Bankruptcy is an area of the law that has its own set of terms and vocabulary that can often seem daunting and, at time, are confusing. It is imperative that individuals who are in a bankruptcy understand the terminology in order to guide them throughout the life of their case.
Below, our office has put together some information that we hope will help you understand terms used in bankruptcy. They are not intended to be, nor should be, construed as formal declarations of legal advice.
Bankruptcy: A legal process that helps individuals and businesses deal with debt problems.
Debtor: A person that owes money. This is the individual who will be named on the bankruptcy petition.
Creditor: A person or entity owed money, or claims to be owed money by the Debtor.
Petition: The document filed with the court that starts the Debtor’s bankruptcy case.
Trustee: A person appointed by the government that oversees the bankruptcy estate.
Chapter 7: The chapter of the Bankruptcy Code that provides for the sale of the Debtor’s assets to pay off debts. Also referred to as a “liquidation” bankruptcy.
Chapter 11: The chapter of the Bankruptcy Code, which permits reorganization and is available to any business, whether organized as a corporation or sole proprietorship, and to individuals.
Chapter 12: A simplified reorganization plan for family farmers whose debts fall within certain limits.
Chapter 13: The chapter of the Bankruptcy Code that allows Debtors to keep their property and pay Creditors based on their ability to pay.
Dismissal: The termination of the bankruptcy case without either the entry of a discharge or a denial of discharge.
341 Hearing: A meeting where the Debtor and his or her lawyer answer questions about their bankruptcy filing. The Trustee assigned to the Debtor’s case will attend this meeting. Creditors may or may not be present to question the Debtor.
Automatic Stay: An injunction that automatically stops Creditors from collecting debts owed by the Debtor. This protection starts when a bankruptcy petition is filed, and it works to stop lawsuits, foreclosures, garnishments, repossessions, and all other collection activity and/or creditor harassment.
Means Test: A formula applied to the Debtor’s financial situation that must be met, with some exceptions, in order to file for Bankruptcy protection. The test is very complex and was handed down by Congress in late 2005. Accurate application of this test is one of the most important reasons to hire an experienced Bankruptcy attorney who has ample knowledge in this field.