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Bankruptcy Legal Terminology

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by , 10-08-2011 at 05:48 PM (1432 Views)
An option to save your car from being repossessed is redeeming it. The option to “redeem,” or purchase your car from the creditor by paying the creditor a lump sum payment equal to the “replacement retail cost” of the car. The remaining debt, if any, will be discharged. For example, if your car’s replacement retail cost is $3,000, and you owe the creditor $10,000, you could redeem the car by paying the creditor $3,000. The remaining balance would be wiped out in the chapter 7 proceedings.

If you cannot afford payments on your car loan or owe more money to the creditor than what the car is worth, you surrender the vehicle to the creditor. This debt can then be discharged during the chapter 7 proceedings.

Reaffirmation agreement:

A reaffirmation agreement is a contract between the debtor and creditor stating the debtor's obligation, in spite of a bankruptcy filing, to pay off the loan given by the creditor. It is often used for secured debts like a vehicle so that the debtor does not lose the item after filing bankruptcy. The debt will not be discharged after signing a reaffirmation agreement. The reaffirmation agreement must be entered into prior to receiving a bankruptcy discharge. The debtor has 60 days to rescind the contract after filing. The agreement also must be approved by the court, who may reject the agreement if it determines that the debtor will not be able to make the agreed payments.

Fraudulent Conveyance:
A fraudulent conveyance refers to an illegal transfer of property with the intent to delay, swindle, or defraud a creditor. If an individual is aware that his assets are at risk of forfeiture to a creditor and he moves those assets out of reach of the creditor, he is fraudulently conveying the property and is subject to suit.
There are several things you can do to avoid a fraudulent conveyance claim.

You should establish an asset protection plan as soon as possible. This is because as more time passes, it is harder for creditors to argue that you transferred the assets with the intent to delay payment or commit fraud. Additionally, you should implement this plan before you are in any legal or financial trouble with any creditor. Finally, you should have enough assets outside of the asset protection plan to meet financial obligations and remain solvent.

341 Meeting with creditors
The 341 meeting with the creditors occurs usually within a month or two of filing for Chapter 7 or 13 bankruptcy. It is a fact finding meeting that allows the creditors or trustee to ask the debtor under oath questions about his/her finances and assets. The debtor must attend, creditors may attend but usually just the trustee attends in an individual bankruptcy case. For a Chapter 7 case, the trustee is verifying records and determining the debtors assets and in a Chapter 13 the trustee is verifying the repayment plan. The meeting typically lasts only 15 minutes. Any abnormalities that come out of the proceeding may lead to the creditor or trustee intiating litigation before the court (e.g. dismiss the case, prevent the debtor from selling or buying particular piece of property, creditor seeking to prevent a debt from being discharged, etc.).

Secured Debt and Unsecured Debt:
Secured debt gives the creditor a legal right to something belonging to the debtor in the event the debtor fails to pay back a loan. For example, a bank (creditor) gives a debtor a loan to purchase real estate and a lien is placed on the purchased real estate. If the debtor fails to make payments on the loan, the bank's lien gives it the legal right to the debtor's real estate.

Unsecured debt gives the creditor a general claim for a debtor's failure to pay back a loan. For example, a credit card company loans the debtor money and if the debtor fails to pay back the loaned money, the credit card company has a general claim to the debtor's assets rather than a legal right to something specific belonging to the debtor.

Secured debt creditors are paid back first in bankruptcy proceedings whereas unsecured debt creditors make their general claims once the specific assets have been allocated.
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