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Bankruptcy Basics

Bankruptcy: A process established by Federal law that allows debtors to receive a discharge, or otherwise reorganize their debts after meeting certain requirements established in the Bankruptcy Code (11 U.S.C.).

Debtor: the person or entity who owes a debt. (i.e. the consumer)

Creditor: the person or entity to whom the debt is owed. (i.e. the credit card company)

Chapter 7: A liquidation of non-exempt assets to satisfy unsecured debt. Most Chapter 7 bankrupt debtors do not actually have to liquidate their personal property, subject to their respective State or Federal exemptions.

Exemptions: Laws established to allow debtors an amount of certain property they are entitled to “keep” through a bankruptcy process.

Unsecured debt: Debt owed to a creditor that is not secured by collateral. Examples include credit cards, some lines of credit, student loans and medical bills, among other debts.

Chapter 13: A reorganization process where a debtor pays monthly to a Trustee to satisfy their debts either in whole, or on a pro rata basis. Creditors must file a claim with the Court in order to get paid. Debtors can use a Chapter 13 to strip off a junior unsecured lien on property or to cramdown a vehicle or other personal property lien.

Trustee: A court appointed official who oversees the bankruptcy case and in essence, stands in the shoes of the creditors to ensure everyone is getting “a fair shake” and that the Debtor is otherwise complying with all necessary bankruptcy qualifications and laws. In Chapter 7 these individuals are private attorneys who act on behalf of the United States Trustee; in Chapter 13 Trustee’s are actual employees of the Department of Justice.

Strip off: A process by which a debtor requests the Court determine the value of collateral, that the senior lien (i.e. first mortgage) is valued in excess of the collateral, thereby leaving the junior lien wholly unsecured and once paid through a Chapter 13 (usually paid a %), the lien is released from the collateral. By way of example, if a home is worth $100,000 and the first mortgage has a balance of $105,000 and the second mortgage of $50,000, because the first mortgage is in excess of the home value, the second mortgage could be stripped off. (There are many other considerations that go into this determination, I’m oversimplifying it here.)

Cram Down: Debtor has financed the purchase of personal property (i.e. vehicle, furniture, and electronics) and owes debt in excess of the value of the property now. The Court can determine the value of the collateral, and the value of the lien, and ‘cram down’ the lien to meet the value of the collateral. The Court can also cram down the interest rate in order to obtain a more reasonable interest rate in order to reduce a debtor’s obligation. Cram downs are not available all the time as certain requirements, specifically time frames, have to be met.

For a comprehensive list of bankrutpcy terminology, visit the U.S. Courts website.

 

Tiffany Franc is an attorney in PK Law’s Corporate and Business Services Group. She provides Chapter 7 and Chapter 13 legal advice and representation to individuals, and advice on bankruptcy alternatives, including debt restructuring and rehabilitation, to consumers facing debt collection, garnishment, liens and foreclosure and is trained in handling short sales and mortgage loan modifications. Ms. Franc can also assist businesses and individuals with navigating bankruptcy as a creditor.

In addition, Mrs. Franc represents clients in adoption proceedings (adult, step-parent, 2nd parent, interstate (ICPC) and finalizations in MD of out-of-state or out-of-country placements), child custody/access and child support matters, absolute and limited divorce hearings, prenuptial agreements and settlement negotiations in family law matters.

Tiffany can be reached at 410-832-5450 or tfranc@pklaw.com.