Filing for bankruptcy involves navigating a complex legal process with specialized terminology. Understanding these terms can help you make sense of the bankruptcy system and what to expect if you decide to file. This guide explains the key terms and concepts you will encounter throughout the bankruptcy process.
A legal process under federal law that helps individuals or businesses eliminate or repay debts under the protection of the bankruptcy court. Filing for bankruptcy triggers an automatic stay that stops most collection actions against you.
The person or entity who owes money and files for bankruptcy protection. If you file for bankruptcy, you are the debtor in your case.
Any person, business, or organization to whom you owe money. This includes credit card companies, medical providers, landlords, and lenders.
All of your legal and equitable interests in property as of the date you file for bankruptcy. This estate is administered by the bankruptcy trustee and may include your home, car, bank accounts, and other assets.
A court order that releases you from personal liability for certain debts. Once a debt is discharged, creditors can no longer take any collection action against you for that debt. Not all debts can be discharged in bankruptcy.
Often called “liquidation bankruptcy,” Chapter 7 allows individuals to discharge most unsecured debts. A trustee may sell non-exempt assets to pay creditors, though many filers keep all their property through exemptions. This process typically takes three to six months.
A reorganization bankruptcy for individuals with regular income. Instead of liquidating assets, you propose a repayment plan to pay all or part of your debts over three to five years. You keep your property while making monthly payments to the trustee.
Primarily used by businesses and individuals with debts exceeding Chapter 13 limits. This allows for reorganization while continuing operations.
A court order that goes into effect immediately when you file for bankruptcy. The automatic stay stops most creditors from continuing collection activities, including lawsuits, wage garnishments, phone calls, and repossession efforts. Some actions, like criminal proceedings and certain tax matters, are not stopped by the automatic stay.
The document you file with the bankruptcy court to start your case. The petition includes detailed information about your income, expenses, assets, debts, and recent financial transactions.
Forms attached to your bankruptcy petition that provide detailed information about your financial situation. These include lists of all creditors, assets, income sources, expenses, contracts, and recent financial transactions.
A calculation required for Chapter 7 filers to determine eligibility based on income. The means test compares your income to the median income in your state. If your income is below the median, you typically qualify for Chapter 7. If above, the test calculates whether you have disposable income to repay debts in Chapter 13.
The cost to file a bankruptcy case with the court. As of recent years, the filing fee for Chapter 7 is $338 and for Chapter 13 is $313. These fees may be paid in installments or waived in cases of extreme financial hardship.
A person appointed by the court to administer your bankruptcy case. In Chapter 7, the trustee reviews your paperwork, conducts the meeting of creditors, and may sell non-exempt assets. In Chapter 13, the trustee also collects and distributes your monthly payments to creditors.
A Department of Justice official who oversees the administration of bankruptcy cases and the conduct of bankruptcy trustees. The U.S. Trustee does not handle individual cases but monitors the bankruptcy system.
While not required, most people filing for bankruptcy hire an attorney to help prepare documents, represent them in court, and navigate the legal process. Bankruptcy law is complex, and mistakes in filing can result in case dismissal or loss of assets.
Also called a 341 meeting (named after Section 341 of the Bankruptcy Code), this is a hearing where you meet with the bankruptcy trustee and any creditors who choose to attend. Despite the name, creditors rarely appear at these meetings.
During this meeting, the trustee asks questions under oath about your bankruptcy paperwork and financial situation. Questions typically cover your income, expenses, assets, and the accuracy of your filed documents. The meeting usually lasts 10 to 15 minutes and takes place about a month after you file.
This is not a court hearing before a judge. The meeting occurs in a less formal setting, though you are under oath and must answer truthfully.
Assets that bankruptcy law allows you to keep. Federal law and state laws provide exemptions for certain types and amounts of property. Common exemptions include a portion of home equity (homestead exemption), vehicle equity, retirement accounts, clothing, and household goods.
Assets that are not protected by exemptions. In Chapter 7, the trustee may sell non-exempt property to pay creditors. In Chapter 13, you must pay creditors at least as much as they would receive if your non-exempt assets were liquidated.
An exemption that protects equity in your primary residence. The amount of protection varies significantly by state, ranging from a few thousand dollars to unlimited protection in some states.
A flexible exemption available in some states that can be applied to any property of your choice. This is useful for protecting assets that do not fit other specific exemption categories.
Debt backed by collateral. If you do not pay, the creditor can take the collateral. Examples include mortgages (secured by your home) and car loans (secured by your vehicle). Bankruptcy may eliminate your personal obligation to pay, but the creditor’s lien on the collateral remains unless you reaffirm the debt or surrender the property.
Debt not backed by collateral. Examples include credit card balances, medical bills, and personal loans. These debts are typically dischargeable in bankruptcy.
Certain unsecured debts are treated as more important than other unsecured debts. Priority debts include recent taxes, child support, alimony, and wages owed to employees. These debts must be paid in full in Chapter 13 and are generally not dischargeable in Chapter 7.
Debts that cannot be eliminated in bankruptcy. Common examples include most student loans, recent tax debts, child support, alimony, debts from fraud, and court-ordered restitution.
