lawsuit claims, unpaid commissions, intellectual property, imminent inheritances, and other types of intangible property. You should be prepared to list all of your assets so that your bankruptcy attorney can exempt and protect them.
One of the primary advantages of the bankruptcy process, the automatic stay prevents creditors from filing or proceeding with a lawsuit, attempting to collect on a debt, taking legal action to take property (foreclosure or repo), or even attempt to contact a debtor. The automatic stay is overseen by the Federal Court system, and creditors who violate it face severe sanctions.
The automatic stay only takes effect when your bankruptcy attorney files your Chapter 7 or Chapter 13 bankruptcy. When you have a case number, you are protected by the automatic until either your case is completed, dismissed, or the Court lifts the stay for certain violations of bankruptcy law.
If a debt is dischargeable, it can be eliminated completely through bankruptcy. In a Chapter 7 bankruptcy, this normally means the debt is eliminated without any payment going to the creditor. In a Chapter 13 bankruptcy, a dischargeable debt may involve some payment to a creditor, as determined by the Bankruptcy Code and Local Rule. However, even if this repayment is minimal (possibly cents on the dollar), the debt is entirely eliminated once the bankruptcy is completed.
A debt may be non-dischargeable under certain circumstances, such as debts procured through fraud, debts not included in the bankruptcy, or more commonly certain categories of debt including most tax debt, student loan debt, and child support.
Determining which of your debts are, and are NOT, dischargeable is an important step in the bankruptcy process.
A common issue when filing a bankruptcy involves determining your "equity" in a piece of property. Equity is simply the dollar value of a piece of your property (normally a home or car), MINUS what you owe on it.
For example, if your home is appraised at $100,000.00, but you have a mortgage on the home for $75,000.00, and a home equity loan of $10,000.00, your equity in the home is $15,000.00 ($100,000 minus $75,000 minus $10,000). Your equity in property will be cut in half if you are only a joint owner. Equity can also be reduced by certain judgment, tax, and other liens.
Equity in property can normally be protected using EXEMPTIONS (see below). The importance of equity in filing bankruptcy makes it necessary to know exactly what your property is worth, and what you owe on it.
Exemptions are a very important element of a bankruptcy filing that allows debtors to normally keep all of their property. Exempt property cannot be touched by creditors and will be retained by the bankruptcy filer. There are two types of exemptions available in Pennsylvania, the Federal and the Pennsylvania state exemptions.
In most cases, it will be advantageous to use the Federal exemptions, as they are normally more broad than the state exemptions. However, in some rare cases, married couples with joint property (where only one spouse has debt issues) may elect to take the state exemptions.
The amounts available for the Federal exemptions is modified every three years. The following is a brief summary of the Federal exemptions available under Section 522 of the U.S. Bankruptcy Code (all amounts can be doubled for married couples filing jointly):
- Homestead- $23,675, used to protect equity in your home (value of home MINUS what is owed on it).
- Motor vehicle- $3,775, used to protect equity in your car (value of car MINUS what is owed on it).
- Household goods and furnishings- $12,625
- Wildcard- $1,250 PLUS $11,850 of any unused Homestead exemption, can be used flexibly and creatively by an experienced bankruptcy attorney.
- Retirement accounts and unmatured life insurance UNLIMITED, most retirement accounts qualify as fully exempt in bankruptcy.
Planning on what exemptions to use, and how to use them, is a very important part of the bankruptcy process.
An individual is considered insolvent when their debts exceed their assets. Insolvency will be an important factor when debt is forgiven, as insolvent debtors are not required to pay income taxes on forgiven debt. See Alternatives to Bankruptcy. These debtors should file a Form 982 with their tax return.
A liability, for bankruptcy purposes, is simply a debt or obligation. You will often hear reference in bankruptcy to "assets and liabilities". Credit cards, student loans, medical bills, taxes, and personal loans are all considered to be liabilities. Mortgages and car payments are also liabilities, even though they are sometimes not seen as such because they provide an ongoing benefit to the debtor.
All liabilities must be listed in your bankruptcy petition. Bankruptcy law treats all liabilities of the same type equally, it does not allow the debtor to pick and choose which debts are paid. Liabilities, in some cases, cannot be discharged through bankruptcy.
The "means test" is one of the standards established under the United States Bankruptcy Code to determine if a debtor is required to repay unsecured creditors in a Chapter 13 bankruptcy.
The means test looks at most sources of household income for the six months prior to filing bankruptcy. Of course, this includes normal wages from employment. But, it also includes irregular income such as bonuses, overtime, commissions, unemployment, alimony, support, and contributions towards household expenses. The means test also looks at income from business (for self-employed debtors), rental properties, and income from pensions and retirement funds.
