Bankruptcy Glossary
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341 meeting - (see first
meeting of creditors)
Absolute priority - the order of payment to the different classes of
creditors mandated by the Bankruptcy Code. In theory, claims with higher
priority are paid in full before other claims receive anything. Junior
creditors and shareholders are paid after senior creditors. Specifically, the
usual order is: first, administrative claims; second, statutory priority claims
such as tax claims, rent claims, consumer deposits, and unpaid wages and
benefits from before the filing; third, secured creditors' claims; fourth,
unsecured creditors' claims; and fifth, equity claims.
Accrued Interest - Interest earned for the period of time that has
elapsed since interest was last paid.
Adequate protection - the right of a party with an interest in the
debtor's property (such as a secured creditor) to assurance that its interest
will not be diminished during the bankruptcy proceedings.
Adjustment - Change to prior account treatment of payment or expense,
including reallocation of funds held in suspense account. Also may refer to
change in loan terms.
administrative claim (or administrative expense claim) - debt
incurred by the debtor, with court approval, after the bankruptcy filing
including necessary costs of preserving the estate, wages, salaries, court
costs, lawyers' fees, accountants' fees, trustees' expenses, etc.
Adversary proceeding - A lawsuit filed in the bankruptcy court which is
related to the debtor's bankruptcy case. Examples are complaints to determine
the dischargeability of a debt and complaints to determine the extent and
validity of liens.
Allowed claim (or allowed interest) - a claim of a creditor (or an
equity interest) that is approved by the court for satisfaction under the plan
of reorganization.
arrangement - may refer to a variety of formal or informal agreements
worked out concerning the conditions under which a bankrupt company may
operate; often, it refers to an extension of time in which debt can be paid
off. This was the term used under old Chapter XI.
Arrears - The amount that is unpaid and overdue as of the date the
bankruptcy case is filed. The word "arrears" is usually used when referring to
back child support, back alimony owed, or the amount that is past due on
mortgage payments (including interest and penalties).
Asset Personal - possessions of value, including cash, real estate,
vehicles and investments.
Attorney Advance - Disbursement for attorney fees, often for collection
and foreclosure services on account in default, to be recovered from borrower
if permitted under mortgage.
automatic stay - the suspension of actions, such as debt collection or
foreclosure, against the company or consumer in bankruptcy. Occurs
automatically when the bankruptcy petition is filed. This action protects the
debtor from creditors seeking to seize its assets. It protects some creditors
in that it prevents one creditor from obtaining an excessive share of the
assets of the bankrupt to the exclusion of the other creditors.
Avoidance - The Bankruptcy Code permits the debtor to eliminate (avoid)
some kinds of liens that interfere with (or impair) an exemption claimed in the
bankruptcy. Most judgment liens that have attached to the debtor's home can be
avoided if the total of the liens (mortgages, judgment liens and statutory
liens) is greater than the value of the property in which the exemption is
claimed. This is sometimes called "lien stripping."
avoidance power - the power of the court to invalidate certain
obligations or transactions undertaken by a debtor prior to filing bankruptcy.
It is generally intended to reverse transfers of property that favor one
creditor over another.
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ballot date - concerning a bankruptcy reorganization, the date and time,
set by the bankruptcy court, by which all votes for accepting or rejecting the
plan of reorganization must be received.
bankrupt - the entity that files a bankruptcy; the debtor; the insolvent
entity. This is a non-technical term and is not used in the Bankruptcy Code.
bankruptcy - (see also failure and insolvency)
Bankruptcy filed by borrower, often resulting in internal transfer of servicing
to servicer's bankruptcy department or to default servicer.
Bankruptcy Act of 1898 - the basis of the federal bankruptcy statutes
used until the Bankruptcy Reform Act of 1978; provided primarily for
liquidation of companies; reorganization could be effected indirectly under the
1898 Act through equity receiverships (these were used to keep creditors from
seizing the assets of distressed companies).
Bankruptcy Act of 1933 - a statutory expansion of reorganization for
companies; (see Section 77); the Bankruptcy Act of 1933 and the Bankruptcy Act
of 1934 were superseded by the Chandler Act of 1938.
Bankruptcy Act of 1934 - a further statutory expansion of reorganization
for companies; (see Section 77B); the Bankruptcy Act of 1933 and the Bankruptcy
Act of 1934 were superseded by the Chandler Act of 1938.
Bankruptcy Amendments of 1984 - a set of amendments to the Bankruptcy
Reform Act of 1978. It contains a number of provisions including: limiting the
jurisdiction of the bankruptcy court, limiting the right of companies to
invalidate labor contracts while in bankruptcy and providing for the prevention
of "substantial abuse."
