Over the next few weeks we will post common bankruptcy and foreclosure legal terminology so when you are doing research or begin filing you can have a better understanding of the jargon involved.

C
Capitalized Interest
The accrued interest added to the principal balance of a loan while you are not making payments; or your payments are insufficient to cover both the principal and interest due.

Chapter 7
The chapter of the Bankruptcy Code providing for “liquidation.” Chapter 7 Bankruptcy was enacted to allow persons who are hopelessly burdened by debt to have an opportunity for a new beginning by wiping out unsecured debts (debts that aren’t tied to any specific item of property, most commonly credit cards).

Chapter 11
The chapter of the Bankruptcy Code providing for reorganization — usually involving a corporation or business partnership.

Chapter 12
The chapter of the Bankruptcy Code providing for adjustment of debts of a “family farmer” or a “family fisherman.”

Chapter 13
The chapter of the Bankruptcy Code designed to enable individual debtors the option of applying a percentage of their future earnings to a portion of their current debts over an extended period of time. Chapter 13 authorizes the wage earner to keep the property (like your home and car) while consolidating and reorganizing debt, allowing the debtor a reasonable opportunity to arrange installment-payments of what is owed out of future income.

Claim
A creditor’s assertion of a right to payment by the debtor.

Class
The different levels of claims against a debtor.

Collateral
Property used to guarantee payment of a secured debt.

Collection Agency
A company hired by a creditor to collect a debt that it is owed.

Confirmation
Approval of a plan of reorganization or liquidation by a bankruptcy judge.

Consumer Debtor
A debtor who owes primarily consumer debts.

Consumer Debts
Debts incurred for personal needs.

Contested Matter
Those legal issues that are disputed, but are not within the definition of adversary proceedings.

Consumer Leasing Act
A federal law that requires lease agreements to include certain defined terms.

Contingent Claim
A claim that may be owed by the debtor’s cosigner on another person’s loan and the cosigner also fails to pay.

Consumer Credit Counseling Service (CCCS)
A national non-profit agency that helps debtors plan budgets and repay their debts.

Contract
A legally binding agreement involving two or more people or businesses that sets forth what the parties will or will not do.

Conversion
Changing bankruptcy chapters such as a debtor mobbing from a Chapter 7 to a Chapter 13.

Cooling Off Rule
The act that allows you to cancel a contract within a specified time period after signing it.

Cosigner
A person who signs their name to a credit application, lease or loan agreement to help someone qualify and secure a loan or product. If the primary debtor does not pay, the cosigner is fully responsible for the loan or debt.

Creditor
The person or business the debtor owes (or claims to owe) money to.

Credit Counseling
In Bankruptcy, CC usually refers to two things: The “individual or group briefing” from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing. And the “instructional course in personal financial management” in Chapter 7 and Chapter 13 an individual debtor must complete before the discharge of debt.

Credit Bureau
A company that collects and sells information about an individual’s credit history.

Credit Insurance
Insurance a lender requires a borrower to purchase to cover the loan.

Credit Report
An account of an individual’s credit history and pertinent personal information.

Creditor
A person or entity that a debt is owed.

Current Monthly Income
The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case.

D

Debt
An amount of money, service, or an item of property that is owed to somebody or some business entity.

Debt Collector
A person who works with the collections’ department of an original creditor to track down debtors who get them to pay what they owe.

Debtor
A person who owes money and has filed a petition for relief under the Bankruptcy Code.

Default
A failure to perform a legal duty like neglecting to make a mortgage or car loan payment on time.

Defendant
An individual (or business) a lawsuit is filed against.

Delinquency
Failure to make payments when they are due.

Discharge (of Debts)
A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code.

Dischargeable Debt
An amount of money, service, or an item of property that can be eliminated through the Bankruptcy Code.

Disclosure Statement
A written document prepared by the Chapter 11 debtor in order to provide “adequate information” for creditors to evaluate the Chapter 11 plan of reorganization.

For this edition of Bankruptcy INK, a lighter approach to the very serious subject of bankruptcy and financial problems shall be looked at: Famous people who have declared bankruptcy.

