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The Language of Bankruptcy

January 20, 2015

Every profession has its own special language. The use of highly technical terms is a shorthand way to efficiently communicate highly complex ideas between professionals. Unfortunately, bankruptcy language often excludes non-lawyers from the conversation. Many bankruptcy debtors become confused or overwhelmed by the technical bankruptcy terms used by attorneys, the trustee, and the bankruptcy court. Learning a few simple bankruptcy terms can make the process more understandable.

Automatic stay – an injunction issued by the bankruptcy court that stops all collection action against the debtor and is effective immediately and automatically when the bankruptcy case is filed

Bankruptcy estate – the debtor’s legal and equitable interest in property at the time the bankruptcy case is filed. Control over the bankruptcy estate can be vested in the debtor or the bankruptcy trustee

Chapter – chapters of the Bankruptcy Code. Some chapters are general and apply to all cases; other chapters apply only to specific bankruptcy cases

Debtor – the individual or company filing bankruptcy

Discharge – a court permanent injunction prohibiting future collection action of certain debts against the debtor personally

Equity – the value of a debtor’s interest in property after subtracting liens

Exemptions – legal protections that shield property from creditor collection. Exemptions are found in state and/or federal laws

Means test – a calculation of the debtor’s income and expenses meant to determine the debtor’s ability to repay unsecured debts. “Failing” the means test means that there is a presumption that the debtor is able to pay unsecured creditors in a Chapter 13 case

No-asset case – a Chapter 7 case without available assets to pay unsecured creditors

Nondischarged debt – a debt that is not absolved during bankruptcy

Petition – papers filed by the debtor that commences the bankruptcy

Plan – the debtor’s proposed plan to repay creditors during a bankruptcy case (does not apply to Chapter 7 cases)

Preference – a debt that was paid prior to the bankruptcy while the debtor was insolvent

Priority debt – the order in which unsecured claims are paid according to the Bankruptcy Code

Proof of claim – a 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 debtor’s detailed description of the property, debts, income and expenses filed with the bankruptcy court

Secured creditor – a creditor holding a lien against property of the debtor’s as security for payment of a debt

341 meeting – a 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.

Mastering a few simple terms will aid your understanding during your bankruptcy case. 


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