Bankruptcy Code - the name given to the statutory body of bankruptcy laws
after the Bankruptcy Reform Act of 1978. or Title 11 of the United States Code
governs bankruptcy proceedings. Bankruptcy is a matter of federal law and is,
with the exception of exemptions, the same in every state. When federal
bankruptcy law conflicts with state law, federal law controls.
Bankruptcy Court - the federal tribunal where cases under the Bankruptcy
Code are litigated.
Bankruptcy estate - generally, the property of the debtor that is subject
to the jurisdiction of the bankruptcy court.
Bankruptcy Fee - Fee charged to borrower by lender or servicer as a
result of bankruptcy filing by borrower, often a flat fee included in amount
owed listed on proof of claim filed by servicer in chapter 13 or added to
account as recoverable expense or corporate advance without notice to borrower
or bankruptcy court approval.
Bankruptcy petition - the document filed with the court to initiate a
bankruptcy proceeding.
Bankruptcy Reform Act of 1994 - most comprehensive piece of bankruptcy
legislation since the Bankruptcy Reform Act of 1978; signed into law on
October 22, 1994 with most provisions effective immediately; included in the
1994 Act are: provisions to expedite bankruptcy proceedings; provisions to
standardize fees; provisions to encourage individual debtors to use Chapter 13
to reschedule their debts rather than use Chapter 7 to liquidate; provisions to
aid creditors in recovering claims against bankrupt estates; creation of a
National Bankruptcy Commission to investigate further changes in bankruptcy
law; etc.
Bankruptcy Reform Act of 1978 - first substantive bankruptcy code
revision since the Chandler Act of 1938; took effect on October 1, 1979; some
of the major elements of this act were 1) upgrading the jurisdiction of the
U.S. bankruptcy courts to deal with cases handled by other courts (subsequently
modified); 2) allowing the filing of a single joint petition of bankruptcy by
husband and wife; 3) reorganizing the Chapters of bankruptcy; in particular,
concerning business reorganization, Chapters X, XI and XII of the old code are
replaced by Chapter 11; 4) expanding the number of people eligible and the type
of relief available to people in a new Chapter 13, wage-earner reorganization
bankruptcy; 5) altering the appellate procedure allowing direct appeal to the
U.S. courts of appeal (subsequently modified); and 6) generally, making federal
exemption provisions and options for debtors more extensive.
Bankruptcy Rule 2004 - a provision of the
Bankruptcy Code that allows one party in a bankruptcy proceeding to compel
discovery or other examination against another party.
Bankruptcy Tax Act of 1980 - the Bankruptcy Reform Act of 1978 did not
specify how certain tax matters concerning bankruptcies should be handled. The
Bankruptcy Tax Act of 1980 was passed to specify the tax treatment of
bankruptcy tax issues. It specifies the tax treatment of, among other things,
tax loss carry-forwards and exchanges of equity for debt.
Bar date - the last date that creditors may file a claim against the
debtor.
Broker's Price Opinion - Evaluation of property value typically based on
drive-by exterior examination, public data sources, and recent comparable
sales, obtained by servicer as alternative to full appraisal after loan is
placed in default status or upon loan modification.
Business bankruptcy - a bankruptcy categorized by the U.S. courts as a
business bankruptcy; data from the U.S. Administrative Office of the Courts
subdivides bankruptcies into business and non-business.
business failure - (see failure
)
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cash collateral - cash and cash equivalents held by the debtor in Chapter
11 subject to liens of other parties.
Chandler Act of 1938 - legislation providing substantial modifications to
the Bankruptcy Act of 1898.
Chapter - the Bankruptcy Code is organized into Chapters. Except for
Chapter 12, the Chapters of the present code are all odd-numbered and are
enumerated with Arabic numerals. (Before the Bankruptcy Reform Act of 1978, the
Chapters were numbered with Roman numerals.) Chapters 1, 3, and 5 cover matters
of general application. Chapters 7, 9, 11, 12 and 13 concern, respectively:
liquidation (business or non-business); municipality bankruptcy; business
reorganization; family farm debt adjustment; and wage-earner or personal (i.e.
non-business) reorganization.
Chapter 11 - reorganization proceedings, generally for business entities;
the debtor maintains control of the business in Chapter 11 (unless the Court
appoints a trustee).
Chapter 9 - bankruptcies of municipalities; only a few of these are filed
each year; over the period 1980 through 1988 there averaged about 4 Chapter 9
filings per year.
Chapter 7 - liquidation proceedings; generally assets are sold by a
trustee and the company ceases operation. (Individuals may file Chapter 7
also.)
