Bankruptcy Terms and Definitions

Bankruptcy Terms and Definitions

Legal jargon can feel overwhelming, and especially during a stressful time like when you’re thinking about bankruptcy. That’s why we wrote up the glossary below, which contains common personal bankruptcy terms and simple definitions. If you still have questions about any legal terms, give us a call. Our FAQ page can help you answer common bankruptcy questions.

Also known as a “meeting of creditors” or “trustee meeting,” the 341 meeting is the first meeting between the trustee, debtor, and the debtor’s bankruptcy attorney, after a petition for bankruptcy has been filed. At this meeting, the trustee assigned to the case asks the debtor questions about their assets, debts, and finances in general. Creditors are invited to this meeting, but they rarely attend. The meeting normally takes no more than 15 minutes and does not happen in front of a judge, though the debtor is required to swear they will tell the truth. 341 meetings take place at the federal courthouse in Oklahoma City, Lawton, Enid, Tulsa, or Muskogee, depending on where you live.

A special suit usually filed by a creditor, but very rarely and only if special circumstances apply.

The moment a bankruptcy case is filed, an automatic stay goes into effect. This puts a temporary hold on all collection efforts by all creditors. The automatic stay remains in effect until the case is discharged, or the creditor is granted relief from the stay, based up a formal motion.

Also known as a “liquidation” or “straight” bankruptcy, is the most common form. Chapter 7 bankruptcy helps debtors discharge most or all debts. Debt that cannot be discharged are any type of student loan, domestic support obligation, debts to governmental agencies, certain types of tax debts, and any debts for fraud.

Available to individuals with a regular source of income who intend to payoff some percentage of their debts over 3 to 5 years at no interest and no late fee. People can also pay off tax debt, interest, arrears, stopping a foreclosure or car repossession, etc.

A requirement to filing bankruptcy, this course is non pass-fail and is done over the internet or phone. There is also a second course called the Financial Management Course or Debtor Education Course, which is also non pass-fail and is required in order to receive your discharge. Our office generally refers our clients to Moneysharp.

The individual or organization to whom the debtor owes money.

The person(s) filing for bankruptcy.

This is an important step before filing for bankruptcy – a meeting with a lawyer to review your financial situation and discuss all the options available to you.

A situation in which a creditor has repossessed some type of collateral, like a car, but the value of this collateral (e.g. $6,000 when sold at auction) does not cover the total amount of money owed (e.g. $10,000). This difference of $4,000 would be considered an unsecured debt, which would be discharged when you complete the bankruptcy.

When a debt is wiped out when you complete the bankruptcy. This sounds simple, but discharge is not a magical solution to debt troubles. However, not all debts are able to be discharged, such as student loans, domestic support obligations, debts to governmental agencies, and certain tax debts.

A percentage of debt owed that gets paid out to creditors proportionally in Chapter 13 bankruptcy.

When the amount still owed by a debtor on an asset, such as a car or house, is subtracted from the total value of that asset, the amount left over (the amount the debtor has paid off) is called equity. For example, if your home is worth $200,000 and you still owe $180,000, your equity in the home is $20,000.

This is the method by which a debtor is able to keep his/her property, such as a car, home, or other personal possessions. There are two general lists of bankruptcy exemptions: federal or Oklahoma, which set limits to the amount of each exemption.

A financial learning course required for the debtor before debt can be discharged in a bankruptcy filing. This is the second required financial course in a bankruptcy case, after the credit counseling course (see above). This course can also be referred to as a Debtor education. Our office generally refers our clients to Moneysharp.

When a creditor forces the sale of a mortgaged asset, such as a home, after the debtor defaults on their payments. Foreclosures can be stopped by filing bankruptcy. If you wish to still keep your home, you would file Chapter 13 bankruptcy to do so.

This refers to being financially solvent or profitable.

This refers to being in debt, running a deficit, or generally just not making money.

A situation in which all of a debtors income and assets are exempt from collection efforts. In the case of a judgment proof, a creditor can take a debtor to court but is not legally allowed to repossess or use other means to collect on the debt.

A legal determination of whether a debtor who files for bankruptcy is eligible for Chapter 7, or must file for Chapter 13. The debtors’ last six month gross income is annualized to see if they are above the median income based on family size.

A state-regulated threshold for income. This number is used when conducting a means test on the debtor.

See 341 meeting, above.

A document requesting relief from debts filed by an individual. The filing of a petition opens a bankruptcy case, and executes an automatic bankruptcy stay.

A payment to a creditor made during the 90 days before a bankruptcy filing. The trustee in a bankruptcy case may be able to recover part or all of this payment if it meets certain requirements.

Those debts whose payments to creditors are given priority over others, as determined by the Bankruptcy Code, such as tax debt.

A legal contract that reinstates responsibility for a debt, usually a car or house loan. This agreement requires the debtor to continue making payments on the debt as though a bankruptcy discharge was never granted. If the debtor defaults on this debt, the creditor can reposes the collateral.

A line of credit issued wherein the cardholder has put a certain amount down with the credit card company. For example, a debtor puts down $500 with the company and is issued a line of credit in the amount of $500. Over time and with responsible use, this line of credit may be extended and the initial deposit repaid.

A type of debt owed in which the creditor also has a lien on the asset. This is most common with cars and homes. In the case of secured debt, the creditor has the right to sue the debtor, recover the collateral, or both, should the debtor default on their payments. Even if the debtor defaults on payments of this debt after a discharge has been granted through bankruptcy, the creditor still has the right to repossess the collateral. However, in this case, they may not sue the debtor for any deficiency amount. See also unsecured debt, below.

The sale of an asset, like a house or car, for less than the value of the lien. The creditor may still collect on the deficiency or they may choose to waive it. Be sure to consult your bankruptcy attorney about the tax implications of a short sale.

A person appointed by the court who oversees different elements of a bankruptcy case, including the bankruptcy estate. The trustee acts on behalf of unsecured creditors, liquidates and distributes nonexempt assets, understands the debtors’ financial situation, determines the eligibility of creditors’ proofs of claim, keeps all parties informed, files reports and tax returns and, if necessary, recommends civil or criminal legal proceedings against the debtor if they have committed fraud or another crime.

See 341 meeting, above.

Debt owed to a creditor when there is no collateral securing the debt. When a debtor defaults on this type of debt, the creditor may sue but they do not have any collateral to withhold or sell. Unsecured debts include credit cards, medical bills, and payday loans. See also secured debt, above.

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