ABC’s 20/20 did a piece at the beginning of the year on a new trend people do online called “cyberbegging.” By no means do we endorse this practice of Internet begging for desired funds for whatever reasons, but seeing Saved by the Bell’s Dustin “Screech” Diamond explain the events in his life that led him down this path was dramatic.

His father was caught up in the easy money the young Diamond’s child TV star lifestyle could provide. Diamond told 20/20 most of the money that was made he never saw by the time he would actually need it as a young man. He moved from his Hollywood home to Wisconsin after filing bankruptcy, and along the way got caught up in a “shady business deal” that cost him close to $250,000 and his home.

“I said, ‘You know what? I’m going to sell this shirt, and I’m going to tell the public where this money is going if not just to save the house, I’ll use the money to fight this guy off in court because this is wrong.’ … We sold about 22,000 shirts,” he said to 20/20 of his cyberbegging experience.

But Screech is just one of many who once enjoyed the lifestyle of the rich and famous and later needed to file bankruptcy.

Today he’s a billionaire, but at one time Donald Trump’s debts were too great – even for him. Musicians from Michael Jackson to Mozart to MC Hammer all declared bankruptcy.

Actor Burt Reynolds and boxer Mike Tyson are some of the others who also went down the bankruptcy road, too.

You may feel all alone during these times of unemployment, home foreclosure, repossession and harassing creditors, but others – who had it much better financially than you – have also had financial woes and looked for a second start.

The economical forecast for residents of Detroit and the Midwest continues to look gloomy as Comerica Bank is moving their headquarters away from the Motor City down to the Big D of Dallas.

“Today, a significant percentage of Comerica’s earnings is generated in the Texas, Arizona, California and Florida markets. Moving our corporate headquarters to Dallas will give us greater proximity to all of our markets, and the additional resources in these markets will lead to accelerated growth for Comerica,” said Ralph W. Babb Jr., chairman and chief executive officer of Comerica. “In addition, the vibrant and diversified economies of Dallas, Houston and Austin will be particularly helpful to Comerica as we seek to continue attracting and retaining talented employees.”

Comerica, the Freep.com reports, is Michigan’s “biggest homegrown banking institution” and a major business employing more than 7,500 employees throughout the state. The CEO says only a few hundred jobs are so will be affected by the relocation, going down in the third quarter of this year.

The move will no doubt be devastating as the Michigan economy, particularly a bank that has called Detroit home base for more than 150 years, decides to pack up and leave for more stimulated economies. But Michigan Gov. Jennifer Granholm sees the relocation as an opportunity.

“I wish it were not happening. It’s not good news for us,” she said. “But on the flip side of it, it’s an opportunity to attract banks who want to headquarter here. We have a tremendous moment here to support community banks, which are investing in cities across the state,” Granholm said from the capitol of Lansing. “It also speaks to the importance of diversifying this economy, to continue to invest.”

The Freep.com also published some U.S. Census Bureau projections: “about two-thirds of all Americans will live in the southern and western parts of the country by the year 2030. About 30% of those people will be in California, Florida and Texas.”

All this could lead to even more home foreclosures in an area that already leads the nation with that stat.

The ABCs of Bankruptcy & Foreclosure: Glossary (a-b)

Over the next few weeks we will post common bankruptcy and foreclosure legal terminology so when you are doing research or begin filing you can have a better understanding of the jargon involved.

A

Absolute Priority
The order of payment to the different classes of creditors mandated by the Bankruptcy Code.

Accord and Satisfaction
An agreement to settle a contract dispute by accepting less than what’s due.

Adequate Protection
The right of a party with an interest in the debtor’s property to assurances its interest will not be diminished during the individual’s bankruptcy proceedings.

Adjustable Rate Mortgage
A mortgage loan with an interest rate that goes up and down in accordance with a designated market indicator.

Administration Claim
The debt incurred by the debtor after the bankruptcy commences with court approval.

Adversary Proceeding
A lawsuit arising related to a bankruptcy case.

Appraisal
A professional and legitimate determination of the value of some property or assets like a house or a car.

Arrangement
The agreements worked out concerning the conditions under which a bankrupt entity may operate.

