Common Terms in Consumer Bankruptcy - Part One

Posted by William Kain on October 20, 2018 at 5:40 PM
William Kain

hiring a bankruptcy attorney can save you moneyWhile bankruptcy can provide many benefits for consumers struggling with debt, the process can be a confusing one. Specifically, you may hear many terms during your case with which you may not be entirely familiar. It is important to have the assistance and guidance of an experienced bankruptcy attorney who can explain every step of the process, including key bankruptcy terms. In the meantime, the following are some brief definitions of common terms in consumer bankruptcy cases. For information regarding your specific situation, call the Minnesota bankruptcy attorneys at Kain & Scott today.

Automatic stay

Prior to bankruptcy, you are likely dealing with calls and letters from creditors and collectors, and maybe even legal actions against you or wage garnishment due to unpaid debts or judgments. When you file a bankruptcy petition, a court-ordered injunction called the automatic stay takes effect, prohibiting creditors from engaging in any collection efforts. This halts lawsuits, garnishments, foreclosures, repossessions, and more.

Bankruptcy Code

The United States Bankruptcy Code is the group of laws that govern all consumer and business bankruptcy cases across the U.S. Because bankruptcy cases are filed under federal law, federal courts have jurisdiction over these cases.

Bankruptcy estate

Filing a bankruptcy petition creates a bankruptcy “estate,” which then temporarily owns most of the filer’s property and assets. The estate will include any real property, personal property, business interests, income, future tax refunds and accounts receivable, and more. Excluded from the estate will be Social Security benefits, ERISA pension accounts, income that goes toward health benefits, some education savings accounts, and almost all property acquired after the bankruptcy filing.

Bankruptcy fraud

While most people use bankruptcy as a tool to start fresh financially, there are consumers who try to abuse the bankruptcy system. Filers can commit bankruptcy fraud in many ways, including using false personal information on a bankruptcy petition, concealing assets and property from the court, and concealing sources of income. Suspicions of fraud can result in the dismissal of a bankruptcy case, as well as federal criminal charges in some situations.

Chapter 7

Chapter 7 is a chapter of the U.S. Bankruptcy Code that allows cases referred to as “liquidation bankruptcy.” Chapter 7 is the most common form of consumer bankruptcy, as it can result in the discharge of qualified debts in a short amount of time without the need for payments to the court.

Chapter 11

Chapter 11 is most often used by larger corporations and is the least common type of bankruptcy for consumers, though can be a last resort if someone does not qualify for either Chapter 7 or Chapter 13 bankruptcy. This type of bankruptcy involves the reorganization of debts and can be costly, and is often used by wealthier individuals who have cash flow issues, though want to continue involvement in business interests during a case.

Chapter 13

If a consumer does not qualify for Chapter 7 bankruptcy due to a higher monthly income, a Chapter 13 case is generally the next option. Chapter 13 will reorganize a filer’s debts, requiring them to make payments to the court for three to five years before they can receive a discharge of debts. This type of bankruptcy can often be helpful in avoiding the foreclosure of a home or the repossession of a vehicle, as well.


A creditor is any party who claims a bankruptcy filer owes them money. It could be a mortgage lender, a credit card company, a hospital, or even a friend or family member. All such creditors should be notified of a bankruptcy.

Credit counseling

Since 2005, bankruptcy laws require consumers to attend two different credit counseling sessions. The first session must be completed before filing and is intended to inform consumers about the bankruptcy process and other possible debt relief options. The second session must be completed during the case and prior to discharge, and aims to provide financial management education to prevent the need for future bankruptcy cases. Failure to complete either credit counseling requirement can result in a dismissal of the bankruptcy case.

Creditors’ meeting

This meeting is a required part of the bankruptcy process under 11 U.S. Code § 341, and is also commonly called the “341 meeting.” Bankruptcy filers must attend this meeting, at which the bankruptcy trustee will ask them questions to confirm they accurately portrayed their financial situation in their bankruptcy petition and schedules. Creditors also have the opportunity to attend the meeting to raise objections to the discharge of a particular debt, though often, no creditors attend. If you fail to appear the creditors’ meeting, your case will likely be dismissed.

Schedule a Free Consultation with a Minnesota Bankruptcy Attorney

The above is only the beginning when it comes to common bankruptcy terms that may be confusing to consumers. For additional terms, read Part Two of this series. If you have questions about the bankruptcy process or how bankruptcy can help you, our Minnesota bankruptcy lawyers are here to help. Call Kain & Scott at 800-551-3293 or send us a message online.

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Topics: Filing Bankruptcy, MN Bankruptcy, bankruptcy in minnesota

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