Common Bankruptcy Terms Explained

If you are struggling every month to pay your bills and you seem to fall farther and farther behind, it may be time to consider bankruptcy as a long-term solution to your financial problems. Sometimes, despite working hard and being responsible with your earnings, debts can become unmanageable. People often hesitate to consider bankruptcy because of the many myths and misconceptions that surround the bankruptcy process. In addition, bankruptcy can be an intimidating process to the average debtor. If you are considering bankruptcy, one way to make the process less intimidating is to familiarize yourself with some of the common bankruptcy terms. Toward that end, the following is a list of common bankruptcy terms explained in a way the average debtor can understand them.

• Automatic stay – order issued by the Bankruptcy Court after the petition is filed which prohibits creditors from further actions to collect on a debt.
• Bankruptcy Code – the name given to the statutory body of bankruptcy laws after the Bankruptcy Reform Act
• Chapter – the Bankruptcy Code is organized into chapters. Many of the chapters cover specific types of bankruptcy.
• Chapter 7 – known as a “liquidation” bankruptcy. Used by debtors who have no valuable non-exempt assets they wish to protect. Most debts are discharged, or eliminated.
• Chapter 13 — known as a repayment plan bankruptcy. Used by moderate to high income debtors or those with valuable non-exempt assets. Requires debtor to repay majority of debts over an extended period of time.
• Confirmation hearing – hearing in a chapter 13 where the judge accepts the debtor’s proposed repayment plan.
• Credit counseling – mandatory class required prior to filing a bankruptcy petition.
• Debtor education – mandatory class required prior to discharge of bankruptcy.
• Discharge – the satisfaction or elimination of the debts of the debtor by the bankruptcy court.
• Dischargeable debt – a debt that can be discharged through bankruptcy.
• Exemptions – this refers to assets or properties owned by the debtor that cannot be recovered by creditors. Both the Commonwealth of Kentucky and the U.S. Bankruptcy Code provide a list of exemptions. A debtor may use either list, but not both.
• Filing fee – fee paid to the Bankruptcy Court when a petition is filed.
• First meeting of creditors – a mandatory meeting between creditors and the debtor usually held within a month of the filing of bankruptcy. Trustee presides over this meeting. Also referred to as a “341 hearing”.
• Means Test – refers to calculations performed to determine if a debtor may file a chapter 7 bankruptcy.
• Priority claim – administrative expenses and salaries, wages, employee benefits, customer deposits and taxes which occurred pre-petition.
• Schedules – list submitted by the debtor along with the petition showing the debtor’s assets, liabilities, and other financial information.
• Secured debt – debt backed by a mortgage, pledge of collateral or other lien. It is debt for which the creditor has the right to pursue specific pledged property upon default.
• U.S. Trustee – an agent of the U.S. Department of Justice appointed to assist in bankruptcy cases. The U.S. Trustee administers many of the duties of the court including appointing committees, appointing trustees and examiners, scrutinizing bankruptcy documents, etc.

If you have additional questions or concerns about the bankruptcy process, contact an experienced Kentucky bankruptcy attorney as soon as possible.