Author Archive Scott Greeves, Attorney

Bankruptcy Definitions and Lingo

Lawyers and the courts use a lot of legalese, confusing words, and lingo during the bankruptcy process. The following is a brief definition of some of the words we use during a bankruptcy.

Debtor

The “Debtor” this is the person or company who owes money, can’t afford to pay his/her debts, and who files bankruptcy.

Creditor

A “Creditor” is any person, business, or government to whom money is owed by the debtor. An “Unsecured Creditor” is a creditor who DOES NOT have any collateral supporting the loan. For example, credit cards, medical bills, former landlords, cell phone companies, cable company, etc. A “Secured Creditor” is a creditor who DOES have collateral supporting the loan – for example, a mortgage lender, or a loan on a vehicle.

Trustee

Think of the “Trustee” as a referee who oversees your case. The Trustee is an employee of the US Department of Justice. The Trustee’s job is to be sure that both debtors and creditors are treated fairly during the bankruptcy. If you hire a lawyer to help you with your bankruptcy, you will not have much direct interaction with the Trustee. Your lawyer will communicate with the Trustee on your behalf. Typically, the only interaction you have with the Trustee is during your “341 meeting” – the meeting of creditors.

Plan

In a Chapter 13 bankruptcy, “The Plan” is a document your lawyer drafts that explains to the Court, the creditors, and the Trustee how you want to pay your debts and how much you intend to pay.

341 Meeting

The meeting of creditors is also called the “341 meeting.” In Phoenix, Arizona, this meeting will take place about 5 weeks after your attorney files your bankruptcy. Your attorney will go to the meeting with you. You will meet with the bankruptcy trustee at this meeting. The bankruptcy trustee will ask you several questions under oath, and it will take about 5 to 10 minutes. Most of the questions are very simple. See our blog on questions the bankruptcy trustee might ask you.

What is the difference between chapter 7 and chapter 13 bankruptcy?

Chapter 7 is the traditional bankruptcy everyone thinks about. Chapter 7 eliminates – discharges – all of your unsecured debts. By unsecured debts, we mean credit cards, medical bills, deficiencies – amounts remaining due – on vehicles that have already been repossessed, etc. Secured debts include vehicle loans and home loans – or any other loan where the lender has the right to repossess the property. Secured debts may be included in a chapter 7, but if you want to keep the property, you will have to bring the loan current and continue paying on the loan. Otherwise, you will have to surrender the property. Another option is to “redeem” the secured property – this means to pay for it in full at a reduced amount agreed to by the secured creditor. Not everyone is eligible to file a Chapter 7 bankruptcy. There are income limitations based on your household size. Your attorney will be able to advise you on the specifics.

A Chapter 13 bankruptcy can be considered more of a financial reorganization. Using a Chapter 13, a person can pay off arrears and secured debts through the court system by payments to the bankruptcy trustee. In a Chapter 13, a payment plan is set up whereby the debtor makes a monthly payment to the trustee and the trustee pays off the secured debt and a portion of the unsecured debts. Depending on your income, sometimes all of the debts are paid off in a Chapter 13. However, usually only a portion of the unsecured debts are paid – sometimes pennies-on-the-dollar. Everyone’s situation is different. Please don’t make the mistake of relying on advice from your friends, because their situation is guaranteed to be different from yours.

A Chapter 13 is much more complicated than a Chapter 7. To be successful in a Chapter 13, you must have a regular income and be able to make regular monthly payments. The monthly payments will be based on your ability to pay. An experienced bankruptcy attorney can save you a lot of money in a Chapter 13. Some say it is more of an art than a science.