Assume
An agreement to continue the guidelines laid out in a contract or lease.

Automatic Stay
An injunction effective immediately after a bankruptcy petition is filed that stops lawsuits, foreclosures, wage garnishments, and all other collection activities against the debtor/filer.

Avoidance Power
When the court negates certain transactions a debtor has prior to the bankruptcy filing.

B

Balloon Payment
A large final payment due at the end of a contract your monthly payments didn’t cover, typically for a car or a home loan.

Ballot Date
The deadline to which all votes on a reorganization plan is accepted.

Bankruptcy
Bankruptcy is a legal proceeding afforded to people who are unable to handle a financial crisis by relieving you of paying off your debts or by providing you with protection while attempting to pay off those debts. Bankruptcy is available so that you can have a fresh start.

Bankruptcy Code
The more common name for title 11 of the United States Code — the federal bankruptcy law.

Bankruptcy Court
The specialized court in where bankruptcy-related matters under the Federal Bankruptcy Act are handled.

Bankruptcy Estate
All legal or equitable interests in property of the debtor at the time of the bankruptcy filing.

Bankruptcy Judge
A judicial officer of the United States district court who is the court official with decision-making power.

Bankruptcy Petition
The official forms filed which opens the bankruptcy case.

Bankruptcy Trustee
A person appointed by the bankruptcy court to oversee the case filed.

Bar Date
The deadline creditors have to file against a debtor.

Bulk Sales Law
A law that regulates the transfer of business assets so business owners cannot dispose of assets that avoid creditors.

People love their houses there is just no question about it. All day long people call us and tell stories about how they are upside down (owe more than their house is worth) in their house and they just want to save it but they hear from their cousin (who by the way is a bus driver) that”after you file bankruptcy that you never have good credit again” (which could not be further from the truth). They will talk to me about two different plans. The first is that they want to purchase the property for less than what they owe the bank. Which is known as a “Short Sale” The second plan is that they are going to refinance the property into someone else’s name and purchase it back in one year. In general neither of these plans work and here is why:

1. A bank will not accept less money for the house WHILE YOU ARE STILL THERE. While you think they are getting nothing you are wrong. The bank is getting your house for exactly what you owe the way the process works is that the bank will sell the house to themselves at a sheriff even if no one else bids. They will sell the house for exactly what you owe on it. Therefore, even though you think they got nothing they did. They got an asset for their balance sheet and the asset is of the same value as what you owed. The bank will sell the house after they have evicted you and had time to review the value of the property they will sell the house. This is the only time you would be able to offer them less (yes that is correct you could buy the house for less but not until they kick you out.) This may seem counterintuitive but the banks share holders are only looking at the balance sheet not the real world application and they refuse to believe your house is worth less until one of their workers says it is the case. The other part of the story is that for every rule there is an exception. If I was going to try to buy the house for less I would contact the bank’s attorney’s in WRITING. I would courtesy copy the bank and I would attach a valid appraisal that indicates what you believe to be the value of the property. I would also include proof that you have the ability to refinance the property.

2. Worse than this plan is the second plan of transferring the property into another parties name. When your house goes into foreclosure you get a lot of mail. Some of the mail is from Attorney’s like me and some of the mail is from individuals who will tell you that they can help you save your property if you have enough equity (ownership) of your home. When you call they will tell you that they can come to your house and have you sign papers to transfer the property out of your name. They tell you that they will take over the payments and you can buy the house back in a year when your credit improves. Do not get involved in this scam. You no longer own your property. You have just transferred it to someone else. That is the first problem with this plan. The second problem is that your house went into foreclosure and that affected your credit. During that year you haven’t done anything to fix your credit. If you had filed a chapter 13 bankruptcy than you would have a new payment history regarding your house but instead you gave up the house. The payments you are making are no different then rent payments and rental payment are not recorded on your credit report. Therefore, your credit score will remain low all this because you don’t like the name bankruptcy. William Shakespeare one said “what in a name? That which we call a rose by any other name would smell as sweet”. -From Romeo and Juliet (II, ii, 1-2). The name is Bankruptcy but if you don’t like the name change it. I like the name “Savedme” instead