There are many terms involved in the bankruptcy process that are important to know. Some debtors feel they should leave the technical stuff to their bankruptcy attorney, but one can never be too prepared when it comes to managing their financial future. Getting to know some key terms will help make the process much easier and less stressful.
Terms To Know
Bankruptcy Petition — is the paperwork required for the initial filing. It includes detailed information about a debtor’s assets, debts, income and financial history. Accurately completing this paperwork is crucial for the success of the case.
Chapter 7 Means Test — is the test used to determine if a debtor qualifies to file for Chapter 7. It compares the debtor’s income to the median income level of the state. If the debtor’s income is less than the median income of the state, the debtor will be eligible for Chapter 7. If the debtor’s income is greater than the median income of the state, the debtor will not be eligible for Chapter 7 and must file for Chapter 13 instead.
Asset Liquidation — is when creditors seize and sell a debtor’s assets. This is done in efforts to satisfy the debt owed to the creditor. Typically, assets are only liquidated in Chapter 7 filings, unless the debt is secured and the debtor does not repay the debt. However, some assets can be protected from liquidation through bankruptcy exemption laws .
Chapter 13 Plan — is the repayment plan that outlines how the debtor will repay their debts. The plan is developed and approved by the court before being presented to the creditors. Once approved, creditors must adhere to the terms outlined by the plan and cannot collect on the debt outside of the plan. A typical Chapter 13 plan allows for debts to be repaid over a three to five year period.
Bankruptcy Discharge — is the closing of a bankruptcy case after successful completion. Once the debts have been successfully eliminated through Chapter 7 or repaid through Chapter 13, the court orders a discharge to mark the end of the case.
Bankruptcy Dismissal — is the rejection of a bankruptcy case. A case may be dismissed for failure to complete one of the required steps or due to fraudulent actions. The court maintains the right to dismiss a case they feel has not been successfully completed or if they are suspicious of the debtor’s actions.