Bankruptcy Glossary

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Below are some terms that are used in relation to bankruptcy. Click on any of the links to learn more.

Arrears: Overdue debt, liability or obligation. An account is said to be “in arrears” if one or more payments have been missed.

Asset: Any property or property interest that you own or have a right to. All assets must be disclosed when filing bankruptcy, regardless of whether or not they will be affected by the bankruptcy.

Automatic Stay: A court order which stops all collection activities, including foreclosures, repossessions, garnishments, license suspensions, lawsuits, and creditor harassment. An automatic stay is immediately granted when bankruptcy is filed.

Bankruptcy: A legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start through the consolidation or discharging of debts. The right to file for bankruptcy is provided by federal law and all bankruptcy cases are handled in federal court. In most cases, filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

Bankruptcy Abuse Prevention and Consumer Protection Act: A federal act signed into effect on April 20, 2005 that made significant changes to bankruptcy law. Learn more about bankruptcy law or the history of bankruptcy.

Chapter 7: Also called “straight bankruptcy” or “liquidation,” Chapter 7 is the most traditional type of bankruptcy. The basic idea in a Chapter 7 bankruptcy is to wipe out (discharge) debts in exchange for the debtor giving up property, except for “exempt” property. Learn more about Chapter 7 in our bankruptcy categories section.

Chapter 13: A form of bankruptcy that allows individuals with a regular source of income to pay off their debts over a period of time using a repayment plan under the supervision of the court and an appointed trustee. Learn more in our bankruptcy categories section.

Collateral: Property or assets that are offered to secure a loan or other credit. Common forms of collateral include a house or vehicle. Collateral becomes subject to seizure on default.

Credit: The ability to borrow money.

Credit Counseling: A process that offers education to consumers about how to avoid incurring debts that cannot be repaid through establishing an effective debt management plan and budget. According to the new bankruptcy laws, all consumers must attend credit counseling education within 6 months before filing for bankruptcy. View a list of qualified credit counseling centers.

Credit Report: A report used to help lenders determine whether to extend credit. A credit report may include a person’s payment history, current and previous addresses, income level, lawsuits, foreclosures, previous bankruptcy, and other information.

Credit Score: A number used to rate a person’s credit worthiness based on the information provided in their credit report.

Creditor: A person or institution that extends credit by giving another person or organization permission to borrow money if it is paid back at a later date. Creditors can be classified as either “personal” or “real”. Those people who loan money to friends or family are personal creditors. Real creditors (i.e. a bank or finance company) have legal contracts with the borrower granting the lender the right to claim any of the debtor’s real assets (e.g. real estate or car) if he or she fails to pay back the loan.

Debt: An amount of money borrowed by one party from another. Many corporations and individuals use debt as a method for making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

Debtor: A company or individual who owes money.

Deed of Trust: The most common type of security agreement that secures loans secured by real property.


Default: The failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they are unable to make the required payment or are unwilling to honor the debt. The most common type of default is being behind in the payments on the loan.


Discharge: A permanent order that releases the debtor from liability for certain types of debts, thereby releasing the debtor from any legal obligation to pay any discharged debts. The discharge in bankruptcy order also prohibits creditors from taking any form of collection action on the discharged debts. See also non-dischargeable debts.

Disposable Income Test: A calculation designed to determine how much income a person has compared to their basic monthly expenses. If an individual has disposable income above a certain level, they cannot qualify for Chapter 7 bankruptcy.

Equity: The difference between the current market value of an asset and the amount the owner still owes on the mortgage or other debt.


Exempt Property: Assets that are protected by federal and state laws from collection by creditors in Chapter 7 bankruptcy. See a list of important exemptions allowed under Utah law.

Foreclosure: The process whereby a mortgage holder “repossesses” the collateral for their loan. When a loan goes into default (usually by lack of payment) the lender forecloses, or eliminates the debtor’s ownership interest in the property. They do this so they can sell the property to someone else and recover some or all of what is owed on the loan.

Garnishments: The legal procedure where a creditor takes money directly from a debtor’s paycheck or bank account as a result of a lawsuit judgment. Under Utah law, a creditor can take up to 25% of take-home pay or all of the money in a debtor’s checking and/or savings account.

Meeting of Creditors: A hearing held 30-40 days after a bankruptcy is filed. The purpose of the hearing is for the trustee and creditors to gain an accurate picture of the debtor’s financial situation.

IRS Levies: A levy is a legal seizure of your property to satisfy a tax debt. If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in.

Lien: When a creditor or bank has the right to sell the mortgaged or collateral property of those who fail to meet the obligations of a loan contract.

Lien Stripping: The ability to remove a second mortgage or other junior lien from an
individual’s primary residence in cases where there is insufficient equity in the home to secure the second mortgage or other junior lien.

Means Test: A calculation to evaluate whether an individual has enough disposable income (after subtracting certain allowed expenses and required debt payments) to make payments to creditors under a Chapter 13 plan. Individuals who do not pass the means test are ineligible for Chapter 7 bankruptcy.


Non-dischargeable debts: Certain types of debts that cannot be eliminated or discharged under chapter 7 bankruptcy. Examples include alimony, child support, student loans, certain taxes, and debts resulting from intentional injury to another person or property.

Proof of Claim: Each creditor must file a proof of claim with the bankruptcy court if they are to be paid during the consolidation of debts under a Chapter 13 bankruptcy. Unsecured creditors who do not file a proof of claim forfeit their rights to repayment. Creditors are not required to file a proof of claim for a Chapter 7 bankruptcy.

Reaffirmation: A written agreement made between a debtor and a creditor to repay some or all of a debt. Reaffirmations are made on a purely voluntary basis by the debtor and allow the debtor to keep possession of an asset in return for continuing to make regular payments.

Repossession: When a creditor takes an asset from the debtor due to lack of payment or other breach of terms. If a debtor is at least one payment behind, they are in danger of having the collateral repossessed. The creditor does not need to warn the debtor that they have sent someone to take the collateral.

Secured Debt: A debt that is secured by real property or other assets. Common examples are car loans and home mortgages.

Statement of Intention: A statement filed with the court by the debtor specifying their intent to either surrender, redeem, or reaffirm a debt secured by their vehicle or other collateral.

Surplus Income: All income received by the debtor and his or her spouse that is not reasonably necessary for the support of the debtor and the debtor’s dependents. The amount of the plan payment under a Chapter 13 bankruptcy is equal to all of the surplus income of the debtor and the debtor’s spouse.

Trustee: A person appointed by the U.S. Trustee (an officer of the Department of Justice) to represent the debtor’s estate in a bankruptcy proceeding. Although a bankruptcy judge has the ultimate authority on the distribution of assets, the trustee is charged with evaluating and making recommendations about various debtor demands in accordance with the U.S. Bankruptcy Code.

Unsecured Debt: A loan not backed by an underlying asset. Unsecured debt includes credit card debt, medical bills, utility bills and any other type of loan or credit that was extended without a collateral requirement.

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