If you are considering bankruptcy, you have probably begun to do some initial research on your own to determine your options. You are probably also looking into the benefits of bankruptcy and weighing these benefits against the drawbacks of filing for bankruptcy.
The benefits and drawbacks of filing for bankruptcy will differ depending on the type of bankruptcy filed. The balancing, or weighing of the benefits and drawbacks of each type of bankruptcy will reach different results depending on:
- The identity of the debtor (individual versus organization)
- The nature of the debts owed by the debtor
- The amount of debt owed by the debtor
- The assets owned by the debtor
- The income of the debtor
- Many other factors
In order to determine whether to file for bankruptcy, each individual person or organization must understand the types of bankruptcy available and the benefits and drawbacks of each in relation to his, her, or its own circumstances. It is difficult to make these determinations without a basic understanding of the terms that are often used in bankruptcy filings, meetings, and other proceedings.
Basic Terms Defined
As you begin your research in order to determine whether you want to explore the option of bankruptcy further, the basic definitions below may help you.
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.
Bankruptcy Trustee – The bankruptcy represents the bankruptcy estate and is looking out for the creditors. This person does not represent you and is not looking out for your best interests.
Chapter 7, Chapter 11, and Chapter 13 – These are the most common chapters of the Bankruptcy Code that permit filing bankruptcy. Each chapter allows for a different result after filing for bankruptcy, and no chapter will always be the most beneficial avenue for every debtor. Chapter 7 requires the liquidation of non-exempt assets and extinguishes many types of debts. Chapter 11 allows some organizations to reorganize in order to repay debt. Chapter 13 allows individuals with steady income to repay debts over time.
Creditor – The creditor is the one who is owed the debt.
Debtor – The debtor is the one who owes the debt. The creditor may be an individual or an organization.
Discharge – The cancelling of debt. Only some debts are dischargeable. Credit card debt is the primary form of dischargeable 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. Tax debt, student loans, and child support obligations are the primary forms of nondischargeable debts.
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.