Come to Terms with These Common Bankruptcy Terms
Bankruptcy Glossary of Terms: Learn What These Words May Mean to You
When learning about how filing bankruptcy may help you take control of your debt, it’s important for you to understand some of the common terminology used when describing the bankruptcy process.
With that said, Bankruptcy.Me has provided you with a nice bankruptcy glossary of terms for you to further your education on filing bankruptcy. If you’re new to the idea of filing bankruptcy, this bankruptcy glossary of terms is here to help you learn more about the process.
Of course, to learn what these terms may specifically mean to you, be sure to speak with a local bankruptcy lawyer as soon as possible. Simply fill out our free bankruptcy case evaluation form or call (888) 632-0587, and we’ll put you in touch with a nearby bankruptcy lawyer who can further elaborate on this bankruptcy glossary of terms and also answer any of your bankruptcy FAQs.
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Abusive Overdraft Loan
A loan made by banks to customers who have overdrawn on their accounts. Abusive overdraft loans are typically short-term, high-interest loans for small dollar amounts, and have been estimated to cost consumers billions each year.
Adjustable Rate Mortgage (ARM)
A home loan in which payments fluctuate, or adjust, from month to month. Adjustable rate mortgages are different from more traditional "fixed rate mortgages" in which regular payments are made over the life of the loan, most often being 30 years.
Asset
Any item or piece of property that has value and is owned by an individual or organization. During Chapter 7 bankruptcy cases, a bankruptcy trustee has the option of selling non-exempt assets in order to pay back your creditors. With that said, most of your assets (including your homestead and car) are exempt from Chapter 7 liquidation.
Automatic Stay
A legal protection provided by the U.S. Bankruptcy Code. Upon filing bankruptcy, an automatic stay will be entered by your bankruptcy trustee; this court order will prevent any further collection actions against you during your bankruptcy case, including lawsuits, repossession, foreclosure and garnishment.
A legal announcement by an individual or organization declaring the inability to repay creditors. Individuals are afforded two consumer bankruptcy protections under the U.S. Bankruptcy Code: Chapter 7 and Chapter 13 bankruptcy.
Bankruptcy Petition
Paperwork prepared and submitted by your bankruptcy lawyer announcing that you’ve filed bankruptcy. The filing of your bankruptcy petition officially starts your bankruptcy case and will typically result in the bankruptcy trustee enacting the automatic stay a short time after. Chapter 7 and 13 cases proceed differently following the filing of your bankruptcy petition.
Bankruptcy Trustee
The supervisor of your bankruptcy case, either by designation from the U.S. Justice Department or creditors. During your Chapter 7 case, the trustee will be in charge of collecting and selling your non-exempt assets in order to pay back your creditors (also known as liquidation). If you file Chapter 13 bankruptcy, the bankruptcy trustee will have the responsibility of distributing your monthly payments among your creditors.
BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act)
Enacted on October 17, 2005, this new bankruptcy law instituted the Chapter 7 means test for Chapter 7 hopefuls, and also made it law for all consumer bankruptcy filers to obtain a credit counseling briefing prior to filing and to complete a debtor education course after filing but before being able to receive a discharge.
Chapter 7 Bankruptcy
Also known as "liquidation," Chapter 7 bankruptcy may allow you to completely discharge (forgive) your unsecured debts, which may include credit cards, medical bills, payday loans and much more. If you file Chapter 7, your bankruptcy trustee may liquidate your non-exempt assets to pay back your creditors. Learn more about filing Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Also known as "reorganization of debts," Chapter 13 bankruptcy may allow you to stop foreclosure or repossession and keep your home or car in exchange for agreeing to catch up on these secured debts during a repayment period of 3-5 years. Learn more about filing Chapter 13 bankruptcy.
Checkbook Loan
Another name for "payday loans " (see payday loan). Introduced in Illinois, this rebranding is typically done to avoid payday lending regulations.
