Chapter 15: Creditor-Debtor Relations and Bankruptcy

Adequate Protection Doctrine

In bankruptcy law, a doctrine that protects secured creditors from losing their security as a result of an automatic stay. In certain circumstances, the bankruptcy court may provide adequate protection by requiring the debtor or trustee to pay the creditor or provide additional guaranties to protect the creditor against the losses suffered by the creditor as a result of the stay.

Artisan's Lien

A possessory lien given to a person who has made improvements and added value to another person's personal property as security for payment for services performed.

Attachment

In the context of judicial liens, a court-ordered seizure and taking into custody of property prior to the securing of a judgment for a past-due debt

Automatic Stay

In bankruptcy proceedings, the suspension of almost all litigation and other action by creditors against the debtor or the debtor's property. The stay is effective the moment the debtor files a petition in bankruptcy.

Bankruptcy Trustee

A person appointed by the court to manage the debtor's funds in a bankruptcy proceeding

Consumer-debtor

One whose debts result primarily from the purchase of goods for personal, family, or household use

Co-surety

A joint surety; one who assumes liability jointly with another surety for the payment of an obligation

Cram-down Provision

A provision of the Bankruptcy Code that allows that allows a court to confirm a debtor's Chapter 11 reorganization plan even though only one class of creditors has accepted it

Creditors' Composition Agreement

An agreement formed between a debtor and his or her creditors in which the creditors agree to accept a lesser sum than that owed by the debtor in full satisfaction of the debt

Debtor in Possession

In Chapter 11 bankruptcy proceedings, a debtor who is allowed to continue in possession of the estate in property and to continue business operations

Default

Failure to pay a debt when it is due

Discharge

(1) termination of an obligation, such as occurs when the parties to a contract have fully performed their contractual obligations. (2) The termination of a bankruptcy debtor's obligation to pay debts

Down Payment

The part of the purchase price of real property that is paid in cash up front; reducing the amount of the loan or mortgage

Forbearance

The act of refraining from exercising a legal right; an agreement between a lender and a borrower in which the lender agrees to temporarily cease requiring mortgage payments, to delay foreclosure, or to accept smaller payments than previously scheduled

Foreclosure

A proceeding in which a mortgage either takes title to or forces the sale of the mortgagor's property in satisfaction of a debt

Garnishment

A legal process used by a creditor to collect a debt by seizing property of the debtor (such as wages) that is being held by a third party (such as debtor's employer)

Guarantor

A person who agrees to satisfy the debt of another only after the principal debtor defaults. A guarantor's liability is thus secondary

Homeowner's Insurance

A form of property insurance that protects the home of the insured person and its contents against losses

Homestead Exemption

A law permitting a debtor to retain the family home, either in its entirety or up to a specified dollar amount, free from the claims of unsecured creditors or trustees in bankruptcy

Insider

(1) a corporate director or officer, or other employee or agent, with access to confidential information and a duty not to disclose that information in violation of insider trading laws. (2) In bankruptcy proceedings, an individual, partner, partnership, corporation, or officer or director of a corporation (or a relative of one of these) who has a close relationship with the debtor

Lien

A claim against specific property to satisfy a debt

Liquidation

The sale of the nonexempt assets of a debtor and the distribution of the funds received to creditors

Mechanic's Lien

A statutory lien on the real property of another, created to ensure payment for work performed and materials furnished in the repair or improvement of real property, such as a building

Mortgage

A written instrument that gives a creditor an interest in, or lien on, the debtor's real property as security for a debt. If the debt is not paid, the property can be sold by the creditor and the proceeds used to pay the debt

Mortgage Insurance

Insurance that compensates a lender for losses due to a borrower's default on a mortgage loan

Order For Relief

A court's grant of assistance to a complainant. In bankruptcy proceedings, the order relieves the debtor of the immediate obligation to pay the debts listed in the bankruptcy petition

Petition in Bankruptcy

The document that is filed with a bankruptcy court to initiate bankruptcy proceedings

Preference

In bankruptcy proceedings, a property transfer or payment made by the debtor that favors one creditor over others

Preferred Creditor

In the context of bankruptcy, a creditor who has received a preferential transfer from a debtor

Prepayment Penalty Clause

A provision in a mortgage loan contract that requires the borrower to pay a penalty if the mortgage is repaid in full within a certain period

Reaffirmation Agreement

An agreement to pay a debt dischargeable in bankruptcy

Right of Contribution

The right of co-surety who pays more than his or her proportionate share on a debtor's default to recover the excess paid from other co-sureties

Right of Reimbursement

The legal right of a person to be restored, repaid, or indemnified for costs, expenses, or losses incurred or expended on behalf of another

Right of Subrogation

The right of a person to stand in the place of another, giving the substituted party the same legal rights that the original party had

Short Sale

A sale of real property for an amount that is less than the balance owed on the mortgage loan, usually due to financial hardship

Surety

A person, such as a cosigner on a note, who agrees to be primarily responsible for the debt of another

Suretyship

An express contract in which a third party to debtor-creditor relationship promises to be primarily responsible for the debtor's obligation

U.S. Trustee

A government official who performs certain administrative tasks that a bankruptcy judge would otherwise have to perform

Workout

private, negotiated adjustments of creditor-debtor relations

Workout Agreement

A formal contract between a debtor and his or her creditors in which the parties agree to negotiate a payment plan for the amount due on the loan instead of proceeding to foreclosure

Writ of Attachment

A court's order, prior to a trial to collect a debt, directing the sheriff or other officer to seize nonexempt property of the debtor. If the creditor prevails at trial, the seized property can be sold to satisfy the judgment

Writ of Execution

A court's order, after a judgment has been entered against the debtor, directing the sheriff to seize and sell any of the debtor's nonexempt real or personal property. The proceeds of the sale are used to pay off the judgment, accrued interest, and costs of the sale. Any surplus is paid to the debtor.