Frequently Asked Questions During Bankruptcy

Bankruptcy comes with its own set of confusing lingo. Navigating the who's who and what's what of bankruptcy can be mind boggling for many people. Understanding what bankruptcy terms mean can make the process easier to navigate and therefore less stressful.

 

The Petition

A bankruptcy filing is called a petition. Someone seeking financial relief through bankruptcy files a series of official paperwork in bankruptcy court that opens a bankruptcy case on his/her behalf.

 

The Petitioner

The person filing a bankruptcy petition is called the petitioner. Other words for the petitioner include debtor, consumer, defendant (in an involuntary case filing), and party in interest (or just "party").

 

The Estate

Most people are familiar with the word estate, but they are accustomed to using the word estate in relation to a deceased relative's possessions. However, in a bankruptcy filing, an estate is created as well. The estate in a bankruptcy filing is comprised of the petitioner's assets, which may or may not have to be sold to satisfy creditors (in much the same way as a deceased individual's possessions are handled).

 

The Creditors

Anyone the bankruptcy petitioner owes money to is called a creditor. Creditors may also be called a party in interest. Creditors may or may not receive repayment under a bankruptcy filing.

 

The Debt

Debt is the money a person owes. Debt can be secured, unsecured, or undersecured. Secured debt is supported by collateral. For instance, a home loan uses a home as collateral. A car loan uses a car as collateral. Most large loans are secured. Unsecured debt generally refers to small loans or credit card debts. These types of debt do not use tangible items or investments as collateral for the loan. Undersecured debt is a loan that uses collateral but for which the collateral is not worth the amount of the loan. A home loan that uses a property that has lost value as its collateral might be considered undersecured.

 

The Trustee

After someone has filed for bankruptcy, the court appoints an impartial individual called a trustee to manage the case. The trustee gathers information and holds meetings with debtors and creditors. The trustee also handles the distribution of funds in the case.

 

The Creditor's Meeting

One of the duties of the trustee is to hold a creditor's meeting, sometimes called a 341 meeting. The creditor's meeting allows creditors to ask questions of the debtor about matters relating to the bankruptcy filing.

 

The No-Asset Case

In a Chapter 7 bankruptcy filing, the trustee might file what is called a no-asset case. This means that there are not sufficient assets for the court to sell to satisfy the petitioner's unsecured debt. In no-asset cases, unsecured creditors may not receive compensation for their claims.

 

Non-Dischargeable Debt

Non-dischargeable debt is debt that cannot be eliminated through a bankruptcy filing. Examples of non-dischargeable debt are child support, alimony, student loans, taxes, and criminal fines.

Needless to say, there are many more terms related to bankruptcy and bankruptcy filing. In order to understand further how the process works, it is a good idea to seek the advice of a qualified bankruptcy attorney.