Effective Legal Solutions in Bankruptcy and Employment
Call Us: 734-668-4800

Common Bankruptcy Terms

Automatic Stay – a court order, called an injunction, which automatically stops lawsuits, foreclosures, garnishments and all other collection actions against a debtor once a bankruptcy petition is filed

Bankruptcy – a legal procedure under federal law that provides a process to deal with debt problems of individuals and businesses

Bankruptcy Claim – a creditor’s assertion to a right of payment from the debtor or the debtor’s property

Bankruptcy Petition – an official form, filed by the debtor, which opens a bankruptcy case

Chapter 7 – a type of bankruptcy, also called “Liquidation,” in which a trustee takes over a the assets of a debtor’s estate, reduces them to case, and makes distributions to creditors, subject to the debtor’s right to retain certain “exempt” property, and the rights of secured creditors.

Chapter 11 – a type of bankruptcy, also called “Reorganization,” often filed by a business, in which the debtor proposes a plan of reorganization to keep a business alive while it pays creditors over time

Creditor – a person or business to which a debtor owes money or who claims to be owed money by the debtor

Creditor’s (or 341) Meeting – a meeting of creditors required by federal law at which a debtor is questioned, under oath, by creditors or the U.S. trustee about the debtor’s financial affairs

Credit Counseling – refers to 2 events in individual bankruptcy cases: (1) the “individual and group briefing” from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the “instructional course in personal financial management” in Chapters 7 and 13 that an individual must complete before a discharge is entered.

Discharge – court action at the conclusion of a bankruptcy that releases debtors from personal liability from specific, dischargeable debts and prohibits creditors from ever taking action against the debtor to collect those debts; subject to objection by a bankruptcy trustee or  a creditor.

Exemptions – certain property owned by an individual debtor that federal or state law permits the debtor to protect from unsecured creditors; for instance, the “homestead exemption” which may protect some or all of a debtor’s equity in a primary residence.

Means Test – a test established by federal law to assess whether the debtor’s income versus debt ratio is such that a petition is an abuse of bankruptcy protection (subjecting a petition to dismissal) or is an allowable bankruptcy petition.

Preference – a debt payment made to a creditor in the 90 days prior to filing a bankruptcy petition (or within 1 year if the creditor is an “insider”)

Schedules – detailed lists filed by the debtor with or shortly after filing a petition that show the debtor’s assets, liabilities and other financial information