Glossary of Bankruptcy Terms
If you are considering filing bankruptcy, it is beneficial to be familiar with the terminology. The following are some of the more common and useful terms. For easy reference they have been arranged alphabetically and related words are indicated in bold.
Bankruptcy Trustee (bankruptcy) – This is the person in the Bankruptcy Court in a particular state who deals with all matters related to the administration of a bankruptcy case.
Automatic stay – This is the injunction that comes into place, in theory as soon as you file bankruptcy but in practice once the creditors have been notified, and stops all actions to collect debts. It continues until discharge when a permanent injunction become effective.
Bankruptcy – This refers to the process set out in the Bankruptcy Code for filing with the Bankruptcy Court to deal with individual or business debts according to one of the six chapters
Bankruptcy Code – This is the name in common use that you will hear for the federal bankruptcy law.
Bankruptcy Court – This refers to the court handling bankruptcy procedures with a particular district.
Bankruptcy Judge – This is the judge in a particular district who makes decisions related to the bankruptcy case.
There are six chapters. Some are more suitable than others for particular bankruptcy issues.
Chapter 7 –Chapter seven is referred to as a liquidation approach as it leads to the liquidation of non-exempt property to repay debt and is suitable for those individuals burdened by consumer debt.
Chapter 9 – This is a reorganization approach suitable for municipalities, school districts and bodies of that type needing to reorganize debts.
Chapter 11 – This is a reorganization approach to debt suitable for partnerships and businesses or individuals in business.
Chapter 12 – This is a bankruptcy approach principally for “family farmers or fishermen” to deal with the large debts involved in these types of operations.
Chapter 13 – This bankruptcy approach is designed to enable individuals with regular incomes to handle their debts through a combination of discharge and reorganization.
Chapter 15 – This is for dealing with disputes involving debts that cross borders.
Claim – This is the creditor’s demand to be paid what they believe they are owed.
Consumer debtor and consumer debts – These terms are closely related and refer to money owed by an individual rather than a business operation of some type whose debts arise from personal, family or household purchases.
Credit counseling – It is normal practice for individuals or groups to be required to take credit counseling from an approved body as part of the bankruptcy process and before discharge is complete under chapters 7 and 13. But, there are exceptions such as when there is no suitable body available.
Creditor – This is the Individual or business claiming that debts are owed to them by the debtor
Debtor – This is the person who files bankruptcy in order to deal with debts.
Discharge – This is when, according to the procedures set out in the bankruptcy code, the debtor is released from certain dischargeable debts. Once this has happened, as long as the debtor has made a full disclosure of their debts and there are no irregularities, the creditors can no longer attempt to access the money owed.
Dischargeable debts – These are debts that can be discharged, basically eliminated, according to the bankruptcy code.
Disclosure statement – This is a statement that makes the debtor’s situation and reorganization plan clear to creditors.
Exemptions – Some property, according to the bankruptcy code and/or state law, can be kept by the debtor and is not available for sale (liquidation) to provide funds to reimburse the creditor in part or full. It is important to be fully informed of what property is exempt especially under chapter 7.
Lien – Property that is security for a debt and therefore not available for liquidation.
Liquidation – The sale of non-exempt property for the purpose of reimbursing a creditor.
Means Test – This a procedure used to examine the debtor’s monthly income in relation to outgoings and debts. This is done to determine whether the debtor can file bankruptcy under chapter 7 or 13.
Non-dischargeable debts – These are debts which cannot be discharged and are usually debts related to governmental bodies, for example fines, alimony, student loans, but could also be home mortgages.
Plan – This is the description of how the debtor intends to repay remaining debts over a period of time, usually five years.
Clearly, this is a brief over view, but it will help you to get started understanding the process.