Debtor-Creditor Relations and Bankruptcy

Vocabulary terms and definitions regarding debtor-creditor relationships, types of credit, liens, and bankruptcy chapters based on the lecture notes.

Credit

When a person is given money in the form of a loan but is allowed to repay it at a later time, either in the form of payments or as a lump sum payment.

Debtor

A person who is obligated to pay the amount due for services and/or goods that have already been received after being extended credit.

Creditor

An entity, such as a financial institution, supplier, or medical provider, that provides services, goods, or interests in land without first being paid in full.

Unsecured Credit

A loan that is not secured by collateral and is extended based on the debtor’s credit rating and their promise to repay.

Guarantor

A third person, also known as a co-signor, who is obligated to pay a loan if the debtor does not.

Default

A breach of the loan contract occurring when a debtor fails to make payments as required.

Garnishment

A process by which a creditor can take a portion of the debtor’s wages, other income, or money from financial accounts once a judgment has been obtained.

Non-Exempt Property

Property defined by state law as able to be seized by a creditor to be sold with the proceeds applied to a debt.

Secured Credit

A loan that is secured by collateral, such as an interest in land, vehicles, goods, or securities.

Collateral

Property owned by the debtor that has value and can be converted into cash through sale or otherwise to secure a loan.

Lien

A means for a creditor to hold or secure the property of a debtor as a guarantee against payment; it allows the creditor to foreclose if the debtor defaults.

Statutory Lien

A lien created by law, such as a mechanic’s or construction lien, giving the creditor an interest in the property until repairs or workmanship are paid.

Judgment Lien

A lien created whenever a judgment is granted after a lawsuit, serving as the basis for garnishment or seizure of property.

Lien Release

A document issued by a creditor once they are paid, allowing the debtor to sell property that previously had a lien attached.

Bankruptcy

A type of relief available through federal law to an honest debtor who cannot pay their debts and needs to either structure a new repayment plan or discharge debt.

Chapter 7

Traditional bankruptcy available to individuals and businesses where non-exempt assets are liquidated by a Bankruptcy Trustee to pay debts.

Chapter 13

A bankruptcy chapter primarily for individuals involving the creation of a plan for restructuring debt and requiring approval by the Bankruptcy Court.

Chapter 11

A bankruptcy chapter for businesses involving a plan to restructure management, operations, and debt, resulting in a "reorganized" business if successful.

Priority Unsecured Debt

Debts such as taxes, support orders, and fines that are not discharged and survive the bankruptcy case.

Nonpriority Unsecured Debt

Any debt without collateral that is not considered priority and is discharged during bankruptcy.

Automatic Stay

A prohibition that goes into effect when bankruptcy is filed, preventing creditors from doing anything to collect debts except pursuant to Bankruptcy Law.

Exempt Property

Property that cannot be taken from the debtor during bankruptcy, the types of which are determined by state law.

Discharge

The outcome of bankruptcy where a debt still exists, but there is no longer a legal obligation for the debtor to pay it.