Glossary of Bankruptcy Terms
Appraisal- A determination of the value of something, such as a house, jewelry or stock by a professional appraiser who makes an estimate by examining the property, and looking at the initial purchase price and comparing it with recent sales of similar property. Banks and real estate companies use appraisals to ascertain the worth of real estate for lending purposes. Courts commonly order appraisals in probate, condemnation, bankruptcy or foreclosure proceedings in order to determine the fair market value of property.
Attorney-in-fact- A person named in a written power of attorney document to act on behalf of the person who signs the document, called the principal. The attorney-in-fact's power and responsibilities depend on the specific powers granted in the power of attorney document. An attorney-in-fact is an agent of the principal.
Bankruptcy Trustee- A person appointed by the court to oversee the case of a person or business that has filed for bankruptcy. In a consumer Chapter 7 case, the trustee's role is to gather the debtor's nonexempt property, liquidate it and distribute it proportionally to her creditors. In a Chapter 13 case, the trustee's role is to receive the debtor's monthly payments and distribute them proportionally to her creditors.
Bankruptcy- A legal proceeding that relieves you of the responsibility of paying your debts or provides you with protection while attempting to repay your debts. There are two types of bankruptcies – Chapter 7 liquidation, in which your debts are wiped out (discharged) and Chapter 13 reorganization, in which you provide the court with a plan for how you intend to repay your debts. Reorganization bankruptcy for consumers with an extraordinary amount of debt and for businesses is called Chapter 11.
C Corporation- Common business slang to distinguish a corporation whose profits are taxed separate from its owners under subchapter C of the Internal Revenue Code, from an S corporation, whose profits are passed through to shareholders and taxed on their personal returns under subchapter S of the Internal Revenue Code.
Chapter 13 bankruptcy- The reorganization bankruptcy for consumers, in which you partially or fully repay your debts. In Chapter 13 bankruptcy, you keep your property and use your income to pay all or a portion of the debts over three to five years. The minimum amount you must pay is roughly equal to the value of your nonexempt property. In addition, you must pledge your disposable net income -- after subtracting reasonable expenses -- for the period during which you are making payments. At the end of the three-to five-year period, the balance of what you owe on most debts is erased.
Chapter 7 bankruptcy- The most familiar type of bankruptcy, in which many or all of your debts are wiped out completely in exchange for giving up your nonexempt property. Chapter 7 bankruptcy takes from three to six months and commonly requires only one trip to the courthouse.
Child Support- The entitlement of all children to be supported by their parents until the children reach the age of majority or become emancipated -- usually by marriage, by entry into the armed forces or by living independently. Many states also impose child support obligations on parents for a year or two beyond this point if the child is a full-time student. If the parents are living separately, they each must still support the children. Typically, the parent who has custody meets his or her support obligation through taking care of the child every day, while the other parent must make payments to the custodial parent on behalf of the child -- usually cash but sometimes other kinds of contributions. When parents divorce, the court almost always orders the non-custodial parent to pay the custodial parent an amount of child support fixed by state law. Sometimes, however, if the parents share physical custody more or less equally, the court will order the higher-income parent to make payments to the lower-income parent. Child support is NOT dischargeable in bankruptcy.
Close Corporation- A corporation owned and operated by a few individuals, often members of the same family, rather than by public shareholders. State laws permit close corporations to function more informally than regular corporations. For example, shareholders can make decisions without holding meetings of the board of directors, and can fill vacancies on the board without a vote of the shareholders.
Condominum- A structure of two or more units, the interipr space of which are individually owned.
Debt Collector- A person who works in the in-house collections department of an original creditor or a collection agency to track down debtors and get them to pay what they owe. Debt collectors can be relentless, often using scare tactics, humiliation and repeated phone calls to extract payments or promises to pay.
Deed in lieu (of foreclosure)- A means of escaping an overly burdensome mortgage. If a homeowner can't make the mortgage payments and can't find a buyer for the house, many lenders will accept ownership of the property in place of the money owed on the mortgage. Even if the lender won't agree to accept the property, the homeowner can prepare a quitclaim deed that unilaterally transfers the homeowner's property rights to the lender.
Dischargeable Debts- Debts that can be erased by going through bankruptcy. Most debts incurred prior to declaring bankruptcy are dischargeable, including back rent, credit card bills and medical bills.
Disinherit- To deliberately prevent someone from inheriting something. This is usually done by a provision in a will stating that someone who would ordinarily inherit property -- a close family member, for example -- should not receive it. In most states, you cannot completely disinherit your spouse; a surviving spouse has the right to claim a portion (usually one-third to one-half) of the deceased spouse's estate. With a few exceptions, however, you can expressly disinherit children.
