Common Bankruptcy Terms Explained

Introduction

Filing for bankruptcy can feel overwhelming, especially with all the legal jargon involved. Understanding the key terms can make the process easier and less intimidating. Here’s a simple guide to the most common bankruptcy terms you need to know.

1. Automatic Stay

This is an immediate court order that stops all collection actions, including calls, lawsuits, and wage garnishments, as soon as you file for bankruptcy.

2. Discharge

The official court order that wipes out qualifying debts, freeing you from the legal obligation to pay them.

3. Exempt Property

Assets that you can keep during bankruptcy, such as certain household goods, retirement accounts, and in Maryland, a portion of home equity.

4. Trustee

A court-appointed person who oversees your case, reviews your documents, and manages payments to creditors in Chapter 13.

5. Means Test

A financial test that determines whether you qualify for Chapter 7 based on your income compared to the state median.

6. Secured Debt vs. Unsecured Debt

• Secured Debt: Backed by collateral, like a mortgage or car loan.

• Unsecured Debt: No collateral, such as credit cards and medical bills.

7. Reaffirmation Agreement

A voluntary agreement to continue paying a debt, such as a car loan, so you can keep the asset.

8. Credit Counseling & Debtor Education

Two mandatory courses: one before filing and one after filing, required for discharge.

9. Liquidation

The process of selling non-exempt assets to repay creditors in Chapter 7 bankruptcy.

10. Plan Confirmation

The court’s approval of your Chapter 13 repayment plan.

Bonus Tip:

Always ask your attorney to explain any unfamiliar term—clear communication is essential for a successful case.

Conclusion

Bankruptcy doesn’t have to be confusing. Knowing these terms empowers you to make informed decisions and feel confident in the process.

Have more questions about bankruptcy in Maryland? Contact Middleton Legal for a free consultation today.