Once you decide to consult with a bankruptcy law firm to discuss your options, some of the stress that you have been experiencing will start to diminish as you take a positive step toward resolving your financial problems. However, some of our clients feel overwhelmed by the legal terms that get used throughout the bankruptcy process. During our initial consultations we explain everything in great detail, but below is a list of the most common legal terms used, for your reference.
- Bankruptcy – This is the legal procedure for resolving the financial problems of an individual, couple or company. A debtor has the ability to discharge debts through the bankruptcy process to receive a fresh start to recover after a financial crisis.
- Chapter 7 – This chapter of bankruptcy is available to individuals and businesses. It is referred to as a “liquidation” or straight bankruptcy because the debtor surrenders any non-exempt assets to the trustee. Almost all Chapter 7 cases filed in Minnesota are no-assets cases, meaning the debtor retains all of his or her assets.
- Chapter 13 – This chapter of bankruptcy is available to individuals. It is referred to as reorganization because it allows debtors to reorganize their debts into a manageable monthly plan that allows the debtor to retain his or her assets while paying a portion of his or her debts over a three to five year term.
- Chapter 11 – The chapter of bankruptcy is a reorganization bankruptcy for companies, partnerships and individuals whose debt or income exceeds the limits for a Chapter 13.
- 341 Meeting – Also known as the First Meeting of Creditors, the debtor is questioned under oath by the trustee about his or her financial affairs. Creditors or other interested parties may also ask questions of the debtor during the meeting.
- Automatic Stay – This is what protects you from creditors during your bankruptcy case. As soon as you file your case, the automatic stay works as an injunction that automatically stops lawsuits, foreclosure, repossession, garnishments and collection actions.
- Proof of Claim – A creditor will file a proof of claim asserting the amount of money a debtor owes to the creditor.
- Debtor – The person or company that files a bankruptcy.
- Creditor – The person/company/other party to whom the debtor owes money.
- Trustee – This is a person appointed to act as a liaison officer between the debtor and the creditors. The trustee’s primary function is to liquidate any non-exempt assets and disburse funds to the creditors.
- Unsecured claim – A debt that is owed that is not secured by collateral or the portion of debt over and above the value of any collateral used to secure the debt (i.e. credit cards, medical bills, student loans, etc.).
- Secured claim – Debt that is secured by collateral (i.e. car loan, mortgage, etc.).
- Chapter 13 (Repayment) Plan – The debtor’s detailed report of how he or she intends to pay the creditors over a specific period of time.
- Bankruptcy Petition – The document that provides general information to the court such as the debtor’s name, address, and chapter of bankruptcy. This is the document that opens a bankruptcy case.
- Bankruptcy schedules – These forms contain detailed information about the debtor’s assets, debts, income, expenses and financial affairs.
- Exemptions – Exemptions refer to assets or property that cannot be recovered by creditors or the court to repay debts.
- Liquidation – The process of selling a debtor’s property or assets. The proceeds of the sale are used to pay the debtor’s creditors.
- Nondischargeable debt – This is a debt that is not eligible to be discharged through bankruptcy such as alimony, child support, most taxes and most student loans.
- Dischargeable debts – A debt from which the debtor can be released from the personal or legal liability to repay the debt.
- Discharge – An order of the court releasing the debtor from the personal or legal liability to repay dischargeable debts.
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