Divorce Agreement- An agreement made by a divorcing couple regarding the division of property, custody and visitation of the children, alimony or child support. The agreement must be put in writing, signed by the parties and accepted by the court. It becomes part of the divorce decree and does away with the necessity of having a trial on the issues covered by the agreement. A divorce agreement may also be called a marital settlement agreement, marital termination agreement or settlement agreement. Terms of the agreement may affect what may otherwise be a dischargeable debt between former spouses.
Divorce- The legal termination of marriage. All states require a spouse to identify a legal reason for requesting a divorce when that spouse files the divorce papers with the court. These reasons are referred to as grounds for a divorce.
Durable Power of Attorney- A power of attorney that remains in effect if the principal becomes incapacitated. If a power of attorney is not specifically made durable, it automatically expires if the principal becomes incapacitated. See durable power of attorney for finances; durable power of attorney for healthcare.
Foreclosure- The forced sale of real estate to pay off a loan on which the owner of the property has defaulted.
Homestead Declaration- A form filed with the county recorder's office to put on record your right to a homestead exemption. In most states, the homestead exemption is automatic--that is, you are not required to record a homestead declaration in order to claim the homestead exemption. A few states do require such a recording, however.
Irrevocable Trust- A permanent trust. Once you create it, it cannot be revoked, amended or changed in any way. Joint Custody- An arrangement by which parents who do not live together share the upbringing of a child. Joint custody can be joint legal custody (in which both parents have a say in decisions affecting the child) joint physical custody (in which the child spends a significant amount of time with both parents) or, very rarely, both.
Joint Tenancy- A way for two or more people to share ownership of real estate or other property. When two or more people own property as joint tenants and one owner dies, the other owners automatically own the deceased owner's share. For example, if a parent and child own a house as joint tenants and the parent dies, the child automatically becomes full owner. Because of this right of survivorship, no will is required to transfer the property; it goes directly to the surviving joint tenants without the delay and costs of probate.
Limited Liability Company (LLC)- A business ownership structure that offers its owners the advantage of limited liability (like corporations) and partnership-like taxation, in which profits are passed through to the owners and taxed on their personal income tax returns.
Mortgage- A loan in which the borrower puts up the title to real estate as security (collateral) for a loan. If the borrower doesn't pay back the debt on time, the lender can foreclose on the real estate and have it sold to pay off the loan.
Personal Injury- An injury not to property, but to your body, mind or emotions. For example, if you slip and fall on a banana peel in the grocery store, personal injury covers any actual physical harm (broken leg and bruises) you suffered in the fall as well as the humiliation of falling in public, but not the harm of shattering your watch.
Premarital Agreement- An agreement made by a couple before marriage that controls certain aspects of their relationship, usually the management and ownership of property, and sometimes whether alimony will be paid if the couple later divorces. Courts usually honor premarital agreements unless one person shows that the agreement was likely to promote divorce, was written with the intention of divorcing or was entered into unfairly. A premarital agreement may also be known as a prenuptial agreement.
Property Settlement Divorce Agreement- An agreement made by a divorcing couple regarding the division of property, custody and visitation of the children, alimony or child support. The agreement must be put in writing, signed by the parties and accepted by the court. It becomes part of the divorce decree and does away with the necessity of having a trial on the issues covered by the agreement. A divorce agreement may also be called a marital settlement agreement, marital termination agreement or settlement agreement. Right of Survivorship- The right of a surviving joint tenant to take ownership of a deceased joint tenant's share of the property. See joint tenancy. Terms of the agreement may affect what may otherwise be a dischargeable debt between former spouses.
S Corporation- A term that describes a profit-making corporation organized under state law whose shareholders have applied for and received subchapter S corporation status from the Internal Revenue Service. Electing to do business as an S corporation lets shareholders enjoy limited liability status, as would be true of any corporation, but be taxed like a partnership or sole proprietor. That is, instead of being taxed as a separate entity (as would be the case with a regular or C corporation) an S corporation is a pass-through tax entity: income taxes are reported and paid by the shareholders, not the S corporation. To qualify as an S corporation a number of IRS rules must be met, such as a limit of 75 shareholders and citizenship requirements.
Tenancy by the Entirety- A special kind of property ownership that's only for married couples. Both spouses have the right to enjoy the entire property, and when one spouse dies, the surviving spouse gets title to the property (called a right of survivorship). It is similar to joint tenancy, but it is available in only about half the states.
Tenancy in Common- A way two or more people can own property together. Each can leave his or her interest upon death to beneficiaries of his choosing instead of to the other owners, as is required with joint tenancy. In some states, two people are presumed to own property as tenants in common unless they've agreed otherwise in writing.
Title- Often used interchagneably with the word owenrship. It indicates the accumulation of all rights in property, the owner and others.