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The Language of Bankruptcy
When working in any forum, including bankruptcy, knowing the language that is spoken is an important asset.
Of course the first word used is bankruptcy itself which is simply a legal proceeding involving a person or business that is unable to repay outstanding debts. A bankruptcy involves people or companies of two kinds – the debtor (person or institution that owes a sum of money) and the creditor (person or company to whom money is owed.)
There are several types of bankruptcy that need to be understood. There are four major types of bankruptcy, a Chapter 7 (a bankruptcy proceeding in which a company stops all operations and goes completely out of business where a trustee is appointed to liquidate (sell) the company’s assets, and the money is used to pay off debt); a Chapter 11 (generally filed by corporations and is used to restructure debt by a reorganization); a Chapter 13 (court approved plan to reorganize debt with the intent to repay all creditors in a defined period of time); and a Chapter 12 (reorganization bankruptcy for family farmers and fisherman).
Many terms are used prior to any court appearances. A 341 hearing is where a meeting is called to allow creditors or others to contest the bankruptcy normally held by the trustee in a meeting room. An automatic stay prevents creditors from harassment for debts owed and goes into effect when the bankruptcy is filed (called a petition.) A common term is schedules which are simply all documents submitted to the court that list assets, liabilities, and other important financial information about the Debtor.
Most courts appoint a trustee whose job is to oversee the bankruptcy estate. 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 is called preference. The legal property of a debtor available to pay his or her creditors is called the bankruptcy estate.
Dischargeable debt is the debt that can be eliminated through bankruptcy proceeding. For instance taxes owed is not dischargeable debt! Another term used is exempt property or exemptions which is property owned by a Debtor that he or she may keep. Some bankruptcy filers get into big trouble with fraudulent transfers, which like it sounds is the illegal transfer of property by the Debtor with the intent to defraud a Creditor and the Court.