The ABCs of Bankruptcy
Bankruptcy law has its own confusing language. It is a good idea to have a basic understanding of bankruptcy terms before your initial consultation with a bankruptcy attorney. While most bankruptcy attorneys are very skilled at explaining the bankruptcy process and its impact to their clients in plain language, sometimes technical terms can sneak into the conversation. Below is a very general explanation of the most common bankruptcy terms:
Automatic stay – a court injunction that stops all collection action against the debtor. The automatic stay is effective immediately upon filing the bankruptcy
Bankruptcy estate – the debtor’s legal and equitable interest in property at the time the bankruptcy case is filed
Chapter – a section of the bankruptcy code. Some chapters are general and apply to all cases; other chapters apply only to specific bankruptcy cases.
Debtor – an individual who files a bankruptcy petition
Discharge – a court permanent injunction prohibiting the collection action against the debtor personally for any debt discharged in the bankruptcy
Equity – the value of a debtor’s interest in property after subtracting monetary liens
Exemptions – legal protections that shields property from creditor collection
Means test – a calculation of the debtor’s income and expenses meant to determine the debtor’s ability to pay creditors
No-asset case – a Chapter 7 case where there are no assets available to satisfy any portion of the creditors’ unsecured claims
Nondischargeable debt – a debt that cannot be absolved through bankruptcy and the debtor remains personally liable after the bankruptcy case has closed.
Petition – the papers filed by the debtor that commences the bankruptcy.
Plan – the debtor’s description of repayment of debt during a Chapter 13 bankruptcy
Preference – a debt that was paid prior to the bankruptcy when the debtor was insolvent and unable to pay other creditors
Proof of claim – the creditor’s claim and verification of a debt
Reaffirmation agreement – an agreement between the debtor and creditor that entitles the debtor to retain property in exchange for continued personal liability to pay a debt (common examples are a car or house loan)
Schedules – the detailed description of the property, debts, income and expenses of the debtor
Secured creditor – a creditor holding a lien against property of the debtor’s as security for payment of a debt
341 meeting – a mandatory meeting that the debtor must attend with the trustee. The debtor’s creditors are invited to the 341 meeting and are allowed to ask questions.
Trustee – an individual appointed to oversee the debtor’s bankruptcy case. This is not the bankruptcy judge.