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David C. Hoskins, Attorney at Law


Definitions of common terms used in bankruptcy.

Bankruptcy Terms


For your convenience, I am providing some definitions of common bankruptcy terms. As an attorney of 32 years, I may take for granted that you understand what I am saying. As a result, I can be speaking in a jargon that is every bit as foreign to you as Greek. If you were a computer programmer, the language you use for business would not be understandable to me. You might feel embarrassed to ask questions about the law.  I might feel the same if you were explaining your work to me. We're both human.  And while I try not to speak in legalese, sometimes I can't help it.

Here are some definitions that I will frequently link in my articles.


Acceleration - Because of a default, all payments on an installment agreement become due.  For example, if you miss three payments on your car loan, the lender will declare a default and demand that the remaining balance of the loan be paid.

Asset - A thing or right that a person owns. Your home, car, furniture, and retirement funds are assets.

Automatic Stay – This is an automatic court order that, upon the filing of a bankruptcy, demands that all collection actions against the debtor and the debtor's property stop immediately.

Bankruptcy Court - A federal court where all bankruptcy cases are filed and administered. This is the court that will hear all disputes in bankruptcy cases and issue orders discharging debts.

Bankruptcy Estate - When you file bankruptcy, the bankruptcy trustee steps into your shoes and owns whatever you own on the date of filing, subject to certain exemptions. The non-exempt property owned by the trustee is the bankruptcy estate.

Car creditor - The lender that loaned you the money to buy your car and, until you pay off the loan, holds the title to your car.

Chapter 7 Trustee - A person appointed by the U. S. Trustee's office to administer a chapter 7 bankruptcy estate. The trustee is responsible for examining the debtor at the creditors' meeting, determining that the debtor is eligible to file bankruptcy and receive a discharge of debts, collecting non-exempt assets, selling them, and using the proceeds to pay your creditors.

Chapter 13 Plan - Chapter 13 bankruptcy is an arrangement, or plan, to pay something to your creditors. You propose a plan by which you pay as much as you can afford to your creditors.  Once the court approves the plan, it becomes a court order.

Collateral - Property that a creditor may take and sell or repossess if you default on your debt (for example, if you miss payments or fail to carry proper insurance, the creditor will repossess your car and sell it).

Conversion - In bankruptcy, when you file bankruptcy under one chapter (for example, chapter 7) and then change the case to another chapter (for example, chapter 13), that is a conversion, or you have converted your case to chapter 13.

Cram Down - In chapter 13 bankruptcy, if you owe significantly more on your car loan than its replacement value, you can propose to pay just the value for the car. Upon successful completion of the chapter 13 plan, the bankruptcy discharge will eliminate the balance of the car loan, that is, the amount in excess of its value.

Creditor - A person or company to whom a debt is owed. In the example below, in the definition of debt, John is the creditor.

Creditors' Meeting - After filing the bankruptcy petition, you must attend a meeting of creditors (often called a "341 meeting" or just "341"). The trustee in your case will conduct the meeting and will ask you questions to determine if you are eligible to file bankruptcy and get a discharge of your debts, and will review your financial information. Any of your creditors may attend that 341 meeting and ask you about your financial circumstances.

Cure - To pay the amount in default is to cure the default.  For example, if you have missed three house payments, to cure the default you would pay the missing payments, plus any late charges.

Debt - An obligation. For example, John lends money to Abbey. Abbey has an obligation, or a debt, to pay John back.

Debt Consolidation - The taking out a loan to pay off all debt, leaving just the one loan with one monthly payment.

Debtor - One who owes a debt.  In the example above, Abbey is a debtor; she owes John.

Default - When you fail to comply with an agreement, that is a default. When you borrow money, you promise to pay it back at a certain time -- either in installments or all at once. If you fail to pay as agreed, that is a default.

Discharge - A discharge of debt is the result of a successful bankruptcy. A discharged debt is no longer enforceable; the creditor may no longer take you to court or otherwise take action to enforce the debt against you.

Dismissal - A court order that terminates a case without resolving the issues presented. In bankruptcy, if the court dismisses the case it's either because there was some defect in its presentation or the debtor who filed it asked the court to end it.

Disposable Income - Your after tax income, less your ordinary and necessary living expenses. In bankruptcy, disposable income is calculated in two ways. See my article, "What is Disposable Income?"

Divorce Debt - As used in these articles about bankruptcy, divorce debt is an obligation that is ordered by a court in the course of a divorce, other than domestic support obligations. For example, a husband and wife have a credit card account together, but the court orders the wife to pay it and protect the husband against collection of that debt by the credit card company.  The wife not only owes a debt to the credit card company, but she also owes a debt (a divorce debt) to the husband.

Domestic Support Obligation - An obligation to pay support to a child, a spouse or former spouse, or to a governmental agency that has provided support to one's child.

Equity - The value of an asset less the amount owed to a creditor that holds that asset as collateral. For example, if the home is worth $100,000 and the balance of the mortgage is $60,000, there is $40,000 in equity.

