WHAT DOES IT ALL
MEAN?
If you've been doing some internet research about
bankruptcy you've probably discovered a lot of confusing
terms. Here are some helpful definitions, (not in
alphabetical order):
Unsecured Debt: This is debt you
owe but for which you have not pledged any collateral.
Credit cards, medical bills, payday loans, repo deficiency
balances and broken lease agreements are good examples of
unsecured debts. All of this kind of debt is discharged
(eliminated) in a chapter 7 bankruptcy.
Secured Debt: This is debt you owe
when you are purchasing something such as a car or home.
We say that the loan is "secured by" the collateral you are
buying. In almost all secured loans the creditor has the
right to repossess the property if you don't stay current on
your payments. Here locally in Utah, loans with RC
Willey, Les Schwab Tires, and Morgan Jewelers are common
examples of secured debts.
Priority Debt: This is the
category of debt that most commonly includes taxes.
The reason taxes are called priority is that if your
bankruptcy trustee takes some of your property to satisfy
your debts (or if you are voluntarily paying debts in a
chapter 13), taxes get paid first before unsecured debt.
Non-Dischargeable Debt: This is
the type of debt that will survive your bankruptcy and you
will still owe it after your case is closed. The law
dictates that most taxes, child support, alimony, fees or
fines owed to governmental agencies, overpaid social security
or unemployment benefits and student loans are all
non-dischargeable. Just about everything else is
"dischargeable" and will be eliminated in your
bankruptcy.
Discharge: In legal terms, a
discharge of a debt is an elimination of the legal obligation
to pay it. In bankruptcy, at the end of your case, a
federal bankruptcy judge signs a "discharge order" which is
just a type of court order stating you no longer owe the
debts.
Means Test: In 2005, congress
changed the bankruptcy laws to require that everyone seeking
to file bankruptcy must complete a form called a means
test. In short, the means test is a way of looking at
your income to see if you earn too much money to qualify for a
chapter 7 bankruptcy. If you do, you must instead file a
chapter 13 and pay back at least a (usually small) portion of
your debts.
Meeting of Creditors: Whether you
file a chapter 7 or a chapter 13 bankruptcy, you will have to
attend a meeting of creditors. This might sound
intimidating but the truth is these meetings are usually very
short (just a few minutes) and ordinarily none of your
creditors even bother to show up. Instead, it's just a
chance for the trustee assigned to your case to ask you any
questions he or she might have about your financial
circumstances. In Utah, the meeting of creditors usually
happens around 30-45 days after your case is filed.
Re-Affirmation Agreement: If you
have property that you are purchasing over time, such as with
a car loan, home loan, or other installment payment agreement,
the creditor might ask you to sign a re-affirmation
agreement. By signing the agreement, you are
re-committing yourself to make the payments as set forth in
the agreement in return for keeping the collateral. Not
all secured creditors require these agreements. In some
cases, as an inducement to get you to sign the agreement, the
creditors will give you better terms, lower your interest
rate, or forgive a few months of late payments in the
re-affirmation agreement.
Creditor: A creditor is somebody
to whom you owe a debt.
Debtor: A debtor is a person who
owes a debt. "Debtor" is the term used to describe
someone who has filed bankruptcy.
Trustee: A trustee is assigned to
each bankruptcy case. The trustee is not a bankruptcy
judge but is instead an attorney appointed by the court to
examine each case and
-
insure the papers have been properly completed and
filed
-
in a chapter 7, look for assets that might be taken
from the debtor
-
in a chapter 13, receive your monthly bankruptcy
payment and distribute it to your
creditors.