Bankruptcy Terms You Need to Know
Filing for bankruptcy can be confusing, intimidating, and even a bit overwhelming, especially when you start to encounter a flood of legal terminology you’ve never heard before. Understanding key bankruptcy terms can help you navigate every step with confidence, so here is a glossary of important terms every debtor should know. For personal guidance and expert assistance through every aspect of the bankruptcy process, from filing to the discharge of your debt, contact the Law Office of Taran M. Provost, PLLC. With offices in Goshen and White Plains, our skilled bankruptcy lawyer serves individuals, families, and small business owners throughout Orange and Westchester counties, helping clients free themselves of the burden of debt and move forward in their lives confidently and securely.
Glossary of Bankruptcy Terms
Bankruptcy: A legal process in which an individual or business declares their inability to pay debts. Bankruptcy provides relief from creditors while allowing for an orderly distribution of assets.
Chapter 7 Bankruptcy: Also known as “straight bankruptcy” or “liquidation bankruptcy,” Chapter 7 allows individuals to discharge most unsecured debts, such as credit cards and medical bills, often without repaying creditors from their property. Nonexempt assets may be sold by a trustee to pay creditors (see No-Asset Bankruptcy).
Chapter 13 Bankruptcy: Also known as “reorganization” or “wage earner’s plan,” Chapter 13 bankruptcy is ideal for individuals with a regular income with valuable secured property or who don’t qualify for Chapter 13. Debtors create a repayment plan to pay off their debts over three or five years while keeping their property. Debtors receive an adjustment of debts that lowers their payments and a discharge of remaining unsecured debt at the end of the plan.
Bankruptcy Trustee: A court-appointed official responsible for overseeing the bankruptcy case, reviewing the debtor’s financial information, and distributing assets to creditors if required. Trustees play different roles in Chapter 7 and Chapter 13 cases.
341 Meeting of Creditors: A meeting required by the U.S. Bankruptcy Code where the debtor answers questions under oath about their finances. The trustee presides over the meeting, and creditors may attend, though they most often do not. The meeting only lasts a few minutes and is handled via videoconference with the debtor and their attorney.
Exempt Property: Assets that a debtor is allowed to keep during bankruptcy. Exemptions vary by state and may include items like a primary residence, personal belongings, and tools of the trade. Debtors in New York can use either the state or federal exemptions based on their needs and the advice of their attorney.
Nonexempt Property: Property that is not protected by bankruptcy exemptions. In Chapter 7, nonexempt property may be sold by the trustee to pay creditors, except in the case of a no-asset bankruptcy.
No-Asset Bankruptcy: A bankruptcy filing where the debtor does not have any property that can be liquidated or sold by the bankruptcy trustee to repay creditors. Chapter 7 filers who work with a skilled bankruptcy lawyer can achieve a no-asset bankruptcy in most instances.
Automatic Stay: An immediate injunction that stops most collection actions, including phone calls, letters, lawsuits, foreclosures, repossessions, and garnishments once bankruptcy is filed.
Discharge: A court order that releases the debtor from personal liability for certain debts, effectively eliminating the legal obligation to pay them.
Creditor: An individual or institution to whom a debtor owes money. Creditors may include credit card companies, banks, medical providers, and utility companies.
Secured Debt: Debt backed by collateral, such as a mortgage or car loan. If the debtor defaults, the creditor can reclaim the property securing the loan.
Unsecured Debt: Debt not backed by collateral, such as credit cards, medical bills, and personal loans.
Means Test: A calculation used to determine whether a debtor qualifies for Chapter 7 bankruptcy based on their income and expenses. The means test can also determine whether a Chapter 13 plan will last for three years or five years.
Plan Payment (Chapter 13): The monthly payment a debtor makes to the trustee under a Chapter 13 repayment plan, which is then distributed to creditors.
Bankruptcy Petition: The formal document filed with the bankruptcy court that initiates the bankruptcy case. It includes detailed information about the debtor’s assets, liabilities, income, and expenses.
Priority Debt: Debts that must be paid first in bankruptcy, such as certain taxes, child support, and alimony obligations.
Fraudulent Transfer: A transfer of assets made with the intent to hinder, delay, or defraud creditors. Trustees can reverse these transfers to distribute assets fairly. Pre-bankruptcy payments or transfers should be made with the advice of an attorney to avoid penalties or the dismissal of a bankruptcy petition.
Bankruptcy Code: The federal law governing bankruptcy in the United States, found in Title 11 of the U.S. Code.
Credit Counseling: A mandatory requirement for individuals filing bankruptcy, typically completed before filing and sometimes after discharge, aimed at evaluating options and budgeting strategies.
Contact New York Bankruptcy Lawyer Taran M. Provst Today
Understanding these terms is crucial for anyone considering bankruptcy. At the Law Office of Taran M. Provost, PLLC, we help clients in Goshen, White Plains, Orange County, and Westchester County navigate the complex bankruptcy process, ensuring they understand each step and the terminology involved. Contact us today for a free consultation to learn how we can help you achieve a fresh financial start.
