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Glossary of Bankruptcy Terms & Definitions Related to Financial Law
Automatic StayAn injunction that automatically stops lawsuits, foreclosure, garnishments and all collection activity against the debtor the moment a bankruptcy petition is filed.
Chapter 7 BankruptcyChapter 7 Bankruptcy is the process of liquidation under the bankruptcy code. This is the most common bankruptcy in the United States. Please do not be alarmed by the term “liquidation”. In most instances, your personal property in Chapter 7 filings is protected from the bankruptcy estate through the various “exemptions” the Bankruptcy Code provides.
Bankruptcy PetitionA formal request for the protection of the federal bankruptcy laws. (There is an official form for bankruptcy petitions).
Bankruptcy Means TestThis is a formula the court uses to determine if your income is low enough to qualify for chapter 7 bankruptcy. This formula was designed to keep “high-income” people from taking advantage of the bankruptcy system. If your income is above the median, you may want to consider filing for Chapter 13 bankruptcy. This can be a very tricky test at times and you will want to consult with a professional bankruptcy attorney before your case is filed.
The DebtorThe “debtor” is the person who files for relief under the Bankruptcy Code. In order for couples to file jointly, they must be legally married.
The TrusteeOnce the debtor files for bankruptcy protection, a Trustee is appointed to his or her case. The Trustee is an officer of the court that administers the bankruptcy estate. The main duties of the Trustee are to review all documents and make sure nothing was filed fraudulently. Moreover, the Trustee is supposed to determine if the debtor has any “assets” that are not protected by the various exemptions which can be liquidated to satisfy some of the debts owed to the debtor’s creditors.
Creditor(s)The people or institutions that are owed money by the debtor.
Bankruptcy EstateIn short, the bankruptcy estate is all legal and or equitable property the debtor has an interest in at the time of filing (that is not exempt).
Real propertyThis is all types of real estate the debtor owns or has an equitable interest in.
EquityThe value of a debtor’s interest in property that remains after liens and other creditors’ interests are considered. (Example: If a house valued at $60,000 is subject to a $40,000 mortgage, there is $20,000 of equity).
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