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Navigating bankruptcy can be overwhelming, especially with the complex terminology involved. This blog post breaks down essential bankruptcy terms like debtor, creditor, and discharge in simple language, empowering you to make informed decisions with the help of an attorney near you.
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Discover essential bankruptcy terms explained in simple language, including debtor, creditor, discharge, and more. Understanding these key concepts can help you navigate the bankruptcy process with confidence. For personalized guidance, connect with a qualified bankruptcy attorney near you.
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Common Bankruptcy Terms Explained
If you’ve started researching bankruptcy, you’ve probably already run into some confusing legal lingo. What’s a “discharge”? Who’s a “trustee”? What’s the difference between a debtor and a creditor?
Don’t worry — you’re not alone. Bankruptcy law has its own language, but once you understand a few key terms, everything becomes much clearer. This post breaks down the most common bankruptcy terms in plain English so you can navigate your situation with more confidence.
💡 For every post in this series, scroll down to “Related Posts.”
Debtor
The debtor is the person (or business) who owes money and is filing for bankruptcy. If you’re considering bankruptcy, you are the debtor. Debtors file to either eliminate debt (Chapter 7) or reorganize and repay it over time (Chapter 13 or Chapter 11).
Creditor
A creditor is the person, company, or institution that’s owed money by the debtor. Creditors can be:
- Credit card companies
- Banks
- Landlords
- Medical providers
- The IRS
They may be secured (have collateral like a house or car) or unsecured (no collateral).
Bankruptcy Petition
The formal request filed with the court to start a bankruptcy case. It includes information about the debtor’s income, debts, assets, and expenses. Filing the petition triggers an automatic stay (see below).
Automatic Stay
The automatic stay is a court order that immediately stops most collection actions against the debtor. That means no more calls from collectors, wage garnishments, foreclosure proceedings, or repossessions—at least temporarily.
Discharge
A discharge is a court order that wipes out qualifying debts permanently. Once your debts are discharged, creditors cannot legally collect on them ever again. Not all debts can be discharged (e.g., student loans, child support, most taxes).
Trustee
The trustee is a neutral third party appointed by the court to oversee your bankruptcy case. Their job varies depending on the chapter of bankruptcy you file. In Chapter 7, they may sell your non-exempt assets to repay creditors. In Chapter 13, they manage your repayment plan.
Secured vs. Unsecured Debt
- Secured Debt is backed by collateral (e.g., mortgage, car loan). If you default, the creditor can take the property.
- Unsecured Debt has no collateral (e.g., credit card debt, medical bills). These are often discharged in bankruptcy.
Exempt Property
Exemptions are laws that protect certain assets from being taken by the trustee. Common exemptions include:
- A portion of home equity
- Personal property like clothing or furniture
- Tools of your trade
- Retirement accounts
Each state has different exemption rules, so it’s crucial to speak with an attorney near you to understand what you can keep.
Chapter 7 Bankruptcy
Also called liquidation bankruptcy, Chapter 7 is the most common form. The trustee may sell your non-exempt property to pay creditors, but most people keep their basic possessions and get their debts wiped out relatively quickly.
Chapter 13 Bankruptcy
A wage earner’s plan, Chapter 13 allows you to keep your property and repay debts through a court-approved plan over 3 to 5 years. It’s often used by people who have steady income but fell behind on payments.
Chapter 11 Bankruptcy
Mostly used by businesses or high-income individuals, Chapter 11 is a complex reorganization plan that allows debtors to keep operating while restructuring their debts.
Means Test
A financial test to determine if you qualify for Chapter 7. It compares your income to the median income in your state. If you earn too much, you may have to file Chapter 13 instead.
Reaffirmation Agreement
A legal agreement where you agree to keep paying a particular debt (like a car loan) even though it could be discharged. This keeps you on the hook for that debt after bankruptcy but lets you keep the asset.
Why These Terms Matter
Understanding these terms helps you make informed decisions and avoid costly mistakes. Bankruptcy can be a powerful tool for financial relief, but it’s also a complex legal process. Having the right information — and the right bankruptcy attorney near you — can make a world of difference.
ReferU.AI helps match you with a skilled bankruptcy lawyer near you who understands your state’s laws and can guide you every step of the way. Our platform connects you with the right attorney based on your financial situation, debt type, and goals.
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