Legal terms can often be confusing when you first hear them, but if explained in a simple manner, most are quite easy to understand and remember. Whether you are a young legal professional trying to excel at bankruptcy law or are required to learn these terms as part of your job, the following list of 15 common bankruptcy terms will serve as a quick and easy reference.
Adversary Proceedings
A lawsuit filed by creditors during bankruptcy proceedings in order to register their objection to the discharge of a particular loan owed to them by the defaulting debtor.
341 meeting
It is a meeting where all creditors come together for a questioning round with the debtor. The debtor is required to provide answers pertaining to their financial condition under oath, in the presence of an examiner.
Bankruptcy
Bankruptcy is a legal declaration by a business enterprise or an individual that they no longer have the means to pay off their loans. When a business or person declares bankruptcy, it is called voluntary bankruptcy. Alternatively, creditors (persons or institutions) can also file a petition against a defaulting debtor. This gives the creditors an opportunity to try and recover all or at least part of the sums owed to them by a bankrupt organization or person.
Chapter 7 Trustee
An officer appointed by the court to oversee the bankruptcy proceedings of a case. The trustee is entrusted with the task of liquidating the debtor’s property for the benefit of the creditors.
Chapter 13 Trustee
The individual who is in charge of a chapter-13 bankruptcy case. They are required to fulfil multiple responsibilities, similar to those of a chapter-7 trustee. In addition, they are required to keep track of payments made by the debtor to the creditors, stay informed about the debtor’s repayment plan, and discharge the payments received to individual and institutional creditors.
Consumer Bankruptcy
As the term indicates, this is a type of bankruptcy case initiated to reduce or remove debts incurred on purchasing consumer goods (also known as consumer debts).
Credit Rating
It is a useful measure to determine the credit history of an individual or business entity. Credit rating is calculated on the basis of the possibility of a business or person to default on their loans. Lending institutions use credit scores provided by third-party credit-rating agencies to determine if they should lend to an individual or corporate.
Debt Adjustment
Debt adjustment refers to the process of making adjustments and arrangements during bankruptcy proceedings that allow for an alternate route to settlement of bad debts. These revised arrangements serve as a practical alternative to the original repayment agreement between the debtor and the creditor.
Discharge
Discharge refers to the legal process of eliminating debt by filing a bankruptcy case. By declaring themselves bankrupt or insolvent, debtors are no longer required to pay off the debt—except if there is a lien (defined later) securing a particular debt.
Exemption
As the term indicates, exemptions include the properties of debtors that creditors cannot lay claim to when trying to recover their funds through a bankruptcy petition. The type and value of property included in the exemptions list is determined by the state and federal bankruptcy laws.
Foreclosure of real estate
Foreclosure refers to the process of gaining ownership of a property by the lender if the debtor fails to pay mortgage on the said property.
Homestead exemption
Homestead refers to a house. Homestead liability exemption prevents lenders from using the debtor’s home (or farm etc.) to recover their dues. Homestead exemption laws are different for each US state and define the limit up to which a debtor’s personal property is exempted from being used to pay off the creditors.
Joint Petition
A joint bankruptcy petition filed by both husband and wife.
Lien
A right of ownership that can be used by the lender to recover a bad loan; for instance, if a homeowner defaults on mortgage payments, the lending bank can initiate foreclosure proceedings and claim ownership to the property for which the loan was taken.
Liquidation
The process of selling the properties of a debtor to obtain funds to pay off the creditors.
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