10 Bankruptcy Terms You Need to Know
Chapter 7 bankruptcy is a legal process designed to provide individuals and businesses with a fresh financial start by eliminating most of their debts. It’s a complex legal field that can feel impossible to understand if you haven’t studied law yourself. To better navigate this legal labyrinth, we’ve compiled 10 essential terms that will shed light on several, pivotal components of the bankruptcy process.
Bankruptcy Trustee: A bankruptcy trustee is a court-appointed individual responsible for administering the bankruptcy estate. The trustee’s role includes reviewing the debtor’s financial records, liquidating non-exempt assets, and distributing the proceeds to creditors.
Automatic Stay: The automatic stay is a crucial feature of Chapter 7 bankruptcy. It provides immediate relief by halting most collection actions against the debtor. Creditors must cease their collection efforts, including lawsuits, wage garnishments, and phone calls, once the bankruptcy case is filed.
Liquidation: Chapter 7 bankruptcy is often referred to as “liquidation bankruptcy” because the trustee may liquidate (sell) non-exempt assets to generate funds to repay creditors. However, it’s important to note that many assets are protected by exemptions, allowing debtors to keep their essential property.
Exemptions: Exemptions are legal provisions that allow debtors to protect certain types and amounts of property from being sold in bankruptcy. Each state sets its exemption limits, which determine the assets individuals can keep. Common exemptions include homestead exemptions for homes, exemptions for personal property like vehicles and household goods, and exemptions for retirement accounts.
Discharge: A bankruptcy discharge is a court order that releases the debtor from personal liability for most qualifying debts. It is the ultimate goal of Chapter 7 bankruptcy, as it frees individuals from the obligation to repay discharged debts. However, certain types of debts, such as student loans and child support, are generally not dischargeable.
Non-Dischargeable Debts: Non-dischargeable debts are those that cannot be eliminated through bankruptcy. These debts typically include recent tax obligations, alimony, child support, student loans (in most cases), court fines, and certain debts resulting from fraudulent activities.
Means Test: The means test is a calculation that determines if an individual qualifies for Chapter 7 bankruptcy. It compares the debtor’s income to the median income in their state and evaluates their ability to repay debts. If the debtor’s income is below the median, they pass the means test and are eligible for Chapter 7. If their income exceeds the median, they may need to consider Chapter 13 bankruptcy.
Reaffirmation Agreement: In Chapter 7 bankruptcy, a reaffirmation agreement allows debtors to keep specific secured debts, such as a car loan or mortgage, by agreeing to continue making payments and remaining personally liable for the debt. Reaffirming a debt excludes it from the discharge and preserves the debtor’s ownership rights.
341 Meeting (Meeting of Creditors): The 341 meeting is a mandatory meeting of creditors presided over by the bankruptcy trustee. During this meeting, the debtor must answer questions about their financial affairs and the bankruptcy petition. Creditors may attend but are not often present.
Bankruptcy Dismissal: A bankruptcy case may be dismissed if the debtor fails to comply with court requirements or abuses the bankruptcy process. Dismissal can have serious consequences, including the loss of bankruptcy protection and the ability to discharge debts.
Your Best Tool is a Bankruptcy Attorney
While understanding these 10 key terms will help prepare you for the Chapter 7 bankruptcy process, having a qualified attorney to represent you during your proceedings is the best advantage that you can leverage. Bankruptcy law is complex, and professional guidance is crucial to making informed decisions and achieving the best outcome.
If you’d like a free consultation with a qualified bankruptcy attorney then click here or call (833) 598-1595.