All household income is included in the means test calculation, whether the debtor's spouse is filing or not. The non-filing spouse is not required to do anything in a bankruptcy filed by their spouse; however, Federal law requires all household income to be included in the means test to determine if the filing spouse must file a Chapter 13 bankruptcy.
The income for this six month look-back period is next compared to the Bankruptcy Code income standards for household size. The "household" includes the debtor, spouse (whether filing or not) and any other legal dependents in the household, which will likely include anyone claimed as a dependent for IRS tax purposes. The amount differs by location, and is updated every three years (with the next update due on April 1st, 2016). If the (annualized) household income is greater than the amount allowed under the means test, the debtor must file a Chapter 13 bankruptcy.
The current income limits for household size: 1 ($49,400.00), 2 members ($58,256.00), 3 members ($73,322.00), 4 members ($86,112.00), and $8,400.00 more for each additional household member.
Meeting of Creditors
Sometimes referred to as the "Section 341(a) Meeting of Creditors", the Meeting of Creditors is a necessary, but ultimately straightforward and simple step in the bankruptcy process.
The Meeting of Creditors is a required hearing in all bankruptcy filings (both Chapter 7 bankruptcy and Chapter 13 bankruptcy). The meeting is conducted by a Trustee, who reviews your voluntary petition and asks you a series of questions related to the petition. Creditors have the right to appear and ask relevant questions, but in practice they rarely take the opportunity.
The bankruptcy filer is sworn in, and all testimony is given under the penalty of perjury. However, the meeting is otherwise quite informal. It is not conducted by a judge, and it occurs in an office, not a courtroom. The questions asked by the Trustee are standard and straightforward. The meeting itself will normally take between 5 and 15 minutes, and your lawyer will be present at your side throughout.
The questions asked will relate to the voluntary petition, and will include questions such as, "How did you come to the value of your home listed in the petition?", "Have you ever filed bankruptcy before?", and "Are you personally familiar with the contents of your petition?" Your lawyer will review the most standard questions asked.
While the Meeting of Creditors is not to be taken likely, it should not cause any anxiety of concern as long as you have been completely truthful with your attorney throughout the bankruptcy process.
Secured debt is any debt that is "secured" by a piece of property, so that if the owner of the property defaults on the loan, the lender is permitted to take back the property to satisfy part (or all) of the debt.
By far the most common types of secured debt are mortgages, home equity loans, and car loans. If you don't pay your mortgage, the bank can foreclose on your home (your home being the "security"). See: How Does Foreclosure Work? If you don't make your car payments, the finance company can repossess your car. In both cases, the lender can sue you after retrieving the security (the home or car) and sue you for a deficiency judgment (see above).
There are numerous different options for secured debt in a Chapter 13 bankruptcy. Secured debt can sometimes be made "unsecure", payment amounts and totals can be modified, and interest rates can sometimes be lowered. I am an experienced Pittsburgh bankruptcy attorney who can help you restructure your secured debt in a Chapter 13 bankruptcy.
The united states trustee
The primary purpose of the United States Trustee office is to relieve the Bankruptcy Court from administrative matters, leaving the Court to decide actual legal disputes. There are 21 U.S. Trustees and regions (the Western District of PA is in Region 3). The U.S. Trustee is given electronic notice of most bankruptcy actions.
Some of the duties of the U.S. Trustee include: appointing and supervising Chapter 7 and Chapter 13 trustees, monitoring attorney fees, convening Meetings of Creditors, and dismissing cases for undue delays of required filed documents.
Unsecured debt is any debt that is not secured by a piece of property. The most common types of unsecured debt are credit cards, medical bills, student loans, personal loans, and some tax debt in rare cases. By comparison, "secured" debt is secured by a piece of property, so that if the owner of the property defaults on the loan, the lender is permitted to take back the property to satisfy part (or all) of the debt.
Just because a debt is unsecured doesn't mean it isn't a problem; an unsecured creditor can still sue you and place a lien on your property (including homes, car, and bank accounts). However, this will require the creditor to file a lawsuit and get a judgment against you.
Unsecured debt is normally dischargeable in Chapter 7 bankruptcy (EXCEPT STUDENT LOANS). Unsecured debt is paid back at different rates in a Chapter 13 bankruptcy, depending on several factors, including income.
The "voluntary petition" is a phrase commonly referring to the standardized collection of schedules, statements, and forms used in Chapter 7 bankruptcy and Chapter 13 bankruptcy filings. The first three pages of the filing consist of the actual voluntary petition, but you will often hear the entire filing referred to as such.
The voluntary petition must be completed in a completely truthful manner, carefully reviewed, and signed by the debtor. It includes a list of your assets, debts, income, expenses, financial accounts, and other information relevant to bankruptcy. The voluntary petition must be filed electronically, except in very rare circumstances.