Collateral
Property that is used as security for a loan and acts as incentive for the borrower to make payments on that loan . For example, a car is collateral for an auto loan. Consequently, if you fail to make payments on this loan, your car may be repossessed.
Cosigner
A person who signs his or her name on a loan along with someone else. For example, when you first bought a car, one of your parents may have signed on the loan. Cosigners may allow you to qualify for better loans; with that said, you should know that cosigners are legally responsible to pay your loans if you cannot.
Credit Counseling Briefing
Required by the new bankruptcy law of 2005, this session on debt-management options besides bankruptcy must be obtained by a hopeful bankruptcy petitioner prior to filing. Failing to satisfy this requirement may result in your bankruptcy petition being tossed out immediately. You may purchase online or telephonic credit counseling briefings at Start Fresh Today.
Credit Report
A comprehensive record detailing your history as a borrower, including information on credit cards, bank accounts, mortgages, auto loans, etc. Checking your credit report regularly is a smart way to make sure that no one is misusing your personal information. You can check your credit report for free at annualcreditreport.com.
Credit Reporting Agency (Credit Bureau)
A company that gathers, monitors and reports consumer credit data. Equifax, Experian and TransUnion are the three major credit reporting agencies in the United States.
Credit Score
A number falling between 300 and 850 that measures your risk to lenders. Your credit score is determined by a formula invented by the Fair Isaac Corporation and is often checked by lenders before they agree to lend you money. You will generally qualify for more attractive loan terms when you have a higher credit score.
Creditor
A person or entity owed money (by a debtor). Creditors may proceed to collect money from you if you fail to pay them back.
Debtor
A person who owes money to a creditor. If you file bankruptcy, you will be referred to as the debtor in your case.
Debtor Education
Another requirement of the new bankruptcy law, this "financial management" course must be competed before you can receive your bankruptcy discharge. The debtor education course covers a lot of post-bankruptcy topics relevant to you after filing bankruptcy, including money management and budgeting. Failing to complete this course will prevent you from receiving your discharge. You can obtain an online or telephonic debtor education course at Start Fresh Today.
Default
The failure to meet your financial obligations. You will be in default of a loan after missing a given number of payments. In other words, the loan is said to be in default when you miss payments.
Discharge
In bankruptcy cases, this may refer to two things: 1) your exit from bankruptcy (once you have fulfilled all of your obligations to the bankruptcy courts, you will be discharged or excused from bankruptcy; 2) the forgiveness of debt in Chapter 7 cases when the court discharges your unsecured obligations.
Debts that are legally allowed to be excused. In Chapter 7 cases, unsecured debts like credit cards, medical bills and payday loans are dischargeable.
Equity
The value of an asset besides what is owned on it. For example, if you own a home, you have equity in it if you can sell it for more than it would cost you to pay what you owe on it.
Pieces of property that cannot be liquidated (sold and converted into cash) to pay off your creditors during a Chapter 7 case. Exemptions vary from state to state, but generally include a certain value for your homestead, vehicle and other items deemed necessary for your everyday living.
FICO Score
See credit score. The Fair Isaac Corporation’s calculation of your credit score ranging from 300 to 850.
Financial Management Course
See "debtor education course."
Fixed Rate Mortgage
A home loan in which you make regular monthly payments over the course of the loan (typically 30 years). In contrast to "adjustable rate mortgages," your monthly payments do not change with a fixed rate mortgage.
The repossession of a house. Your home may be foreclosed on by a bank or lender when you fail to comply with the terms of the mortgage agreement. A foreclosure will most often be initiated when a person defaults on his or her payments. Filing Chapter 13 bankruptcy may be an option to stop your home foreclosure.
Garnishment
Withholding a debtor’s money or property due to a debt owed. When a court orders your wages to be garnished, this means that your employer will pay part of your salary directly to a creditor. In other words, this means that your paychecks will be much less.
