Glossary of Bankruptcy Terms

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The process of filing for bankruptcy can be stressful and frustrating, especially if you don't know the lingo. Bankruptcy proceedings are full of jargon you may not understand, so to help you through the process, we've created a glossary of some of the most commonly used terms for you. 

Terms You Should Know When Filing for Bankruptcy


Bankruptcy is the general term for the legal process of eliminating or restructuring debts. Bankruptcy can be filed by individuals and entities, including businesses. There are multiple forms of bankruptcy and the costs, protections, and ultimate resolution will differ depending on the type of bankruptcy filed. 


A person or entity that owes money to another party. If you're filing for bankruptcy, this is you.


A person or institution to whom money is owed. This can be banks, stores, service providers (from doctors to the electric company), and other individuals.

Bankruptcy estate

The total assets of a debtor that are subject to liquidation to pay off creditors. Assets include property, vehicles, savings, retirement funds, and investments.

Exempt assets

Assets that are protected from liquidation during bankruptcy, allowing the debtor to retain them. Exemption laws differ from state to state, so make sure you understand what assets you're legally allowed to keep before beginning the bankruptcy process.

Bankruptcy Petition

The formal document filed with the court to initiate the bankruptcy process. Making sure that you're filing correctly is important, so it's a good idea to work with a qualified attorney.

Chapter 7

This is a form of personal bankruptcy that involves the liquidation of assets to pay off creditors. It's also often referred to as "straight" or "liquidation" bankruptcy.  


Liquidation of your assets is when your assets are sold, and the proceeds used to pay your debts.


Debts or portions of debts that are not repaid through the liquidation of assets or a repayment plan are discharged or forgiven. Unlike many other forgiven debts, debts discharged in a bankruptcy are not typically considered taxable income.  

Chapter 13

This is a form of bankruptcy that allows individuals with a regular income to develop a plan to repay all or part of their debts over a period of time, usually three to five years.


The restructuring of debts to create a plan for repayment without liquidating assets, typically associated with Chapter 13 bankruptcy.

Secured debt

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

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.


An individual appointed by the court to oversee the bankruptcy case, review the debtor's financial situation, and distribute assets to creditors.

Automatic stay

A legal provision that halts all collection actions, lawsuits, and creditor contact once a bankruptcy petition is filed. This protects you from unwanted collection activity while you work through the bankruptcy process. 

Means test

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. 

Reaffirmation agreement

An agreement between the debtor and a creditor to continue paying a debt, even after bankruptcy, often associated with secured debts like a car loan.

341 meeting

A meeting where the debtor, trustee, and creditors discuss the debtor's financial situation and bankruptcy plan. It's not a court hearing, but it is conducted under oath. The trustee and any creditors present are given the opportunity to ask the debtor questions. The meeting isn't intended to be confrontational, but serves as a chance to ensure the proceedings are transparent and accurate.  

Adversary proceeding

A lawsuit within the bankruptcy case, often filed by a creditor to challenge the discharge of a particular debt.

Priority debt

Debts that are considered more important or have a higher legal standing in the repayment hierarchy, such as child support or tax obligations. When assets are liquidated or a repayment plan is formed, these debts are given priority over other debts, like unsecured credit card debt. 

Credit counseling

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.

At the end of the bankruptcy process, you'll also be required to complete a bankruptcy education session before the bankruptcy is complete and your debts are discharged.


Discharge may occur during Chapter 7 bankruptcy proceedings and means that you no longer owe any money on the debt that is discharged. 

Considering bankruptcy? You may have other options. Start with a free online analysis of your debts and see which options may be available to you.

Tagged in Bankruptcy, Helpful resources

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Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

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