Bankruptcy Terminology Consumers Need to Know

If you have been researching bankruptcy on th internet or  have even consulted with a bankruptcy attorney about filing a bankruptcy case, you were probably bombarded with terms you have never heard before, such as “debtor”, “estate”, “asset” and even “creditors meeting”. Though these terms seem scary or confusing at first, they are essential parts of the bankruptcy process, which is why you need to familiarize yourself with them.

Asset
An asset is an item that you own or have some sort of claim to. This can include personal property, real estate, vehicles, and even pets.  You home, car, contents of your home, retirement plan, bank accounts, life insurance policies and even your pets are assets.  Everything that you own is an asset.

Debt
Debt is money that you owe. This can be money owed to  a bank, credit card company or the IRS.  It includes medical bills, student loans and payday loans. 

Debtor
The debtor is the person who owes the debt. During the bankruptcy case, you will notice that you are referred to as the “debtor”, rather than as a consumer.

Creditor
The creditor is the person or entity that you owe debt to.  If the creditor has collateral for your loan (like your home mortgage or your car creditor), the creditor is considered to be a “secured creditor”.  If the creditor has no collateral for the loan to you, the creditor is an “unsecured creditor”.  

Discharge
The Discharge is a Bankruptcy Court order that is issued at the conclusion of the bankruptcy case that permanently enjoins creditors from ever collecting the debt that was the subject of the bankruptcy case.  A Discharge Order is received in approximately four months in a Chapter 7 case. It is received after all of the Chapter 13 pay garnishments have occurred at the end of the three to five year life of a Chapter 13 case.  

Estate
When you file a bankruptcy case, a “Bankruptcy Estate” is created.  Everything that you own becomes property of this “Bankruptcy Estate”.  Your bankruptcy lawyer then signifies which property you are claiming as exempt and your exempt property then is removed from your “Bankruptcy Estate”.

Exemptions
Each state has exemption laws which are laws that protect certain property from the reach of creditors.  The federal bankruptcy laws also have exemption laws that protect certain property from creditors.  If you live in Texas, you can choose to use either the Texas state exemptions or the federal exemptions. Exemption laws frequently protect the homestead, contents of the home, cars, retirement plans, life insurance etc.  A good bankruptcy attorney can tell you if your property is exempt or not-exempt and whether you should claim the federal or state exemption laws to protect your assets when you file your bankruptcy case.

Creditors’ Meeting
The “Creditors Meeting” is a meeting that occurs within approximately one month from the date that your case is filed at the federal bankruptcy court.  The Bankruptcy Judge assigned to your case can not attend this meeting.  You must attend this meeting.  Your creditors can attend the meeting and ask you questions.  However, the creditors are not required to attend.  The meeting is presided over by an attorney who is commonly referred to a “Bankruptcy Trustee”.  At the meeting, you are asked questions about the bankruptcy documents that were filed in your case, your assets and your liabilities.  Your bankruptcy attorney will attend this meeting with you.  The meeting normally last less than ten minutes.  This meeting is also referred to as the “341 meeting”.

If ever you hear a term from your bankruptcy attorney and you don’t know what it means, ask him or her right away what it means and how it will affect you. Your attorney is there not only for legal advice, but to ensure you understand the bankruptcy process and how it will affect your life both during and after the bankruptcy case.

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