Identity Theft
An information crime during which a criminal uses your Social Security Number, credit card number, bank account information or other personal information to make transactions, apply for benefits, open accounts, etc. Checking your credit report regularly is a smart way to notice and prevent identity theft.
Insolvency
See 'bankruptcy.'
Lien
A creditor’s claim on property in exchange for a debt. For example, a home mortgage is a voluntary lien since the borrower agrees that the house may be forfeited if he or she cannot make payments. Judges may put involuntary liens on other property that the borrower is unable to pay.
Liquidation
Converting an asset into cash by selling the asset. Chapter 7 bankruptcy is often referred to as liquidation since the bankruptcy trustee can liquidate your non-exempt assets to raise money to pay back your creditors.
Mass Layoffs
Letting go a large scale of workers from a company or organization. Mass layoffs are typically the results of financial struggles or reorganization.
Means Test
The test you must "pass" in order to file Chapter 7 bankruptcy. Another part of BAPCPA (the new bankruptcy law), the Chapter 7 means test includes median income comparisons and disposable income calculations.
Medical Bankruptcy
Bankruptcy that is filed as a result of medical expenses. According to some studies, medical bankruptcies are the second most common cause for consumer bankruptcy filings in America.
Mortgage
A loan secured by land, a home or other real estate. Since few people can afford to pay for a home or another major purchase with cash, mortgages are extremely useful. By entering into a mortgage agreement, you agree to make payments on the loan or surrender the home if you fail to pay.
Non-Dischargeable Debts
Debts that arenot excusable by the court. In Chapter 7 bankruptcy cases, non-dischargeable debts include tax debts, student loans, child support and alimony.
Non-Revolving Credit
Sometimes called "closed account credit," non-revolving credit cannot be drawn on once payments have been made on the initial loan (e.g. student loans). Compare to "revolving credit."
Payday Loan
A short-term, small-dollar, high-interest loan offered by non-traditional lending sources (in other words, sources that are not banks or credits loans). Payday loans are often the only source of loans for people with weak credit scores. With their high-interest rates, payday loans can perpetuate massive amounts of debt.
Predatory Lending
While no official (legal) definition exists for predatory lending, this term generally refers to lending strategies that lead borrowers into more expensive loans than they qualify for. Two common examples of predatory lending include lying about the terms of a loan and targeting specific groups with expensive loans.
Repossession
When a creditor reclaims an asset or property after a debtor fails to make timely payments. As an example, foreclosure is the repossession of a home.
Revolving Credit
A credit line that features flexible monthly payments and spending limits, and usually involves service charges. Credit cards are an excellent example of revolving credit.
Schedules
Bankruptcy paperwork detailing your debts, income, assets and expenses. After your initial bankruptcy petition has been submitted, your bankruptcy lawyer will file your schedules with the bankruptcy court.
Secured Debt
Debt that is backed by collateral (material goods). Examples of secured debt include an auto loan (which is backed by a car) and a mortgage (which is backed by a home). Be securitizing debts, lenders reduce the risk of lending. In other words, they may seize the property if the borrower does not make payments on the secured debt. Compare with "unsecured debt."
Subprime Loan
A loan offered to someone with weak or limited credit (as determined by the person’s credit score). Since "subprime" borrowers are considered bigger risks to lenders, subprime loans typically have higher interest rates than prime loans.
Unsecured Debt:
Debt that is not backed by material goods (collateral). Credit cards, medical bills and payday loans are examples of unsecured debts, and filing Chapter 7 bankruptcy may allow you to be excused from these debts.
United States Bankruptcy Code:
The operations of bankruptcy courts in the United States are defined by these laws, statutes and regulations. View the complete U.S. Bankruptcy Code.
Go Beyond This Bankruptcy Glossary of Terms & Speak with a Bankruptcy Lawyer
Once again, let us put you in touch with a local bankruptcy lawyer who can expound on what filing bankruptcy may be able to do for you. All you have to do is call (888) 632-0587 or fill out our free bankruptcy case evaluation form, and we’ll do the rest.