A detailed plan proposing how you will repay creditors over three to five years. The plan must pay priority debts in full and secured debts according to the loan terms if you want to keep the collateral. Unsecured creditors receive whatever you can afford to pay based on your disposable income.
In Chapter 13, this is your income minus allowed expenses. The bankruptcy court uses this calculation to determine how much you must pay unsecured creditors through your repayment plan.
A court hearing in Chapter 13, where the judge decides whether to approve your proposed repayment plan. Creditors can object if they believe the plan is unfair or does not comply with bankruptcy law.
A required course you must complete from an approved agency before filing for bankruptcy. The session reviews your financial situation and discusses alternatives to bankruptcy. You must file a certificate of completion with your bankruptcy petition.
A financial management course you must complete after filing but before receiving your discharge. This course covers budgeting, money management, and credit use. Both Chapter 7 and Chapter 13 filers must complete this requirement.
A legal document where you agree to remain personally liable for a debt that would otherwise be discharged. People often reaffirm car loans or mortgages to keep the property. The court must approve reaffirmation agreements, and you can cancel within 60 days.
In Chapter 7, redemption allows you to keep secured property by paying the creditor the current value of the collateral in a lump sum, rather than the full loan balance. This option is rarely used because most filers cannot afford the lump sum payment.
A court order allowing a creditor to resume collection efforts despite the automatic stay. Creditors may request this if you are behind on secured debt payments or if the creditor can show cause.
A lawsuit filed within the bankruptcy case. Common adversary proceedings involve disputes over whether a debt is dischargeable, objections to exemptions, or allegations of fraud.
A request asking the court to close your bankruptcy case without granting a discharge. The trustee or creditors may file this if you do not comply with requirements, fail to provide requested documents, or if the filing appears abusive.
When you choose to file for bankruptcy yourself. This is the most common type of bankruptcy case.
When creditors file bankruptcy against you. This is rare and typically only happens in business bankruptcies.
Changing your case from one chapter to another. For example, if you cannot afford your Chapter 13 payments, you might convert to Chapter 7. If you do not qualify for Chapter 7, you might convert to Chapter 13.
When the court closes your bankruptcy case without discharging your debts. This can happen if you do not follow requirements, miss payments in Chapter 13, or if the court finds your filing abusive.
The final court document releases you from personal liability for discharged debts. In Chapter 7, this typically comes about 90 days after the meeting of creditors. In Chapter 13, it comes after you complete all plan payments.
The price property would sell for between a willing buyer and willing seller. This is the value used to determine whether your assets exceed exemption limits.
For personal property, this is the price a retail merchant would charge for property of that kind, considering its age and condition. This valuation method is used when determining how much you must pay to keep secured property.
The difference between what your property is worth and what you owe on it. For example, if your car is worth $10,000 and you owe $7,000, you have $3,000 in equity.
Understanding these terms helps you navigate the bankruptcy process more effectively. Each term represents a specific legal concept with important implications for your case. When you encounter these terms in bankruptcy documents or discussions with a trustee or attorney, you will better understand what is being discussed and what actions you may need to take.
The bankruptcy process follows strict procedures and deadlines. Missing a deadline or failing to provide required information can result in dismissal of your case or denial of your discharge. Keeping track of these terms and requirements throughout your case will help ensure a smoother process.
Do I need to understand all these terms before filing for bankruptcy?
While you do not need to memorize every term, having a basic understanding helps you communicate more effectively with your attorney and understand what is happening in your case. Your attorney will explain specific terms as they become relevant to your situation.
What happens if I use the wrong terminology in my bankruptcy papers?
Your bankruptcy attorney will prepare your documents using the correct legal terminology. If you are filing without an attorney (called filing “pro se”), the court clerk can provide forms but cannot give legal advice about how to complete them.
Are these terms the same in every state?
Most bankruptcy terms are consistent across all states because bankruptcy is federal law. However, exemption amounts and some procedures may vary by state.
Can the trustee explain these terms to me during my meeting of creditors?
The trustee may clarify specific questions about your case, but their role is not to educate you about bankruptcy terminology. They are there to review your paperwork and ask questions about your financial situation.
What is the most important term to understand before filing?
The automatic stay is crucial because it provides immediate relief from creditor actions. Understanding which debts are dischargeable is also important so you have realistic expectations about which obligations will be eliminated.
Where can I find official definitions of bankruptcy terms?
The United States Courts website (uscourts.gov) provides a bankruptcy glossary. The Bankruptcy Code itself (Title 11 of the United States Code) contains legal definitions, though it is written in legal language that may be difficult to understand without legal training.
At Blue Bee Bankruptcy, our lawyers are highly experienced in bankruptcy options. More importantly, we understand that each case we receive is unique and each client has different needs and goals. We will discuss these signs with you and decide the best route to take.
We strive to help our clients rebuild their lives and take steps toward a better financial future through filing.
If you’re dealing with the potential of bankruptcy, give us a call. Our team will work to help you by reviewing all of the options our firm has available. We will ensure you’ll get the best possible outcome for your situation.
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