Unfamiliar with the all the legal and bankruptcy jargon you keep hearing and seeing? Understanding common bankruptcy terminology will help you navigate the bankruptcy process.
Here are 10 common terms you should know:
- Asset: Everything you own or have a legal interest in that has value. Assets include homes, cars, bank and other financial accounts, cash, and household goods and furnishings.
- Creditor: A person or business to whom you owe money.
- Claim: A right to payment.
- Lien: A creditor’s right to repossess or foreclose specific property if you fail to make loan payments. Liens are taken to secure the payment of a debt or the performance of an obligation.
- Exemption: A right granted to you by state or federal law to hold specified property free from the claims of creditors. Some examples of property a debtor may claim as exempt are:
- A house, cooperative apartment, condominium, cemetery plot;
- Cash, savings account, checking account, credit union account;
- Stocks, bonds, savings bonds;
- Security deposits;
- Life insurance. Though if the debtor is the beneficiary on a life insurance policy and the insured dies within six months after the debtor filed for bankruptcy, any inheritance the debtor receives will be included as an asset;
- A pension, profit sharing plan, annuity, IRA or other type of retirement plan;
- Furniture and appliances, television sets, radios, stereo systems and components, computers,
- Clothing, books, tools, and family pictures;
- Equity in an automobile or house; and
- Personal injury or other potential lawsuits the debtor may have against others whether filed or not filed.
- Secured Debt: A debt that is secured by a lien on your property.
- Unsecured Debt: Debt obligations that are not backed by a security agreement or a lien on your property.
- Means Test: A term describing the standard for dismissing a Chapter 7 case on the grounds of abuse where your disposable income, calculated under a formula established under federal bankruptcy law, is deemed sufficient to support payments under a Chapter 13 repayment plan. A version of the means test is also used to measure your disposable income in a Chapter 13 case.
- Discharge: The official order of the Bankruptcy Court that releases you from the obligation to repay unsecured debts incurred before bankruptcy. The discharge bars creditors from future collection efforts on discharged debts. Secured debts are not discharged, except perhaps to the extent that the collateral is insufficient to cover the amount of the claim.
- Chapter 13 Confirmation: Approval of a plan by a bankruptcy judge for you to pay creditors. The acceptance of a plan is determined by your budget, the value of your assets, and your financial ability to make monthly plan payments. Regular monthly income from all sources must be disclosed including, salary, commissions, investment income, tax refunds, public benefits, and unemployment compensation. You must report any change to your income or expenses. Changes to the plan after confirmation may be at your request, the trustee’s, or an unsecured creditor’s.
Use our glossary as you move through the bankruptcy process and come across a term you need further explanation on.