Important bankruptcy terms you should know

Declaring bankruptcy can be intimidating. While it is a decision that may be in your best interests overall, it can still be confusing and stressful. The bankruptcy process involves a lot of procedures and legalities that can be difficult to grasp.

The bankruptcy experience is easier when you understand some of the basic terms about the process. Take a look at the following glossary of bankruptcy definitions.

341 meeting

A meeting of creditors during which the creditors, trustee and examiner question the debtor about his or her financial matters. Section 341 of the Bankruptcy Code requires this meeting to take place. It is also known as a creditors’ meeting.

Chapter 7

The chapter of bankruptcy laws that allows the debtor to sell nonexempt property and distribute proceeds to creditors. 

Chapter 13

The chapter of bankruptcy laws that allows the debtor to keep his or her property while paying debts over the course of three to five years.

Discharge

A discharge frees the debtor from personal responsibility for particular debts. This prevents the creditors of these dischargeable debts from taking action to collect these debts. A discharge goes so far as to prevent creditors from communicating with the debtor about the debt via phone, email, letters and face-to-face contact.

Equity

The value of the interest in a property that remains after considering creditors’ interests, such as liens. For example, if a house with a value of $200,000 has a $150,000 mortgage, the equity is $50,000.

Means test

This is a rigorous test during chapter 7 filings to determine whether the filing is legitimate. If the debtor has too much monthly income, the case may be converted to chapter 13 or dismissed altogether.

Trustee

A representative of a bankruptcy estate. A person or corporation may be a trustee. A trustee various responsibilities, including reviewing the petition, bringing an action against creditors or recovering property from the debtor. The trustee is always under supervision of a bankruptcy administrator or the U.S. trustee.