Bankruptcy cases use many unfamiliar words. In this blog post, we translate and explain the most commonly used words and phrases in bankruptcy.
Bankruptcy – Bankruptcy is a legal process which allows a person who owes more money than he or she can currently repay, to either (1) repay a portion of the money over time under Chapter 11, 12, or 13, or (2) have the entire debt forgiven under chapter 7. Under chapter 7, a Debtor may be required to surrender assets to a trustee. Bankruptcy is also available to businesses, corporations, and partnerships. Even municipal governments can file bankruptcy (under Chapter 9).
Debtor: A Debtor is a person or persons who file for bankruptcy.
“Pro Se” Debtor – A Pro Se Debtor is one who files bankruptcy without an attorney. A Pro Se Debtor is responsible for all proceedings of his/her case. Failure to comply with the Bankruptcy Code and Rules or with court orders may cause dismissal of the Debtor’s case. It is recommended that all Debtors seek legal advice before filing bankruptcy.
Creditor – A Creditor is a party that you owe a debt to. A creditor could be a credit card company, a hospital or doctor’s office, or even the Internal Revenue Service (IRS).
Secured debt – Money owed for an item that is held/protected by collateral. Examples of secured debt include mortgages on homes and loans for automobiles.
Unsecured debt – Money owed for credit card bills, student loans, hospital/medical bills, and or other debt not protected by collateral.
Trustee – A Trustee is a person, appointed by the Bankruptcy Court, who will review your bankruptcy case. The Trustee acts as a case manager to review your finances and conduct your meeting of Creditors.
Petition – This is the document filed that begins the bankruptcy case in the court system.
Schedules and Statements – These documents accompany your Petition in the bankruptcy case. They detail all of your assets, debts, financial affairs, and what you intend to do with your property.
Automatic Stay – After a Debtor has filed a case, creditors must stop all collection efforts against the Debtor for a period of time, unless they get permission from the bankruptcy court to continue. This protection from collection efforts is referred to as the “automatic stay.”
Proof of claim – in some bankruptcy cases, creditors are required to file a Proof of Claim which describes the money you owe them. The proof of claim will detail your account number, balanced owed, and whether the debt is secured/unsecured. If you disagree with a Proof of Claim, you will need to file an objection with the court.
341 Meeting of Creditors – A meeting of creditors is called a “341 Meeting” because that is the section of the Bankruptcy Code that requires the meeting to be held. A Meeting is where a Debtor appears before the Trustee to answer questions about their petition, schedules, and statements, under oath. While it is called a “meeting of creditors”, most large creditors (Capital One, Amex, Chase, and Citibank) do not attend.
Bankruptcy Estate – Once you file for bankruptcy, ALL of your things belong to the Bankruptcy Estate. Until your case is completed, the Bankruptcy Trustee will manage your Bankruptcy estate.
Exemption – An exemption is provided by Bankruptcy law which means that you can remove an item from your bankruptcy estate and keep it. There are exemptions for your home/homestead, your income (up to a certain amount), retirement accounts, and more.
Surrender – The term “surrender” means that you will give an item up in Bankruptcy. Sometimes you surrender property because you do not want it – surrender a car with a high loan payment. Sometimes you surrender property because you cannot afford to keep it – you have too many things to keep and you cannot afford to buy-back the property.
Buy-back – When reviewing your exemptions, based on your particular case, you will be allowed to keep a certain dollar amount of items. If you go over your exemptions, you will need to either surrender an item that puts you over your exemptions OR you may buy-back the value by paying the amount you are over in your exemptions.
Credit Counseling Course – Credit Counseling Courses are required by the Bankruptcy Court. You must take one course, called Credit Counseling, before you file for bankruptcy. You must take one course, called Debtor Education, to complete and finalized of your bankruptcy. These courses can be done over the phone or online. The purpose of the courses is to provide you with information and counseling about budgets, income, and expenses. The price for the courses range from $25-$40. You pay the course provider directly. They email the certificate of completion to the Attorney, if you provide your Attorney’s email address.
Discharge of Debtor – A Discharge of Debtor is a Court decree/finding that you no longer owe money for the debts that you’ve listed in your bankruptcy petition and schedules.
Dismissal – A Court can dismiss your bankruptcy case if you fail to pay the filing fee, fail to take your credit counseling courses, fail to attend your 341 meeting of creditors, or fail to provide required information to the Trustee. A Dismissal means that you still owe the debts listed in your case. The debts will act as if no bankruptcy case ever took place.