The Legal Language of Bankruptcy

Written by jessica Alba

If you are experiencing great financial difficulties and you are thinking about filing bankruptcy, you are not alone. To the court it does not really matter whether it was due to a series of bad financial decisions, or you have become a victim of the struggling economy. If you qualify, you can be relieved of most of your debt, or have a payment plan instituted to try and pay back you various creditors to the best of your ability. But, the process can be confusing, if you do not know the legal terms. You need to know the legal language of bankruptcy.

Of course every case is different, so you may only hear some of the terms depending on your individual circumstances. But, for the sake of being thorough, here are some of the most common bankruptcy terms:

Automatic Stay: the moment you file for bankruptcy, there is an automatic stay on all of your debt. While you will still be responsible for child support and other such payments, creditors cannot take action to collect their money, at least until the court makes a decision either way. If they try to sidestep the law, the creditors can get in a lot of trouble.

BARF: is the acronym for Bankruptcy Abuse Reform Fiasco. In short, it does not help the consumer in any way. But, it is geared toward protecting the irresponsible lender.

Collateral: is property that backs up a debt, usually a loan of cash. For example, if you borrow $10,000 from the bank, they will make sure that you have property that equals or is valued at more than the loan, just in case you default. You will have to put that property up as collateral. If you do not pay the loan, they can take that property, sell it, and try to recoup some of their money.

Confirmation: If you have filed for chapter 13 bankruptcy, you will need to wait for the court to okay a debt repayment plan or deny your petition. Once a repayment plan is in place, and your petition has been granted, you will receive confirmation.

Discharge: Whether you file chapter 7 or chapter 13, when your case is over, the court will edischarg your debts. In other words, you do not owe them any longer. Once the chapter 7 process is complete, your debts will be discharged. However, with chapter 13, you will have 3-5 years to pay as much of your debts as possible. Then, as long as you have complied with the court, the rest of your debt will be discharged.

Foreclosure: is the process creditors use to take back the property you have failed to pay for, so they can try to resell it and recoup some of their financial loses. In most cases, foreclosure is when your house is repossessed for resale.

Joint Bankruptcy: is simply when both you and your spouse file bankruptcy together, which will include all of the assets you own together and separately.

Lien: When you purchase a big ticket item like a car or a house on time, the creditor will hold a lien on the property. It is like collateral. If you do not make regular payments on your house, car, boat, RV, or other piece of property, the creditor can claim the property and try to resell it, in order to get back some of the money you still owe.

Means Test: The procedure is aptly named. Basically, you will have to declare all of your assets and your debts. As part of the process, you will have to fill out a bunch of paperwork to show what should be included in the bankruptcy process and what should be exempt. It is like a very detailed questionnaire. Then, the court will take the information, confirm it, and determine if you qualify for bankruptcy or you have the means to pay back your creditors.

No Asset Case: If everything you own is older and of no resale value, you will have a no-asset case. For example, if you drive a car that is 20 years old, with 100,000 miles, older furniture, an ancient television set, or whatever, it may be valuable to you, but it would be absolutely useless to take it and try to sell it to pay some on your creditors.

Well, these are some of the terms you will hear when you go through the process of filing personal bankruptcy. But, do not worry if you cannot remember everything. You have a bankruptcy lawyer that is getting paid to take care of all of these things for you. He/she will guide you through the process and explain anything you might not understand. As long as you follow the law, and do not try to sneak anything by the court, you will be just fine. Federal bankruptcy court is there to help people like you get out from under the overwhelming pressure of debt, and get a fresh financial start.