Chapters X, XI and XII - before the Chapter 11 of the Bankruptcy Reform
Act of 1978, these three chapters of bankruptcy existed for company
bankruptcies that involved reorganization. Chapter X involved reorganization
for big companies that held public debt or equity, Chapter XI was for
readjustment of debts of smaller, non-publicly held companies and Chapter XII
was for companies with extensive holdings of real property.
Chapter 10 - a new chapter of the bankruptcy code proposed in 1992 and
pending in 1993. Chapter 10, like Chapter XI of the old code, is designed for
small business reorganizations.
Chapter 13 - bankruptcy proceedings for an
individual with the intention of rescheduling the individual's debt (rather
than liquidating the individual's assets and debt; an individual files under
Chapter 7 to liquidate); Chapter 13 is referred to as wage-earner bankruptcy,
personal bankruptcy or consumer bankruptcy; Chapter 13 cannot be used by a
partnership or a corporation; it can be used by a sole proprietorship.
"Chapter 33" - an unofficial term describing a company that has filed for
Chapter 11 three times.
Chapter 12 - family farmer bankruptcies; created by Congress in 1986
(Chapter 12 became effective on November 26, 1986 and is now a permanent
Chapter of the Bankruptcy Code); only a family owned farm business can qualify
for Chapter 12 and it must have debt less than $1.5 million and have 50% of its
income from farming operations.
"Chapter 20" - an unofficial term describing the filing of a Chapter 7
proceeding followed by a Chapter 13. The Chapter 7 filing eliminates unsecured
debts while the Chapter 13 filing handles continuing liens.
"Chapter 22" - an unofficial term describing a company that has filed for
Chapter 11 twice.
claims - rights to repayment made by creditors against a debtor; they may
be liquidated, unliquidated, fixed, contingent, matured, unmatured, secured,
unsecured, subordinated, legal or equitable. See specific entries and see
priority of claims.
class - each of the different categories of claims against a debtor.
Collateral - The property which is subject to a lien. A creditor with
rights in collateral is a secured creditor and has additional protections in
the Bankruptcy Code for the claim secured by collateral. The measure of the
secured claim is the value of the collateral available to secure the claim: it
is possible to have a lien on property that is subject to a senior lien or
liens such that the security available to pay the claim is really without value
to the junior creditor. The general rule with respect to liens is "First in
time, first in right."
confirmation - the final approval by the bankruptcy court of a debtor's
plan of reorganization. Confirmation takes place after the plan has been
approved by creditors.
contested matter - a dispute among the parties to a bankruptcy
proceeding, instituted by the filing of a motion of the court.
convenience claims - (see small
claims)
conversion - changing chapters in bankruptcy (e.g., converting from
Chapter 11 to Chapter 7 or vice-versa).
core proceedings - those proceedings that are inherent in and fundamental
to the administration of a bankruptcy case. Core proceedings are subject to the
jurisdiction of the bankruptcy court. Non-core proceedings may be conducted
outside the jurisdiction of the bankruptcy court.
Corporate Advance - Disbursement for servicing-related expenses (not
escrow expenses) paid with servicer funds rather than escrow funds, to be
recovered from borrower. May include foreclosure expenses, attorney fees,
bankruptcy fees, force placed insurance, and so forth.
Coupon Payment - Regularly scheduled mortgage payment made in amount
reflected on payment coupon, typically sent by borrower to servicer's payment
processing center.
cramdown - confirmation of a plan of reorganization over the objections
of one or more classes of creditors.
Credit Report- A report outlining an individuals credit history, public
records and credit worthiness.
Creditor - The person or organization to whom the debtor owes money or
has some other form of legal obligation.
creditors' committee - a committee of representatives of a debtor's
creditors appointed by the U.S. Trustee. The committee acts on behalf of all
creditors on negotiating a plan of reorganization and other major actions. In
large, complex cases, there may be more than one such committee.
Cushion - An additional sum of money required by lender to be paid into
escrow account as part of monthly escrow payment to protect lender against
increases in escrow expenses.
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Daily Accrual Accounting - Method of calculating earned interest on a
daily basis, if provided for in terms of note and permitted by state law.
Interest is computed at the contract rate on the unpaid balance on the account
based on the number of days that lapse from the date prior payment received to
the date current payment received.
debtor - the entity seeking protection from creditors under the
bankruptcy laws.
debtor-in-possession - the debtor which remains in control of operations;
as opposed to having a trustee operate the company.
default - the failure by an entity to abide by the covenants in a debt
obligation or other agreement to which it is a party. The most common default
is non-payment of interest or principal.
Default Servicer - Servicer of subprime, home equity, non-performing and
other loans in which increased default-related activities are anticipated.
