A Small Glossary of Bankruptcy

Financial Restructuring Terminology: A small Glossary of Bankruptcy

As individuals and organizations negotiate the complicated process of filing for bankruptcy, they may encounter a number of unfamiliar terms and phrases, that’s why we hope a glossary of bankruptcy will be helpful.

This article aims to give a complete vocabulary of bankruptcy-related terms to assist readers in understanding the process and making educated decisions.

Chapter 7 Bankruptcy

A trustee is appointed in Chapter 7 bankruptcy, often known as “straight bankruptcy” or “liquidation bankruptcy,” to take custody of the debtor’s assets and sell them to pay off creditors.

This sort of bankruptcy is frequently utilized by people and companies with few assets and a low income.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy, commonly known as “reorganization bankruptcy,” is typically utilized by organizations and people with large incomes and assets.

In this sort of bankruptcy, the debtor offers a reconstruction plan to repay creditors gradually.

Before the plan can be executed, it must receive judicial approval.

Automatic Stay

The automatic stay is a court order that takes into force immediately upon the filing of a bankruptcy petition.

The automatic stay prohibits creditors from pursuing collection actions against the debtor or the bankrupt’s assets.

This includes ending legal proceedings, wage garnishments, and repossessions.


A discharge is a court judgment that absolves the debtor of personal responsibility for certain types of debts.

This signifies that the debtor is no longer obligated to repay the obligations, and creditors can no longer pursue collection procedures against the debtor.

Such as student loans and taxes, not all debts are dischargeable in bankruptcy.

Guaranteed Debt

Secured debt is a sort of debt that is backed by collateral, such as a vehicle loan or mortgage. In Chapter 7 bankruptcy, the secured debt must be repaid in full, or the creditor may seize the collateral.

Defaulted Debt

Without collateral backing, unsecured debt is a sort of debt. Medical expenses and credit card debt are examples. In bankruptcy, it is possible to discharge or restructure unsecured debt.


A creditor is an individual or organization to whom a debtor owes money. Creditors are informed about a debtor’s bankruptcy and may be obliged to participate in court proceedings.


The court appoints a trustee to handle the bankruptcy proceeding of the debtor. The trustee is responsible for selling the debtor’s assets, distributing the money to creditors, and ensuring the debtor complies with the bankruptcy process’s requirements.

Secured Debtor

A secured creditor is a creditor who has a security interest in the debtor’s property, such as a mortgage or auto loan lender. When it comes to the allocation of assets in a bankruptcy proceeding, secured creditors have priority over unsecured creditors.

Creditor Unsecured

Unsecured creditors are creditors who lack a security interest in the debtor’s assets. Among the examples are credit card firms and medical services. Unsecured creditors may obtain a portion of the assets in a bankruptcy proceeding, but their priority is lower than that of secured creditors.

Claim of Priority

A priority claim is a claim that has precedence over other claims in a bankruptcy proceeding. Taxes and child support are examples of prioritization claims. These claims must be paid in full prior to any other creditors receiving payment.

Non-Dischargeable Debt

Debt that cannot be discharged in bankruptcy is non-dischargeable debt. For example, taxes and student loans

Means Test

A person’s eligibility for Chapter 7 bankruptcy is determined by the means test. The test compares the debtor’s income to the state and household income medians. If the debtor’s income is below the median, Chapter 7 bankruptcy is an option.

If their income is greater than the median, they may still be eligible for Chapter 7 bankruptcy, but they must pass an additional test to demonstrate that they cannot repay their creditors.

Reaffirmation of Agreement

A reaffirmation agreement is a legal contract between a debtor and a creditor in which the debtor promises to continue paying a debt that would be dischargeable in bankruptcy.

Typically, reaffirmation agreements are used for secured loans, such as a car loan or a mortgage.

341 Meeting

The 341 meeting, also known as the meeting of creditors, is a meeting that all bankruptcy filers are required to attend.

This meeting is mandatory for the debtor, and creditors are welcome to attend.

The trustee will inquire about the debtor’s assets, liabilities, and income, and the debtor must provide truthful answers under oath.


Exemptions are regulations that prevent creditors or the bankruptcy trustee from seizing certain assets.

Each state has its own set of exemptions, and the debtor has the option of using either state exemptions or federal exemptions.

Exemptions may safeguard a principal house, personal property, and tools of the profession, among other things.


The dischargeability of a debt refers to its ability to be discharged in bankruptcy.

Not all debts are dischargeable, and the debtor must satisfy specific conditions in order to have a debt canceled.

Taxes, school loans, and fraudulently acquired debts are examples of non-dischargeable debts.

Co-debtor Stay

A co-debtor stay is a court order that protects a co-signer or co-debtor from liability for a discharged debt. As soon as the bankruptcy petition is filed, the co-debtor stay enters into effect, preventing creditors from commencing collection proceedings against the co-debtor.


It can be difficult to navigate the complex bankruptcy procedure, and it is essential to comprehend the terminology used in the process.

We hope that this glossary will assist you in understanding the process and making educated decisions.

Always consult a licensed attorney, who can offer you specific counsel and direction throughout the process.



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