Glossary of Bankruptcy Terms

Below you will find some of the most common terms heard in and around bankruptcy cases. While the following definitions provide a nice introduction to this bankruptcy terminology, be sure to speak to a local bankruptcy attorney for even more information on their meanings.


Asset: Any item of value owned by a person or entity. In Chapter 7 bankruptcy, the trustee can convert non-exempt assets to cash to repay creditors.

Automatic Stay: An injunction (provision) of bankruptcy law that protects those who file bankruptcy from most collection actions, including garnishment, lawsuits, repossession, debt collection and foreclosure. In most cases, an automatic stay goes into effect as soon as a bankruptcy case is filed.


Bankrupt: This is a non-technical term that describes the person who files for bankruptcy protection.

Bankruptcy: A legal declaration by an individual (or a company) stating an inability to pay creditors. United States Bankruptcy Code provides several versions of bankruptcy to offer individuals a “fresh start” financially after receiving a bankruptcy discharge. Individuals can file for Chapter 7 or Chapter 13 bankruptcy, depending on their financial situation and goals for bankruptcy.

Bankruptcy Code: After the Bankruptcy Reform Act of 1978, this was the given name to the body of U.S. bankruptcy laws.

Bankruptcy Court: This is the federal court where bankruptcy cases are reviewed and litigated under the U.S. Bankruptcy Code.

Bankruptcy Estate: This term refers to the debtor’s property that is subject to authority of the bankruptcy court.

Bankruptcy Petition: The legal forms that must be filed at court for a bankruptcy case to officially begin.

Bankruptcy Trustee: An individual appointed by the U.S. Department of Justice or by the creditors in a bankruptcy case to oversee the proceedings of the bankruptcy case. In Chapter 7 bankruptcy cases, the trustee is in charge of gathering and distributing any non-exempt property. In Chapter 13 bankruptcy cases, the trustee must distribute the debtor’s monthly payments to the creditors, and makes sure everyone involved adheres to bankruptcy laws.

BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act): The new bankruptcy laws passed in October, 2005. BAPCPA introduced a qualifying “means test” for potential Chapter 7 bankruptcy filers, made credit card debt more difficult to discharge in bankruptcy filings and added the Credit Counseling and Debtor Education requirements.


Chapter: The U.S. Bankruptcy Code is organized into different chapters. Chapters 1, 3 and 5 generally involve matters of general application. Chapter 7 bankruptcy, Chapter 9 bankruptcy, Chapter 11 bankruptcy, Chapter 12 bankruptcy and Chapter 13 bankruptcy generally cover liquidation matters for personal bankruptcy and business bankruptcy, city/town bankruptcy, business reorganization, debt adjustments and personal reorganization.

Chapter 7 Bankruptcy: A type of personal bankruptcy sometimes referred to as “liquidation” bankruptcy because a bankruptcy trustee can liquidate (convert to cash) any non-exempt assets to help pay off debts.

In order to qualify for Chapter 7 bankruptcy, you must pass the Chapter 7 means test. Those who don’t qualify for Chapter 7 bankruptcy can file under Chapter 13.

Chapter l3 Bankruptcy: A type of personal bankruptcy sometimes referred to as a “reorganization of debts.” In Chapter 13 bankruptcy cases, debtors work with the bankruptcy court to develop a three to five year repayment plan to eliminate their obligations to creditors.

Chapter 13 bankruptcy generally allows filers to keep their homes and cars, and offers a chance to get caught up on debts.

Claims: Creditors file these rights to repayment against a debtor. Claims can be secured, unsecured, liquidated, unliquidated, matured, unmatured, fixed, contingent, subordinated, legal or equitable.

Class: Creditor claims are given categories, or classes, and then are ranked by priority of payment.

Collateral: An asset given as security for a loan. In a mortgage loan, the house is considered collateral for a loan. If the borrower doesn’t repay the loan as agreed, he will lose the house. The borrower has an incentive to keep up with payments – being able to live in the house.

Cosigner: One who literally co-signs loan papers with somebody else. Legally, a cosigner is responsible for making payments on a loan if the primary borrower is unable to do so.