Delinquency - Failure to make payments when payments are due. For most
mortgages, payments are due on the first day of the month. Even though they may
not charge a "late fee" for a number of days, the payment is still considered
to be late and the loan delinquent. When a loan payment is more than 30 days
late, most lenders report the late payment to one or more of the credit
bureaus.
Demand Letter - Letter notifying borrower of a delinquency or default,
possibly a notice of intent to foreclose.
Demand Letter Assessment - Fee for sending the demand letter or notice of
intent to foreclose.
Denial of Discharge - Penalty for debtor misconduct with respect to the
bankruptcy case or creditors as a whole. The grounds on which the debtor's
discharge may be denied are found in 11 U.S.C. 727. When the debtor's discharge
is denied, the debts that could have been discharged in that case cannot be
discharged in any subsequent bankruptcy. The administration of the case, the
liquidation of assets and the recovery of avoidable transfers, continues for
the benefit of creditors.
Disbursement - Use of funds to pay for servicing-related charges and
expenses, including payments made out of escrow.
discharge (of indebtedness) - the satisfaction or elimination of the
debts of the debtor by the bankruptcy court.
Dischargable Debts - Debts that can be eliminated in bankruptcy. Certain
debts are not dischargeable; that it, they may not be discharged through
bankruptcy or may only be discharged through Chapter 13. Family support and
criminal restitution are examples of debts which cannot be discharged. Debts
incurred by fraud can only be discharged in Chapter 13.
disclosure statement - a comprehensive disclosure document sent to
creditors when they are asked to vote on a plan of reorganization in Chapter
11.
dismissal - the termination of a bankruptcy proceeding. The bankruptcy
court can dismiss a case if it deems that the debtor or three creditors should
not have filed or that a plan can never be formulated. See also conversion.
distressed - used to describe securities, companies and related items in
or near bankruptcy or insolvency. The term does not have a strict, technical or
legal definition. For example, a distressed security might be a security where
the issuer has defaulted or a security that is selling at a substantially
discounted price where a default is expected in the future.
docket - the schedule on which the clerk of the court records all
motions, pleadings, memoranda, orders and all other court filings.
Due Date - Date on which borrower's monthly installment of principal,
interest, and escrow (if applicable) is due as stated in note.
Due Date of Last Paid Installment - Due date of the last fully paid
monthly installment of principal, interest, and escrow (if applicable); not the
date on which such payment was credited or date of next scheduled installment.
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effective date - the date on which a plan of reorganization is
implemented; usually it occurs after all the conditions to a plan of
reorganization have been satisfied.
equitable subordination
- the lowering of priority of a claim because the holder of the claim is found
to be guilty of some kind of improper conduct.
Equity - A homeowner's financial interest in a property. Equity is the
difference between the value of the property and the amount still owed on its
mortgage and other liens.
Escrow Account - Trust account into which a borrower's funds are
deposited and held to pay taxes, insurance premiums, and other escrow expenses.
Escrow Advance - Disbursement for escrow expense paid with servicer funds
at time when insufficient funds in borrower's escrow account, to be recovered
from borrower as escrow shortage or deficiency.
Escrow Balance - Amount of funds remaining in escrow account.
Escrow Deficiency - Amount of a negative balance in an escrow account at
the time of an escrow analysis, resulting from escrow advances.
Escrow Payment - Portion of borrower's monthly mortgage payment held by
the servicer in escrow account to pay for taxes, insurance premiums, or other
escrow items as they become due.
Escrow Shortage - Amount by which current escrow account balance falls
short of the projected target balance at the time of an escrow analysis.
Escrow Surplus - Amount by which current escrow account balance exceeds
the projected target balance at the time of an escrow analysis.
examiner - a professional appointed by the bankruptcy court to
investigate and oversee certain aspects of the debtor or the proceedings. (By
way of comparison, the role of the trustee is to operate the business of the
debtor whereas the role of the examiner is to investigate and report to the
court.)
exchange offer - an offer by an issuer of debt securities to exchange new
securities with less onerous provisions for currently outstanding securities.
Companies often make exchange offers in an attempt to avoid bankruptcy.
exclusivity (period of) - a debtor in Chapter
11 has the exclusive right to file a plan of reorganization for the first 120
days of its bankruptcy. Thereafter, unless the period of exclusivity is
extended by the court, other parties may file reorganization plans.
executory contract - a contract in which some or all of the obligations
of each party have not yet been completed. The debtor-in-possession (or
trustee) is allowed to reject unilaterally certain executory contracts.
Exempt- Property that is exempt is removed from the bankruptcy estate and
is not available to pay the claims of creditors. The debtor selects the
property to be exempted from the statutory lists of exemptions available under
the law of his state. The debtor gets to keep exempt property for use in making
a fresh start after bankruptcy.
