The process of filing for bankruptcy can be stressful and frustrating, and the terminology used may sound foreign and unfamiliar. Understanding these terms, however, is important as bankruptcy can be a life-changing event. We've defined some of the most commonly used terms for you.
Credit counseling is a prerequisite to filing bankruptcy. During your credit counseling session, you will learn about alternatives to bankruptcy, and following the session, you will receive a certificate of completion.
Discharge may occur during Chapter 7 bankruptcy proceedings and means that you no longer owe any money on the debt that is discharged.
Exempt assets are not included in your bankruptcy filing.
Liquidation of your assets is when your assets are sold, and the proceeds used to pay your debts.
The means test uses certain parameters to determine whether a debtor may file Chapter 7 bankruptcy for a full discharge of debt. Individuals with too much income after certain expenses are prohibited from filing Chapter 7 unless they qualify as exception.
Nonexempt assets are included in your bankruptcy filing, and may be repossessed and liquidated.
Reaffirmation of your loans is when you agree to new terms with your lenders during the bankruptcy process and do not seek to discharge your debt or cease your access to credit.
Secured debt is secured by collateral, such as an automobile or home. Secured creditors have the right to your collateral in the event you default on payments. Typically, secured debt is not fully discharged in bankruptcy and secured creditors are entitled to certain privileges.
Unsecured debt, such as credit card debt, is not secured with collateral. During the bankruptcy process, creditors of unsecured debt are not able to repossess your personal property.