After bankruptcy, you may qualify for more attractive loan terms by having a cosigner with a strong credit history.

Credit Counseling Briefing: The starting point of the bankruptcy process. The Credit Counseling Briefing must be completed before you file your bankruptcy petition for a judge to accept your case. Credit Counseling Briefings can be completed on the Internet, over the phone or in person.

If your Credit Counseling Briefing is not completed in the allotted time, your bankruptcy judge is likely to throw out your case.

Credit Report: A record of your credit history which includes your payment actions on a variety of credit sources, including credit cards, mortgage loans, rent, car loans and more. The Fair Credit Reporting Act of 2003 mandated that all consumers have access to one free credit report per year from each of the big three credit reporting agencies (Equifax, Experian and TransUnion).

Credit Score: A number between 300 and 850 that measures the credit risk of an individual consumer. The number is used by lenders to assess how much a potential borrower can afford.

Creditor: Someone to whom a debtor owes money. In Chapter 13 bankruptcy cases, filers work within a repayment plan to satisfy most or all of their financial obligations to creditors.


Debtor: Someone who owes money to a creditor. Many people file for bankruptcy in order to clear debt by repaying the money they owe their creditors or by receiving a discharge from the bankruptcy court.

Debtor Education: A requirement of the BAPCPA, the Debtor Education course must be completed by every bankruptcy petitioner. You cannot receive your bankruptcy discharge until you have completed the Debtor Education course. The course is designed to prepare bankruptcy filers for life after bankruptcy. The skills taught in the Debtor Education course include debt management and money-handling.

Default: The failure to meet financial obligations. Also, the state of being behind on payments: if you miss a certain number of loan payments, you will have defaulted on your loan and your loan will be in default.  Once a loan has gone into default, the lender can take collection action, including repossession, foreclosure or garnishment, depending on the type of loan.


  • Exit from bankruptcy .You will receive your discharge after cooperating with all the terms and conditions of the bankruptcy court.
  • The elimination of debt. In Chapter 7 bankruptcy filings, unsecured debts can be discharged, or excused by a bankruptcy judge.

When a debt is discharged during bankruptcy, the debtor is cleared of his payment obligation.

Dischargeable: Legally excusable debts. In Chapter 7 bankruptcy cases, for example, most credit card debt, medical bills and most personal loans are dischargeable. Student loans, child support and most tax debt are usually considered non-dischargeable.

Dismissal: When a bankruptcy case is “thrown out” of court. Cases can be dismissed if the bankruptcy court deems that the debtor or three creditors shouldn’t have filed bankruptcy.

Docket: This is the schedule to which the bankruptcy court clerk records all court filings.


Equity: An asset’s value aside from anything owed on it (mortgages, liens, etc.). If you’ve been paying off a mortgage loan for several years, you probably have some equity in your home. If you can sell and asset (home, car, etc.) for more money than you owe on it, you have equity in that asset.

Examiner: This is a professional that the bankruptcy court appoints to oversee the debtor and his or her bankruptcy proceedings.

Exemptions: Assets that the bankruptcy court cannot liquidate during a Chapter 7 bankruptcy case.


Foreclosure (Mortgage Foreclosure): The process followed by a bank or mortgage company to reclaim ownership of a house when a homeowner hasn’t followed the terms of the mortgage agreement. In most cases, foreclosures result when homeowners can’t make monthly mortgage payments.

G, H

Garnishment: When money from a debtor’s paycheck is ordered given to a creditor (like a credit card company) to cover some of the debt owed. If you owe money and your wages are garnished, they will be given directly to your creditor. Bankruptcy’s automatic stay will stop most garnishments.

I, J, K

Insolvency: This is a term used to describe a failing debtor. It means that his/her debts exceed his/her assets and the debtor can’t pay his or her bills. See “bankruptcy.”

Involuntary Bankruptcy: This is when bankruptcy proceedings are started by three or more creditors against a debtor. In order for this to be accepted by the bankruptcy court, the debtor must have unsecured debt of at least $5,000.


