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Filing for bankruptcy can be a very stressful, embarrassing, and trying time. It can become even more difficult when every time you talk to someone, they seem to be speaking a foreign language. Not knowing the correct terminology can make you feel uncomfortable, confused, and unsure of the situation. Here are a few terms and their definitions that will help you learn the language of bankruptcy.
341 Meeting: The first meeting of creditors which the debtor is required to attend. The debtor is questioned under oath by the creditors, the trustee, examiner and/or the United States Trustee about his or her financial affairs. If the debtor doesn’t show up, the case is generally dropped by the bankruptcy court.
Automatic Stay: An injunction that protects those filing bankruptcy from most collection actions, including lawsuits, foreclosure, garnishments, repossessions and all collection activity against the debtor. Typically, this goes into effect once a bankruptcy petition has been filed.
Bankruptcy: A legal declaration of an individual or company, stating their inability to pay creditors. There are several different bankruptcy options available depending on the situation of the individual or company. There are several chapters in the bankruptcy code with these scenarios. Thus a Chapter 7 bankruptcy is found in Chapter 7 of the Bankruptcy Code.
Chapter 7: This is the chapter of the Bankruptcy Code that allows for liquidation of all assets of the individual or company to clear debts. It is also known as straight bankruptcy.
Chapter 11: Is a reorganization bankruptcy. It’s filed by companies or partnerships. A debtor filing for bankruptcy under Chapter 11 generally proposes a reorganization plan to keep the business alive and make it profitable, with a plan to pay creditors over a specified period of time.
Chapter 12: Is for family farmer bankruptcies and was created in 1986. Only family-owned farming or fishing businesses can file for this protection and must have less than $1.5 million dollars in debt.
Chapter 13: In Chapter 13 bankruptcy cases, sometimes referred to as a “reorganization of debts”, debtors work with the bankruptcy court to develop a three to five year repayment plan to eliminate their obligations to creditors. Chapter 13 bankruptcy generally allows filers to keep their homes and cars, and offers a chance to get caught up on debts.
Claim: A creditor’s assertion of right to money from the debtor or debtor’s property.
Consumer Debts: Debts incurred for personal reasons, not corporate requirements.
Creditor: A person or company to whom a debtor owes money.
Debtor: A person or company who owes money to a creditor.
Discharge: A release or exit from bankruptcy, issued by the court relieving the debtor from personal liability of all dischargeable debts.
Dischargeable Debt: A debt from which the debtor can be released based on the Bankruptcy Code.
Exemptions: This refers to assets or properties owned by the debtor that cannot be recovered by creditors.
Homestead: The principal place of residence of a debtor whether a house, apartment, condo or any other.
Joint Petition: A bankruptcy petition filed jointly by husband and wife.
Liquidation: The process of selling a debtor’s property and assets for cash to help repay creditors.
Plan: A debtor’s detailed report on how he plans to pay the creditors over a period of time.
Secured Creditor: An individual or a business holding a claim against the debtor that is secured by collateral or a lien.
Secured Debt: Debt backed by mortgage, collateral or other lien.
Trustee: A court appointed official who acts as a liaison officer between the debtor and the creditor. His primary function is to act as a disbursement officer. He collects payments from the debtor and distributes the money amongst creditors. In some cases he may even help in valuing assets or creating repayment schedules.
Unsecured Claim: A debt secured by property that is worth less than the amount of debt.
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