Bankruptcy Glossary

What follows are some basic bankruptcy terms you should know if you’re considering filing for bankruptcy:

  • Automatic Stay: One of the best features of bankruptcy from a debtor’s perspective, this court-ordered injunction stops creditors from continuing to try to collect a debt once a bankruptcy petition is filed.
  • Bankruptcy: Legal process that declares a debtor (individual or business) is unable to pay debts.
  • Bankruptcy Petition: Request for a declaration of bankruptcy either by the debtor or by creditors.
  • Chapter 7: Bankruptcy governed by Chapter 7 of the Federal Bankruptcy Code; also called “liquidation” as the debtor may be required to sell property in order to pay debts.


  • Chapter 12: Bankruptcy governed by Chapter 12 of the Federal Bankruptcy Code for family farmers or fishermen.
  • Chapter 13: Bankruptcy governed by Chapter 13 of the Federal Bankruptcy Code for individuals with steady incomes above a certain amount; also called “reorganization” as the debtor keeps property but must agree to a three- to five-year repayment plan.


  • Creditor: Individual or group to whom the debtor owes money; a creditor has a “claim” in a bankruptcy proceeding.
  • Credit Counseling: Meeting with an approved agency to discuss budgeting and other financial planning; required before filing bankruptcy and after.


  • Creditors’ Meeting: Also called a “341 meeting,” this is a meeting in court with the debtor, creditors, and bankruptcy required by Section 341 of the Federal Bankruptcy Code.


  • Debtor: Person who owes money to a creditor; also refers to someone who has filed for bankruptcy.
  • Discharge: The release of a debt.
  • Dischargeable Debt: A debt that may be eliminated by bankruptcy.
  • Exemptions: Certain property is exempt from being taken or sold during bankruptcy proceedings; state law governs exemptions.


  • Means Test: Formula that determines whether a debtor is eligible to file Chapter 7 or Chapter 13 bankruptcy. A debtor cannot have more than a certain amount of monthly income, and debt and expenses are considered as well; for full details, see Section 707(b)(2) of the Federal Bankruptcy Code.


  • Nondischargeable Debt: A debt that cannot be eliminated by bankruptcy.


  • Priority Debt: An unsecured debt that is to be paid in bankruptcy before others.


  • Secured Debt: Any debt that is attached to property, which the creditor may pursue in order to collect the debt.
  • Trustee: Represents the bankruptcy estate who reviews the debtor’s positions and makes sure creditors get as much of the debt back as possible.
  • U.S. Trustee: Officer of the Justice Department who supervises various aspects of bankruptcy proceedings.
  • Unsecured Debt: A debt for which a creditor holds no collateral or other property attached.