Common Bankruptcy Terms

Years ago before the federal bankruptcy laws were changed, those who made the choice to file a Chapter 7 bankruptcy didn’t even have to know how to spell the word. Information sheets passed out by local courts telling you how the process works as well as the meaning of bankruptcy words you were not familiar with or that were confusing, were like ants at a lakeside picnic – everywhere. Oh, sure, you could hire a local attorney in your town to hold your hand explaining the legal jargon, but it really wasn’t necessary.

Then in 2005, the roof caved in and the “Feds” completely overhauled the bankruptcy laws and process making it harder for most people to even file a Chapter 7 bankruptcy, let alone a Chapter 13 or Chapter 11.

After the Congress overhaul, if a person filing a bankruptcy of any type (especially a Chapter 7 or Chapter 13) was not familiar with the new terms and meanings, the chances of being successful became slim to none.

Hiring an experienced bankruptcy attorney, who does this for a living, is your best bet. These professionals will be able to assist and explain the new terms you need to know and understand.

Here is a brief list of some of the verbiage attached to the game of bankruptcy and what they mean, so you will, at the very least, know what your attorney is talking about and whether you are even eligible to file a Chapter 7 or Chapter 13 Bankruptcy:

 


“Automatic Stay” An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.

“Chapter 7” The most common form of bankruptcy. It is a liquidation proceeding in which the debtor’s non-exempt assets, if any, are sold by the Chapter 7 trustee and the proceeds distributed to creditors according to the priorities among creditors established in the Code. If there are assets which are not exempt, the trustee takes control of those assets, sells them and pays creditors as much as the proceeds permit.

“Chapter 9” The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts).

“Chapter 11” The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.)

“Chapter 12” The chapter of the Bankruptcy Code providing for adjustment of debts of a “family farmer,” or a “family fisherman” as those terms are defined in the Bankruptcy Code.

“Chapter 13” The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.)

“Chapter 15” The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency.

“Counseling Requirements” Prior to filing, you must complete credit counseling with an agency approved by the U.S. Trustees Office. Also, once a determination has been made in your favor, you have to attend another counseling session to learn how to manage your finances.

“Discharge” A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.)

“Means Test” How high is your income? Well, this “test” will let the courts know if you can file a Chapter 7 or Chapter 13. The purpose being to know if you have enough disposable income to make the payments.