Exemption - An exemption is a law that protects your property from your creditors and from the bankruptcy trustee. Without an exemption, the trustee in bankruptcy can take your property, sell it, and use the proceeds to pay your creditors.

Flat Fee - A set amount of money for a certain amount of service. For example, in chapter 7 bankruptcy, a bankruptcy attorney will usually charge a set amount of money to consult with you about bankruptcy, prepare and file your case, and represent you at the creditors' meeting.

Foreclosure - The process by which the creditor that holds real estate as collateral for a loan sells the collateral and applies the proceeds of sale to the debt. Foreclosure in Colorado is usually administered by the county public trustee.

Fraud - A fraud is committed when a misstatement of an important fact is used to persuade someone to do something and that person relies on the misstated fact and suffers damage.

Judgment - When a creditor brings a lawsuit to collect a debt, the end result is a judgment, that is, the court's ruling.

Judgment Lien - When a creditor wins a lawsuit to collect a debt, a judgment is ordered in favor of the creditor, and the creditor records that judgment with the county clerk and recorder. That recording creates a lien against any real estate owned by the debtor in that county; that is, a judgment lien.

Lien - When a creditor has a claim against your property to secure a debt that you owe, it is a lien. Liens can be consensual, that is, voluntarily agreed to by the debtor and the creditor, or non-consensual, that is, involuntary. Your mortgage is a consensual lien, created when you borrowed money either to buy your home or you used your home as collateral to secure a new loan, like a home equity loan.

Means Test - This is a reference to the Bankruptcy Code provisions for calculating monthly income and disposable income. 

Median Family Income- Means for any year the median family income both calculated and reported by the Bureau of the Census in the then most recent year. (11 U.S.C. Sec. 101 Definitions, 39(A)) 

Mortgage - A mortgage is an agreement that you make with your home lender that gives that lender the right to sell your home if you default (for example, don't make payments) on the loan. A mortgage is also known as a deed of trust in Colorado.

Mortgage Strip - In chapter 13 bankruptcy, if the remaining balance on the first mortgage is greater than the value of the home, any junior mortgages (for example, a second mortgage) may be avoided upon successful completion of the plan payments. The law allows this because the entire second mortgage is unsecured; there is no property value supporting the mortgage lien.

Notice of Election and Demand - A formal notice filed by a mortgage lender that it has elected to have the real property that is collateral for a loan sold at a foreclosure auction.

Non-exempt Property - This is property that is not protected from either your creditors or the bankruptcy trustee, and will be turned over to the trustee in chapter 7 bankruptcy.

Priority Debt – In bankruptcy, the trustee’s job is to collect non-exempt assets, liquidate them (that is, sell them), then distribute the proceeds to pay debts.  Debts are paid in a certain order; priority debts are paid first – they include costs of administration (for example, trustee fees), taxes, and domestic support obligations.

Public Trustee - An elected county officer, in Colorado, whose sole function is to conduct foreclosures on real property.

Reaffirmation - An agreement between a bankruptcy debtor and a creditor by which the debtor agrees to pay a debt that would otherwise have been discharged in the bankruptcy. Reaffirmation agreements must be approved by the bankruptcy court.

Redemption - A process by which a bankruptcy debtor may force a creditor to accept an amount equal to the value of collateral to pay off a loan. For example, if the value of a car is $10,000 and the balance of the car loan is $16,000, upon entry of an order of redemption by the bankruptcy court, the creditor must accept payment of $10,000 as full payment of the loan and release the title to the debtor.

Replacement Value - This is the amount that a disinterested buyer would pay for property on the open market in an arm’s length transaction. In bankruptcy, this term is used in reference to what you would have to pay for personal property of the same type and condition in a retail setting.

Repossess - The action taken by a car creditor when you fail to make payments on your car loan. The creditor may take your car wherever it can be found and sell it; the proceeds will be used to pay down the loan.

Rule 120 Hearing - A court proceeding in which a mortgage lender must prove that the borrower has defaulted on the mortgage.

Schedules - With your bankruptcy petition, you file lists (that is, schedules) of your assets, debts, pending contracts, co-debtors, income, and living expenses. Schedules are the format by which your financial information is disclosed to the trustee, creditors, and the public.

Secured Creditor - A creditor that has the right to take possession of and sell certain property (that is, Collateral, see above) if you default on your debt.

Trustee - In every bankruptcy case, there is a trustee. The trustee is responsible for administering or managing the bankruptcy case.  The trustee collects assets from the debtor and distributes the proceeds of those assets to creditors.

Unsecured Creditor - A creditor that does not have rights to collateral.  The only remedy available to a creditor without collateral is to bring a lawsuit against you.

Unsecured Debt - A debt that is not secured by collateral.  If you default on unsecured debt, the creditor may sue you and get a judgment, but it cannot take specific property without first getting a judgment.


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The statements of law made here are general statements of law, effective at the time published and subject to change from time to time. These statements are not intended, nor may they be construed, to be applicable to any particular set of factual circumstances nor to any particular person. I recommend that all readers seek the assistance and advice of an experienced bankruptcy lawyer for guidance in their particular circumstances.

© Copyright 2013 David C. Hoskins, licensed Colorado lawyer