Exemptions - Exemptions are the lists of the kinds and values of property
that is legally beyond the reach of creditors or the bankruptcy trustee. What
property may be exempted is determined by state and federal statutes, and
varies from state to state.
Expense Advance - May be either corporate advance or escrow advance (see
definitions above).
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failure - (see also bankruptcy
and insolvency) an economic
assessment of the viability of a business, it means that a firm is either not
earning what is expected (i.e. it has a below normal rate of return) or is not
meeting its obligations. It is not synonymous with bankruptcy because
bankruptcy is more of a formal and legal definition. A failing company is not
necessarily a bankrupt company and vice-versa.
Fair Market Value -The highest price that a buyer, willing but not
compelled to buy, would pay, and the lowest a seller, willing but not compelled
to sell, would accept. Foreclosure: The legal process by which a borrower in
default under a mortgage is deprived of his or her interest in the mortgaged
property. This usually involves a forced sale of the property at public auction
with the proceeds of the sale being applied to the mortgage debt.
fee examiner - appointed by the court to monitor fees paid to
professionals in bankruptcy cases.
Fiduciary - one who is entrusted with duties on behalf of another. The
law requires the highest level of good faith, loyalty and diligence of a
fiduciary, higher than the common duty of care that we all owe one another. The
debtor in possession in a Chapter 11 is a fiduciary for the creditors, owing
loyalty to the creditors and not the shareholders of the debtor.
filing fees - (as of January 1998) for Chapter 7 the fee is $175, for
Chapter 11 it is $830 and for Chapter 13 it is $160.
first meeting of creditors (341 meeting) - a
mandatory meeting between creditors and the debtor. It is usually held within a
month of the filing of bankruptcy but often occurs later when the debtor has
filed its schedules of financial information.
Force Placed Insurance - Hazard insurance purchased by servicer on
borrower's home (covering only lender's interest) when policy purchased
directly by borrower on non-escrow mortgage account has lapsed, when servicer
contends that borrower has failed to provide proof of insurance coverage, or
when account is in default.
fraudulent conveyance - the transfer of valuable assets from a company
which i) occurs when the company is technically insolvent, ii) renders the
company insolvent, or iii) is made for less than adequate consideration. The
spate of leveraged buyouts and other highly leveraged transactions in the 1980s
has spurred a number of fraudulent conveyance allegations in recent years.
fresh start - informal term for the new accounting rules applicable to
bankrupt companies. For companies that either file for Chapter 11 after January
1991 or emerge from Chapter 11 after June 1991, assets are to be valued at
market value rather than at historical cost.
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gap period - the period between the filing of an involuntary petition and
the dismissal of the petition, the entry of an order for relief or the filing
of a voluntary petition (whichever is the outcome).
Garnishment A court -ordered method of debt collection in which a portion
of a person's salary is paid to a creditor. The process by which a judgment
creditor seizes money, which is owed to his judgment debtor, from a third party
known as a garnishee.
General, unsecured claim - Creditor's claim without a priority for
payment for which the creditor holds no security (or collateral). If the
available funds in the estate extend to payment of unsecured claims, the claims
are paid in proportion to the size of the claim relative to the total of claims
in the class of unsecured claims.
going concern value - what a company is worth if sold as a continuing
business, as opposed to its liquidation value.
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Hazard Premium - Premium for hazard insurance on borrower's home.
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impairment - when a plan of reorganization alters the contractual rights
of a class of holders of claims, that class is deemed to be impaired. A class
that is unimpaired is deemed to automatically accept a plan of reorganization.
insolvency - (see also
bankruptcy and failure) another term
used to describe a firm that is failing; generally it means that a firm's
liabilities exceed its assets or that it is unable to satisfy its obligations
as they come due.
Interest on Escrow - Interest earned on funds held in escrow account paid
either directly to borrower or credited to escrow account.
Interest Payment - Portion of borrower payment applied to mortgage
interest.
Interest Short - Earned interest remaining unpaid after application of
mortgage payment, typically reflected on account history as negative balance.
Frequently occurs on loans with negative amortization or where irregular
payments made under daily accrual accounting method.
interests - the equity interests of stockholders are often referred to in
bankruptcy documents merely as "interests."
involuntary bankruptcy - a bankruptcy initiated by at least three
creditors holding unsecured claims aggregating at least $5000 against the
debtor. Data from the U.S. Administrative Office of the Courts subdivides
bankruptcies into voluntary and involuntary.
Irregular Payment - Mortgage payment made in amount or at time different
than regularly scheduled payment under terms of note.
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joint administration - the combining of two or more bankruptcy
proceedings for administrative convenience. Frequently, the cases of affiliated
entities are jointly administered. Joint administration does not necessarily
result in substantive consolidation (see
below).
