If you are attempting to determine if filing bankruptcy is right for your financial situation, you may be struggling with some of the terminology related to this legal process. The following are several common bankruptcy terms that will help you understand more fully what bankruptcy entails.
- Chapter 7: There are two types of bankruptcy a person can file. Chapter 7 bankruptcy allows a person to discharge (eliminate) a lot of their consumer debts, such as medical bills and credit cards after passing a means test (defined later in this article). In many cases, a debtor will not be allowed to keep some property as it will need to be sold to pay for certain debts. These cases take much less time than a Chapter 13 bankruptcy.
- Chapter 13: This is the second type of bankruptcy that a person can file. This type does not eliminate debt, but rather allows a debtor to create a schedule to repay their creditors over three to five years. This allows a person to keep a lot of their assets (such as a boat, car, etc.) but requires them to pay for it over a longer period of time.
- Dismissal: When bankruptcy is ended by the court or the bankruptcy in the middle of the process, it is called a dismissal. In these cases, the debtor did not have any of their debts discharged, and a repayment plan was not created. This happens in cases of fraud or if a debtor decides not to show up for the 341 Meeting of Creditors.
- Unsecured debt: Debt that does not have an asset attached to is such as a house, car, or boat. Examples of unsecured debt include utility bills, medical bills, or credit card bills.
- Secured debt: Debts that have assets (known as collateral) attached to them so that a creditor can come to take that asset if a debtor does not make appropriate payments.
- Automatic stay: An order of the court requiring all creditors to stop all communications regarding collections with a debtor.
- Discharge: Another word for the elimination of a particular debt permanently following a bankruptcy.
- Exemption: Certain property will not be included in the bankruptcy process. If this is the case, it is called an exemption.
- Means Test: Debtors must pass a means test to qualify to file Chapter 7 bankruptcy. This is a calculation that determines if you do not have enough disposable income at the end of every month to pay your bills.
- Petition: The document a debtor files with the court that lists all financial disclosures regarding debts and assets.
- Trustee: The bankruptcy trustee is appointed by the court to conduct your bankruptcy case. They will look into all of the documents you file to ensure that there is no fraud. Additionally, they will run the 341 Meeting of the Creditors and make a determination regarding what debts are discharged, what creditors are paid, and how the repayment plan will proceed.
Contact an Experienced Bankruptcy Attorney
If you are considering filing for any type of bankruptcy, contact an experienced bankruptcy attorney at Lankford & Moore Law to help you understand your legal rights, and help you through the bankruptcy process.