Lien: A claim, or mortgage, on property in exchange for debt owed. Liens can be voluntary or involuntary; home mortgages and auto loans, for example, are voluntary liens. You agree that your creditor can have the house or car back if you can’t make payments. Involuntary liens result when a judge rules that you must surrender property to a creditor (as in a lawsuit).

Liquidation: The act of converting an asset to cash. In Chapter 7 bankruptcy, the trustee can liquidate a filer’s non-exempt assets to pay off creditors. In many Chapter 7 cases, though, filers don’t have any non-exempt assets, so liquidation rarely actually happens in practice.


Means Test: Part of the BAPCPA, the Chapter 7 means test is used to determine who qualifies for protection under Chapter 7 of the U.S. Bankruptcy Code. It’s based on median income comparisons, disposable income available and unsecured debts owed.

You must “pass” the means test to file for Chapter 7 bankruptcy.

Mortgage: A pledge to pay (loan) backed by real estate. If you have a mortgage on your home, you risk losing the property if you don’t comply with the terms of the pledge (loan). Most people use mortgages to pay for houses because few people can afford to pay the full price of a home in cash.

N, O

Non-Dischargeable: Legally unable to be excused. In Chapter 7 bankruptcy cases, child support, tax debt and student loans are usually non-dischargeable and must eventually be paid by the filer.

Non-Revolving Credit: A line of credit that requires monthly payments and does not allow repaid funds to be drawn down again from the credit limit.

P, Q

Personal Bankruptcy: This is a bankruptcy that is filed by an individual or household. It’s also called a consumer bankruptcy or wage-earner bankruptcy.

Petition: This document begins the bankruptcy proceeding.

Preference: This occurs when a debtor pays a creditor during a specific period before filing bankruptcy and it favors one creditor over other creditors. These payments are often reversed by the bankruptcy court.


Receiver: This is another term for the person appointed by the bankruptcy court that takes guardianship of the debtor’s property.

Repossession: The taking-back of ownership of property when payments aren’t made on time. If you default on your car loan, your lender might repossess your car. Bankruptcy’s automatic stay will stop most repossession actions.

Revolving Credit: A line of credit that allows for spending and repayment, with a minimum monthly payment and a financing charge.  Essentially this means credit cards and other accounts that work like credit cards (e.g. pre-approved overdraft accounts).


Schedules: In bankruptcy, these are the documents filed with the court that contain information on your assets, debts and income. Once your lawyer has filed your bankruptcy petition, he or she will file schedules and other paperwork throughout your case.

Secured Creditors: These creditors have lien(s) on the property of the debtor.

Secured Debt: Any debt backed by collateral. A mortgage loan is secured, backed by the house. These debts have less risk for lenders, since the collateral can be repossessed if the borrower fails to comply with the terms of the loan.

Small Claims: This term refers to claims that are in the hundreds or low thousands of dollars range. They are often grouped together and settled for cash.

Straight Bankruptcy: This is an unofficial term for a Chapter 7 bankruptcy.

Substantial Abuse: This term refers to a filer abusing the bankruptcy law or committing fraud in a bankruptcy case. Don’t do it!


Trustee: This refers to the agent of the court who oversees the debtor’s property for the advantage of the creditors.


Unsecured Creditor: These creditors don’t have liens on the property of the debtor. Credit card companies are usually unsecured creditors.

Unsecured Debt: Any debt not backed by collateral. Credit card debt is unsecured, since creditors cannot repossess any property as a direct exchange for debt owed.

United States Bankruptcy Code: The collection of statutes and regulations that governs bankruptcy procedures in Federal courts. View the full U.S. Bankruptcy Code.


Voluntary Bankruptcy: This is when a debtor files bankruptcy on his or her own behalf.

W, X, Y, Z

Wage-Earner Bankruptcy: Another name for personal bankruptcy (as opposed to business bankruptcy).

Workout: This is an arrangement with a creditor that takes place outside of the bankruptcy court to reschedule a debtor’s payment plan or reduce his or her debt.