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Late Charge Assessed - Fee charged to borrower's account when payment
made after due date (usually fifteen days after due date).
Lien - An interest in real or personal property which secures a debt; the
lien may be voluntary, such as a mortgage in real property, or involuntary,
such as a judgment lien or tax lien.
liquidating reorganization - an informal term for a Chapter 11 proceeding
when the company is essentially liquidated through one or more asset sales.
liquidation - the dissolution of a company (or individual); usually
operations cease and assets are sold by auction; Chapter 7 is usually employed
for liquidations, business or personal.
liquidation value - the aggregate value of a business if its assets are
sold piecemeal.
Lock Box Payment - Borrower payment sent to designated address (usually
post office box) at the servicer's payment processing center (servicer may
outsource service to third-party company who collects mail directed to post
office box and deposits funds to servicer's bank account).
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Master Servicer - Servicer responsible for protecting interests of
mortgage-backed securities' certificate holders and oversight of primary
servicers.
matrix - a mailing list of creditors of the debtor. Done as part of the
forms filled out for a Chapter 11 case.
Mortgage Electronic Registration System - Electronic registry system for
tracking ownership of individual mortgages, servicing rights, and security
interests used by MERS members.
Mortgage Identification Number - Number assigned to a mortgage that is
registered with MERS (see definition above) and used for identification and
various other purposes for life of mortgage.
Mortgage Insurance Premium - Payment of private mortgage insurance (PMI)
premium (see definition below).
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National Bankruptcy Review Commission - an independent commission
established pursuant to the Bankruptcy Reform Act of 1994 to investigate and
study issues relating to the Bankruptcy Code. The Commission completed a final
report and ceased to exist as of November 19, 1997.
No Asset Case -A debt that cannot be eliminated in bankruptcy. Non
dischargeable debts remain legally enforceable despite the bankruptcy
discharge.
NOL (net operating loss) - (see tax
loss carry-forward)
non-business bankruptcy - a bankruptcy categorized by the U.S. courts as
a non-business bankruptcy; the debtor in a non-business bankruptcy is usually
either an individual or a family farm; data from the U.S. Administrative Office
of the Courts subdivides bankruptcies into business and non-business.
Non-dischargable - A debt that cannot be eliminated in bankruptcy. Non
dischargeable debts remain legally enforceable despite the bankruptcy
discharge.
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PACER (Public Access to Court Electronic Records) - a service provided by
the court system that gives case filing information. PACER requires an
IBM-compatible computer equipped with a modem.
Pay-Off Fee - Fee charged to borrower for providing statement of amount
required to pay off loan.
Perfection - When a secured creditor has taken the required steps to
perfect his lien, the lien is senior to any liens that arise after perfection.
A mortgage is perfected by recording it with the county recorder; a lien in
personal property is perfected by filing a financing statement with the
secretary of state. An unperfected lien is valid between the debtor and the
secured creditor, but may be behind liens created later in time, but perfected
earlier than the lien in question. An unperfected lien can be avoided by the
trustee.
period of exclusivity - (see exclusivity)
personal bankruptcy - filed by an
individual; also called a household bankruptcy, consumer bankruptcy or
wage-earner bankruptcy. (see Chapter 13 and also Chapter 12).
Personal Property - Property that is not real property or affixed to real
property, such as cars, stock, furniture, etc.
petition - (or bankruptcy petition or petition for relief)
- the document that commences a bankruptcy proceeding.
plan of reorganization - the document setting forth how a bankrupt
company plans to satisfy its creditors. The plan of reorganization is the
cornerstone of a successful Chapter 11 bankruptcy.
Primary Servicer - Servicer responsible for payment collection, cash
management, escrow administration, and loan reporting to mortgage-backed
securities' trustees and certificate holders. Some functions may be delegated
to subservicer.
Principal - Sum of money outstanding on mortgage upon which interest is
payable.
Principal Payment - Portion of borrower payment applied to mortgage
principal.
Private Mortgage Insurance - Insurance to protect lender against loss if
borrower defaults. Similar to insurance by government entities such as FHA,
except issued by private mortgage insurance company. Premium is paid by
borrower as part of monthly mortgage payment.
Property Inspection Fee - Fee charged to borrower for inspections
(usually drive-by) to determine the physical condition or occupancy status of
mortgage property, often imposed repeatedly once account is placed in default
status.
Property of the Estate -The property that is not exempt and belongs to
the bankruptcy estate. Property of the estate is usually sold by the trustee
and the claims of creditors paid from the proceeds.
Property Preservation Disbursement - Disbursement by servicer for
securing, winterizing, and repairing property that has been foreclosed (real
estate owned). May also refer to fees for property inspections, broker price
opinions, and foreclosure expenses.
post-petition - occurring after the filing of a petition.
preference - a payment by a debtor made during a specified period (90
days or one year) prior to the filing that favors one creditor over others.
