If you are an individual considering bankruptcy as an option, you may be confused by the many terms you hear discussed. This article will examine some of the most common terminology used during the bankruptcy process.

If you have any questions or are wondering if bankruptcy is the right solution for you, call a professional Sarasota attorney. (Definitions are taken from uscourts.gov)

Assume: Agree to continue performing duties under a contract or lease.

Automatic Stay:  An injunction that automatically halts lawsuits, foreclosures, garnishments, and all collection activity against the debtor. The stay commences as soon as a bankruptcy petition is filed.

Bankruptcy: A legal process designed to deal with debt issues of individuals and businesses; specifically, a case filed under the U.S. Bankruptcy Code.

Bankruptcy Code: The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.

Bankruptcy Estate: All legal interests of the debtor in property at the time of the bankruptcy filing.

Bankruptcy Petition: A document filed by the debtor or by creditors (in an involuntary case) that opens the bankruptcy case.

Chapter 7: The chapter of the Bankruptcy Code that allows for the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors.

Chapter 11: The chapter of the Bankruptcy Code that provides for reorganization, usually involving a corporation or partnership.

Chapter 13: The chapter of the Bankruptcy Code that provides for the debts of an individual with regular income to be adjusted. Chapter 13 allows the debtor to keep their property and repay debts over three to five years.

Claim: A creditor’s assertion of their right to payment from the debtor.

Confirmation: The bankruptcy judges’ approval of a reorganization plan or liquidation.

Consumer Debtor: A debtor whose obligations are primarily consumer debts.

Consumer Debts: Debts incurred for personal needs. (not business) 

Creditor: An individual to whom the debtor owes money or claims to be owed money by the debtor.

Credit Counseling: Refers to two events in individual bankruptcy cases: (1) individual debtors must attend counseling before filing under any chapter of the Bankruptcy Code; and (2) the instructional course in personal financial management that an individual debtor must complete before a discharge is entered. (Chapters 7 and 13). Also known as Debtor Education.

Creditors’ (341) Meeting:  The meeting of creditors required by section 341 of the Bankruptcy Code during which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about their financial affairs. 

Debtor: A person who has filed a petition for relief under the Bankruptcy Code.

Defendant: An individual (or business) against whom a lawsuit is filed.

Discharge: A release of a debtor from personal liability for certain dischargeable debts outlined in the Bankruptcy Code. It prevents the creditors owed those debts from taking any action against the debtor to collect the debts. It also prohibits creditors from communicating with the debtor regarding the debt in any way.

Dischargeable Debt: A debt for which the Bankruptcy Code allows the debtor’s personal liability to be erased.

Disclosure statement: A written document prepared by the chapter 11 debtor, designed to provide adequate information to creditors that are evaluating the chapter 11 plan of reorganization.

Exemptions and Exempt Property: Property owned by an individual debtor that bankruptcy law allows them to keep from unsecured creditors. The availability and amount of property the debtor may declare exempt depends on the debtor’s state of residence.

Joint Petition: A single bankruptcy petition filed by a husband and wife together.

Lien: The right to take and sell (or hold) the property of a debtor as security or payment for a debt.

Liquidation: The sale of a debtor’s property, after which the proceeds are used for the benefit of creditors.

Liquidated Claim: A creditor’s claim for a fixed amount of money.

Means Test:  A calculation to determine whether an individual debtor’s chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case.

No-Asset Case: A chapter 7 filing with no assets available to satisfy any portion of the creditors’ unsecured claims.

Nondischargeable Debt:  This type of debt cannot be eliminated in bankruptcy, such as mortgages, alimony or child support payments, some taxes, educational loans, or benefit overpayments.

Objection to Dischargeability:  A trustee’s or creditor’s objection to the debtor being released from personal liability for certain dischargeable debts.

Objection to Exemptions:  A trustee’s or creditor’s objection to the debtor’s claim of certain property as exempt from liquidation.

Party in Interest: A party who has standing to be heard by the court in a matter to be decided in the bankruptcy case. 

Plaintiff:  A person or business that files a formal complaint with the court.

Post-petition Transfer: A transfer of the debtor’s property made after the commencement of the case.

Priority:  The Bankruptcy Code’s statutory ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full.

Priority Claim: An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status.

Proof of Claim: A written, verified statement filed by a creditor that describes the reason the debtor owes the creditor money. 

Property of the Estate: All legal or equitable interests of the debtor in property as of the commencement of the case.

Reaffirmation Agreement: An agreement by a debtor in Chapter 7 to continue paying a dischargeable debt after the bankruptcy, usually for the purpose of keeping property that would otherwise be subject to repossession. (often an automobile)

Schedules:  Detailed lists filed with the petition outlining the debtor’s assets, liabilities, and other financial information.

Secured Creditor: A creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or all of the claim.

Secured Debt:  Debt backed by a mortgage, pledge of collateral, or lien.

Statement of Financial Affairs: A series of questions the debtor must answer in writing concerning sources of income, transfers of property, and lawsuits by creditors.

Statement of Intention: A declaration made by a chapter 7 debtor concerning plans for dealing with consumer debts secured by property of the estate.

Transfer: Any means by which a debtor parts with their property.

Trustee:  The representative of the bankruptcy estate who exercises statutory powers, principally for the benefit of the unsecured creditors, under the general supervision of the court and the direct supervision of the U.S. trustee or bankruptcy administrator.

Undersecured Claim: A debt secured by property that is worth less than the full amount of the debt.

Unliquidated Claim: A claim for which a specific value has not been determined.

Unscheduled Debt:  A debt that should have been listed by the debtor in the schedules filed with the court but was not.

Voluntary Transfer: A transfer of a debtor’s property with the debtor’s consent.

Call a Professional

There is much to learn about bankruptcy, but your best source of information is a professional Sarasota bankruptcy attorney. Richard V. Ellis has successfully helped hundreds of area residents to get back onto the road to financial stability.