Explaining the Vocabulary of Bankruptcy

Bankruptcy:
It’s hard to know what to do when you don’t understand the language.

I want to take a minute to explain the vocabulary of bankruptcy. For people, like me, I get stuck on all the words. So often when you go to talk to someone about a topic they are an expert in, they use language they assume I understand. Let’s understand the language.

The Vocabulary of Bankruptcy:

Bankruptcy: A legal proceeding involving a person or business that is unable to repay outstanding debts.

Debtor: A person or institution that owes a sum of money.

Creditor: A person or company to whom money is owed.

Chapter 7: A bankruptcy proceeding in which a company stops all operations and goes completely out of business. A trustee is appointed to liquidate (sell) the company’s assets, and the money is used to pay off debt.

Chapter 11: A form of bankruptcy that involves a reorganization of a debtor’s business affairs and assets. It is generally filed by corporations which require time to restructure their debts.

Chapter 13: A U.S. bankruptcy proceeding in which the debtor undertakes a reorganization of his or her finances under the supervision and approval of the courts. As part of the reorganization, the debtor must submit and follow through with a plan to repay outstanding creditors within three to five years.

Preference: A transfer of an interest to a creditor in payment of an existing debt made within certain time periods before the commencement of the bankruptcy case.

Dismissal: The termination of the bankruptcy case without either the entry of a discharge or a denial of discharge.

Chapter 12: A reorganization bankruptcy for family farmers and fisherman.

341 Hearing: The meeting of creditors is not a courthearing. Instead, it is run by your bankruptcy trustee and usually held in a meeting room. Creditors may or may not be present.

Automatic Stay: A legal provision that temporarily prevents creditors from pursuing debtors for amounts owed. An automatic stay goes into effect immediately when a debtor files for bankruptcy.

Means Test: A determination of whether an individual or family is eligible for government assistance, based upon whether the individual or family possesses the means to do without that help.

Petition: The document filed with the court that starts the Debtor’s bankruptcy case.

Schedules: Documents completed by a Debtor and his or her attorney that list assets, liabilities, and other important financial information.

Bankruptcy Estate: The legal property of a debtor who is in bankruptcy and that is available to pay his or her creditors.

Trustee: A person appointed by the government that oversees the bankruptcy estate. An office of the Department of Justice

Dischargeable Debt: Types of debt that can be eliminated through bankruptcy proceeding.

Exempt Property (a.k.a Exemptions): Property, not limited to real estate, owned by a Debtor that he or she may keep. Exemptions are complex and can change from state to state.

Fraudulent Transfer: A transfer of property by the Debtor that is made with the intent to defraud a Creditor.

This is simply a tool to understand some of the language involved in discussion of bankruptcy. Specific definition and implementation may change from state to state.

We are a debt relief agency and have practiced bankruptcy law for a combined 50 years. Our services include helping individuals and couples file for bankruptcy relief under the Bankruptcy Code. 

Bankruptcy