Preference payments can usually be recovered and returned to the debtor's
estate.
prepackaged bankruptcy - a situation where a company and its creditors
agree to a plan of reorganization before the company files a bankruptcy
petition. In a true prepackaged bankruptcy, a plan of reorganization is
circulated and approved by creditors before the petition is filed. The court
then confirms the plan and the company emerges from bankruptcy quickly.
pre-petition - occurring before the filing of a bankruptcy petition.
priority claims - administrative expenses and salaries, wages, employee
benefits, customer deposits and taxes which occurred pre-petition.
pro rata - proportionately.
proof of claim - form filed by a creditor setting out its claims against
a bankruptcy debtor.
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Real Estate Owned - Property acquired by lender as a
result of foreclosure or deed in lieu of foreclosure.
receiver - particularly in foreign proceedings, or state court
proceedings, a person appointed by the court to take custody of a debtor's
property.
Recovery - Distribution of borrower payment or funds to servicer as
reimbursement of escrow, corporate, or other advances.
Reaffirm - The debtor can chose to reaffirm debts that would otherwise be
discharged by the bankruptcy. Generally, when a debt is reaffirmed, the parties
to the reaffirmed debt have the same rights and liabilities that each had prior
to the bankruptcy filing: the debtor is obligated to pay and the creditor can
sue or repossess if the debtor doesn't pay.
Redistribution - Application of payment or other posting to two or more
accounts.
Refund - Funds returned to borrower, often following escrow account
analysis showing surplus.
Relief from Stay - A creditor can ask the judge to lift the automatic
stay and permit some action against the debtor or the property of the estate.
If the motion is granted, the moving party (but no one else) is free to take
whatever action the court permits. Relief can be absolute, for example,
permitting the creditor to foreclose on property, or limited, as for example,
allowing the recordation of a notice of default.
reorganization - the resolving of a Chapter 11 bankruptcy by the
emergence of the debtor as a viable business. Generally, the company agrees
with creditors on a plan for payment of their claims (plan of reorganization)
and emerges from Chapter 11 after the plan is confirmed by the court.
Repayment - Disbursement to servicer as recovery of corporate or escrow
advance.
Repossession -Once in default, as defined by the creditor in the security
agreement, occurs, the creditor can: repossess the collateral by self-help
(depending on state law) or with the aid of a court order, dispose of the
collateral by public or private foreclosure sale, retain the collateral in
satisfaction of the debt, terminate the debtor's right of redemption, add the
costs of repossession and foreclosure to the unpaid balance of the debt, and
pursue the debtor for any remaining unpaid balance or deficiency.
Reserve - An additional sum of money required by lender to be paid into
escrow account as part of monthly escrow payment to protect lender against
increases in escrow expenses.
restructuring - a general term applied to an out-of-court attempt to
reorganize and satisfy debts. Similar to workout (see
below).
Retired Benefits Bankruptcy Protection Act - passed June 16, 1988. Allows
the debtor to continue to pay insurance premiums for employees during the
course of a bankruptcy.
Returned Check Fee - Charge imposed for bounced check.
Reversal - Removal of previously imposed charge or reapplication of
previously credited payment. Generally involves two-step accounting process in
which item is reversed in one transaction and reapplied in another transaction.
reverse leveraged buyout - when a company that was a leveraged buyout
restructures its (usually unmanageable) debt by issuing new equity (usually in
exchange for some or all of the outstanding debt incurred during the original
leveraged buyout).
Rule 2004 - (see Bankruptcy
Rule 2004)
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Schedules -The debtor must file the required lists of assets and
liabilities to commence a bankruptcy case, collectively called the schedules.
Section 77 (of 1933 Act) - provided for reorganization of
railroads (during the 1930s a large number of railroads encountered extreme
financial difficulty); (see also Section
77B).
Section 77B - followed Section 77; provided for
reorganization of companies other than railroads.
Section 304 - the section of the present U.S. Bankruptcy code that
handles multi-national bankruptcies; only a few of these are filed each year;
over the period 1980 through 1988 there averaged about 6 filings of Section 304
per year.
secured creditors - one of two general types of creditors of a company.
Secured creditors have a lien on property of the company.
Secured Debt -A claim secured by a lien in the debtor's property by
reason of the debtor's agreement or an involuntary lien such as a judgment or
tax lien. The creditor's claim may be divided into a secured claim, to the
extent of the value of the collateral, and an unsecured claim equal to the
remainder of the total debt. Generally a secured claim must be perfected under
applicable state law to be treated as a secured claim in the bankruptcy.
