10 Bankruptcy Terms You Need to Know
Are you familiar with the difference between the various chapters of bankruptcy? Can you define an adversary proceeding? Do you know the qualifications for a bankruptcy means test? If you answered “no” to any of those questions, then don’t worry – most of us can’t.
Bankruptcy is a complex legal process that involves terminology that may be unfamiliar to the average person. Understanding the language of bankruptcy is important if you are considering filing for bankruptcy or working with a bankruptcy attorney. Here are ten terms that are commonly used in bankruptcy and bankruptcy law:
Automatic stay: An automatic stay is an injunction that stops creditors from collecting debts after a bankruptcy petition has been filed. This means that creditors cannot garnish wages, seize property, or continue with any other collection actions. This is one of the foremost benefits of filing bankruptcy.
Bankruptcy trustee: A bankruptcy trustee is a court-appointed official who manages the bankruptcy case. The trustee is responsible for gathering the debtor’s assets, reviewing the bankruptcy paperwork, and distributing the assets to creditors.
Reaffirmation Agreement: A reaffirmation agreement is a legally binding contract between the debtor and a creditor that outlines the debtor’s promise to repay all or a portion of a debt, even if it could be discharged in bankruptcy.
Priority debts: Priority debts are debts that must be paid off in full in a bankruptcy case before any other debts can be paid. Examples of priority debts include taxes, child support, and alimony.
Creditor: A creditor is a person or entity to whom the debtor owes money. In other words, this is the individual or institution who loaned money to the individual who is filing for bankruptcy.
Debtor: A debtor is a person or entity who owes money to creditors. In other words, this person received a loan from an individual or an institution that they cannot repay.
Discharge: A discharge is a court order that releases the debtor from the obligation to repay certain debts. In Chapter 7 bankruptcy, most unsecured debts are discharged. In Chapter 13 bankruptcy, some debts may be discharged after the repayment plan is complete.
Exemptions: Bankruptcy exemptions are laws that allow debtors to protect certain assets from liquidation in bankruptcy. Exemptions vary by state and may include things like a homestead exemption for a primary residence or an exemption for retirement accounts.
Means test: The means test is a calculation used to determine whether a debtor is eligible for Chapter 7 bankruptcy. The means test looks at the debtor’s income and expenses to determine whether they have enough disposable income to pay back some of their debts.
Secured debt: Secured debt is a type of debt that is secured by collateral, such as a car or a house. If the debtor defaults on a secured debt, the creditor has the right to seize the collateral to satisfy the debt.
What You’ve Learned
Understanding these ten terms is just the beginning of understanding bankruptcy and bankruptcy law. With a process as complex as bankruptcy, one way to garner an advantage is to acquire as much knowledge regarding the process as possible. The other, of course, is to hire a bankruptcy attorney.
If you are considering bankruptcy and would like to speak to an attorney, then click here to use our free, no-obligation attorney matching service for a free consultation or call (833) 598-1595.