The bankruptcy court system uses many terms in the course of its proceedings that may not be commonly understood. Many people will have some idea of the meaning of the terms without having complete understanding.
The Importance of Understanding Bankruptcy Terminology
If you are filing for bankruptcy, it is important to understand each term so that you understand each person’s role and what is happening. You do not want to misunderstand who the bankruptcy trustee is attempting to protect. The bankruptcy trustee is not, for example, your attorney. He or she does not have your best interests in mind. You do not want to misunderstand the different types of debts or assets and confuse which debts may be wiped out or what property may be taken and sold in order to pay off your debts.
Below is a list of the most basic terms you will frequently hear in bankruptcy proceedings. It will be important to understand many other terms as well.
- 341 Meeting—A meeting of creditors at which the debtor is questioned under oath by creditors, a trustee, an examiner, or the U.S. Trustee about his or her financial affairs.
- Automatic Stay—An injunction that automatically stops lawsuits, foreclosure, garnishments, and most collection activity against the debtor the moment a bankruptcy petition is filed.
- Bankruptcy Estate—All interests of the debtor in property at the time of the bankruptcy filing. The estate technically becomes the temporary legal owner of all of the debtor’s property.
- Chapter – There are many different sections of the Bankruptcy Code that allow a person or organization to file for bankruptcy. These sections are called chapters of the Bankruptcy Code. The most common chapters under which people file for bankruptcy are chapter 7, chapter 11, and chapter 13. Each chapter provides for a different type of bankruptcy, most notably defined by the different type of relief each chapter provides. For example, chapter 7 allows for the wiping out of the dischargeable debts a person owes and the liquidation of the non-exempt assets a person has in order to pay off creditors. Chapter 11 allows businesses to reorganize in order to keep the business alive and repay creditors over time. Chapter 13 allows individuals with consistent income to repay debtors overtime as well, pursuant to a plan.
- Creditor – The person seeking repayment of a debt. This is the person to whom the debt is owed.
- Debtor – The person who has taken on a debt. This person must repay the debt to the creditor.
- Discharge – The termination, or wiping out of debt owed. Only some debt is dischargeable, such as credit card debt.
- Exempt Assets—Property that a debtor is allowed to retain, free from the claims of creditors who do not have liens on the property.
- Liquidation—A sale of a debtor’s property with the proceeds to be used for the benefit of creditors.
- Nondischargeable Debt—A debt that cannot be eliminated in bankruptcy.
- Nonexempt Assets—Property of a debtor that can be liquidated to satisfy claims of creditors.
- Petition—The document that initiates the filing of a bankruptcy proceeding, setting forth basic information regarding the debtor, including name, address, chapter under which the case is filed, and estimated amount of assets and liabilities.
- Trustee – The bankruptcy trustee looks out for the interest of the creditors. The trustee reviews the filings in the case, represents the bankruptcy estate, and is supervised by the court.