Servicing Advances - Funds advanced by servicer under terms of agreement
with lender to cover servicing costs and expenses as they occur.
set-off - the ability to discharge or reduce a debt by applying a counter
claim between the same parties. For example, a bank which has lent money to a
debtor may attempt to satisfy some or all of the loan by seizing the debtor's
deposits at the bank.
Short Payment - Payment made in less than full monthly amount due under
the loan payment schedule, often held in suspense account until full amount
received.
skeleton filing - term used at bankruptcy courts to describe a bankruptcy
filing in which not all the necessary forms have been filed. Certain courts
allow a case to commence if only certain important forms are filed so long as
the balance of required forms are forthcoming within a certain period of time.
small claims (also sometimes called convenience
claims) - under a plan of reorganization or liquidation, claims that
are small (e.g. in the hundreds or thousands of dollars range) and numerous are
often grouped into a single class and settled for cash for administrative
convenience.
SpeedPay Fee - Fee charged for making electronic payment.
Statutory Expense - Any tax, special assessment, or other charge imposed
by federal, state, or local taxing authority or other governmental entity.
Generally does not refer to taxes paid through escrow account but rather
corporate advances to cover such charges when account is in default or property
facing tax sale, or following a foreclosure.
straight bankruptcy - an informal term for a Chapter 7 bankruptcy or
liquidation; used more commonly to describe liquidation before the Bankruptcy
Reform Act of 1978.
substantial abuse - a term that refers to the abusing of the privilege to
file a petition. It usually describes fraud in cases of personal bankruptcy.
substantive consolidation - the combination of
the estate of one debtor with the estate of one or more other debtors and the
application of the combined estate to satisfy their combined liabilities.
Substantive consolidation is often considered (although infrequently applied)
in the case of parent/subsidiary debtors and other affiliated entities.
super-priority claim - an administrative claim that will be paid ahead of
other administrative and priority claims.
Suspense Account - Catch-all account used as place to temporarily put
funds that are in "suspense" until servicer makes decision on how to
permanently allocate or apply, often used to hold less than full installment
payments or payments received while account in default.
Suspense Balance - Amount of funds held in suspense account.
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tax loss carry-forward - losses, for tax purposes, that can be carried
forward and applied to reduce taxable income in future years. The Tax Reform
Act of 1986 imposed stringent restrictions on the use of tax loss
carry-forwards.
Tax Penalty - Interest, late charge, or other penalty imposed by taxing
authority for late payment of taxes.
Transaction Date - Date reflected on payment or account history showing
time when servicer completed account transaction or took other action.
Transaction Description - Notation on payment or account history often in
code describing nature of, or reason for, application of payment, disbursement,
or other servicer action.
trustee - an agent of the court who manages the property of the debtor
for the benefit of the creditors. The court appoints a trustee in most Chapter
7 cases and in Chapter 11 cases when it determines that the debtor's management
should not remain in control. This type of trustee should be distinguished from
the U.S. Trustee, who plays an administrative role in all bankruptcy cases.
Trustee Suspense Account - Suspense account used by servicer to hold
payments received from chapter 13 bankruptcy trustee pursuant to borrower's
chapter 13 plan providing for cure of pre-petition mortgage arrearages.
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United States Trustee - an agent of the U.S. Department of Justice
appointed to assist in bankruptcy cases. The U.S. Trustee administers many of
the duties of the court including appointing committees, appointing trustees
and examiners, scrutinizing bankruptcy documents, etc. The United States
Trustee Program was begun in 1979. Presently, it covers all federal judicial
districts except for North Carolina and Alabama which are scheduled to be
included in October of 2002.
unsecured creditor - one of two general types of creditors of a company.
The unsecured creditors have no liens on the property of the company.
Unsecured Debt - A claim or debt is unsecured if there is no collateral
that is security for the debt. Most consumer debts are unsecured.
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VCIS (Voice Case Information System) - a touchtone telephone
service provided by the court system that gives case filing information.
voluntary bankruptcy - bankruptcy filed by the debtor itself; data from
the U.S. Administrative Office of the Courts subdivides bankruptcies into
voluntary and involuntary.
vulture funds - (also referred to as vulture capitalists or vulture
investors) - investment groups that are prominent in the restructuring
of financially distressed and bankrupt companies usually by the buying or
selling of large pieces of the distressed company's debt and/or equity.
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wage-earner bankruptcy - (see Chapter
13 and personal bankruptcy)
workout - an arrangement, outside of bankruptcy, by
a debtor and its creditors for payment or re-scheduling of payment of the
debtor's obligations. Usually applies to an informal agreement between a
business and its creditors, although it can be a formal agreement and it can
apply to consumer debtors.
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