If you're like most people who are considering bankruptcy as a way of easing their personal debt burden, you're probably a little bewildered by some of the terminology thrown around on web sites that discuss bankruptcy and its protections.
Bankruptcy procedures are dictated by federal and state laws, and so there are many terms and phrases with specific legal meanings that are not a part of everyday speech. Although the language of bankruptcy may be unfamiliar, the protections that bankruptcy offers are very real.
To find out what bankruptcy could do for you, connect with a local bankruptcy lawyer today. Just use the case review form below to arrange a free, no-obligation consultation with a bankruptcy attorney near you.
Common Bankruptcy Terms
It's difficult to understand the bankruptcy process when it's described in complex legal jargon, and the last thing most potential bankruptcy filers need is one more source of worry. Here's a look at some important bankruptcy terms and what they might mean for you.
- Bankruptcy petition: This refers to the paperwork you file to officially start your case. The petition includes several "schedules," which are simply documents detailing your debts, assets, income and other financial matters. Because of this term, bankruptcy filers are also sometimes called "petitioners."
- Automatic stay: This is a legal protection that takes effect as soon as a petitioner files paperwork with the court. It prevents creditors of all sorts from taking any collection action (including repossession, wage garnishment, foreclosure, phone calls and more) for the duration of the bankruptcy case.
- Unsecured debt: This is a debt that is not connected to any property. Examples of unsecured debts include credit card debt, medical bills, student loans and more.
- Secured debt: This is a debt that is connected to property, such as a mortgage loan or a car loan. These are considered more "secure" than unsecured debts (like credit cards) because a lender can seize the property attached to the debt if a borrower is unable to make payments.
- Chapter 7 bankruptcy: Sometimes called "liquidation," this is the type of personal bankruptcy that works by offering a filer a discharge of some or all of her unsecured debts, while some of the filer's assets may be sold off to pay creditors.
- Chapter 13 bankruptcy: Sometimes called "reorganization," this type of personal bankruptcy works by offering filers a three- to five-year period to catch up on past-due debts through a repayment plan.
- Exemptions: These are protections for assets (determined by each state) that a filer can keep when he files a Chapter 7 case. In other words, a person's exempt assets are not subject to liquidation by the bankruptcy trustee in Chapter 7 filings.
- Bankruptcy trustee: This is a federally appointed individual who oversees bankruptcy cases. In Chapter 7 cases, the trustee determines, based on state exemptions, which of a person’s assets can be liquidated (converted to cash in a sale) to raise money to repay creditors. In Chapter 13 cases, the trustee receives and distributes the monthly payments.
- Means test: This is a test that was introduced by the bankruptcy law passed in 2005 that determines eligibility for Chapter 7 bankruptcy. In order to "pass" the means test, you must prove that you don’t have sufficient means (that is, that you don’t make enough money) to make regular payments in a Chapter 13 plan.
Still Have Questions? Talk to a Bankruptcy Lawyer!
If you need the protection that bankruptcy can offer, confusing legal terms shouldn't get in the way. Take advantage of this opportunity to speak with a bankruptcy lawyer in your area and ask any questions you still have about your case.