Legal Terms That You Need to Know for Bankruptcy

Kristin Turner

Written by Kristin Turner
Updated September 7, 2018

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Breaking Down Bankruptcy Legal Terms

legal-terms-you-need(glasses) You don’t need to be an attorney to understand the bankruptcy process. Once you break down legal terms in simple language, the process becomes much simpler. Here are some of the Chapter 7 Bankruptcy legal terms you should know.

Legal Terms You May Have Seen Before:

  • Assets: anything you own and anything you might have a right to own at a later time. Make sure you know what kind of assets you have.

  • Bankruptcy: a legal procedure that allows people and businesses to solve their debt problems. Different types or “chapters” of bankruptcy apply to different situations. Find out here which type is the best for you.

  • Claim: a creditor’s assertion of their right to payment from a debtor.

  • Creditor: anyone who is owed money from someone else (the debtor).

  • Current monthly income: it’s the average monthly income the debtor received over six months before filing for bankruptcy. Here are the types of income included in this calculation.

  • Debtor: the person who owes money and is filing for relief under bankruptcy.

  • Equity: the value of a debtor’s interest in property, after subtracting any liens or creditor obligations. For example, a $100,000 house with an $80,000 mortgage would have a remaining $20,000 equity.

  • Injunction: an order given by a judge that stops a person from taking some sort of action (like the automatic stay in bankruptcy).

  • Liabilities: any financial debts or things you owe. Here are some examples.

  • Lien: a legal claim by Person A to possess Person B’s property until the debt owed by Person B is paid or discharged.

  • Liquidation: converting assets into cash (by selling them).

  • Pro se: a legal term simply meaning that you represent yourself in court without a lawyer.

Legal Terms You Should Learn if You’re New to Bankruptcy:


  • Automatic stay: a court order that immediately stops creditors from trying to collect what you owe them. Yes, immediately – the moment your bankruptcy petition is filed.

  • Assume: to take over (not like the usual meaning “to suppose” or “take for granted”). So, the debtor can decide to assume or reject certain existing obligations.

  • Chapter 7 bankruptcy: the type of bankruptcy that wipes out most of your general unsecured debts (like medical bills and credit cards). You don’t need to pay debts back through a repayment plan. But you may be required to sell some things you own to pay back some of your creditors.

    If this sounds like the solution for you, check out Upsolve, a non-profit whose mission is to help low-income Americans in financial distress get a fresh start through Chapter 7 bankruptcy at no cost.

  • Chapter 13 bankruptcy: another kind of bankruptcy for people with regular income and who can afford paying back a portion of their debts. This is done through a repayment plan.

  • Credit counseling: as a part of your bankruptcy case, you will have to complete some counseling on personal finance.

  • Discharge: this frees the debtor from the obligation to pay back certain types of debt. This also prohibits creditors from communicating with the debtor about repaying the debts. That means no phone calls, letters, or personal contact about pre-bankruptcy debts.

  • Executory contract/unexpired lease: an agreement between two parties that is still in effect and that requires them to take certain actions (for example: car leases, rental agreements, etc.).

  • Exemptions/exempt property: types of property you are allowed to keep during and/or after the bankruptcy process. Exemption laws vary by state.

  • Means test: this determines if your income is low enough for you to be eligible for Chapter 7 bankruptcy. There are ways you can calculate this on your own or use online calculators.

  • No-asset case: when you get to keep everything you own and are not required to turn over any property or cash to the trustee. In fact, the majority of Chapter 7 bankruptcies are no-asset cases.

  • Petition: the first bankruptcy form you need to complete to begin your path to solving your debt problems. There are different types, but most people use the one where you file on your own behalf.

  • Proof of claim: a written statement filed by a creditor that describes the reason the debtor owes them money.

  • Reaffirmation agreement: a new contract signed between you, the debtor, and a lender that reaffirms your debt for that obligation. Reaffirmation agreements are often signed with car loans.

  • Schedules: a group of bankruptcy forms where you list everything you make, spend, owe, and own. Completing the schedules accurately is crucial to your case, and it’s important to know the purpose of each one.

  • Secured debt: a type of debt that is tied to an asset, which is typically considered collateral for that debt, thus “securing” it. With unsecured debts, like medical bills, lenders don’t have rights to any collateral.

  • Statement of intention: on this form, you tell the court what you want to do with property that is securing a debt you owe, like a vehicle. You state your intention to either (a) surrender the property, which often erases the debt attached to it, or (b) keep the property and repay the associated debt.

  • 341 meeting: a necessary meeting for anyone filing for a Chapter 7 or Chapter 13 bankruptcy. Here, you’ll sit down with the trustee that’s been assigned to your case to make sure your bankruptcy case is in order. The primary purpose of the meeting is to ensure you’re not hiding any assets on your bankruptcy forms. If this sounds scary, don’t worry. Your part will probably only last ten minutes.

  • Trustee: an official that is responsible for overseeing your case. They are in charge of selling any of the debtor’s non-exempt properties and distribute the proceeds to the creditors, among other things.

Bonus Legal Terms You May Come Across:

  • Bankruptcy code: what they call Title 11 of the United States Code, a.k.a. the federal bankruptcy law.

  • Bankruptcy estate: all property in which the debtor has an interest (legally or financially), even if it’s owned by another person.

  • Chapter 9 bankruptcy: this type of bankruptcy is for reorganizing municipalities (like cities, towns, counties, school districts, etc.)

  • Chapter 12 bankruptcy: believe it or not, this type of bankruptcy adjusts debts for family farmers or fishermen.

  • Chapter 15 bankruptcy: a very uncommon type of bankruptcy which allows a foreign debtor to make use of the US Bankruptcy Courts.

  • Contingent claim: like a normal claim, a creditor asserts their right to payment from the debtor, but here it’s only in certain circumstances (like if the debtor is a cosigner on another person’s loan and that person fails to pay).

  • Joint petition: a way for two people to file their case together (i.e. a married couple).

There you go! You deciphered the common legal terms in Chapter 7 bankruptcy.


So now that you know the lingo, hopefully getting a fresh start seems much easier. If you’re willing to do your homework, legal terms and new vocabulary can’t stand in your way. Whatever your education level or occupation, you should be able to understand the bankruptcy process.

To make the process even simpler, get started with Upsolve, a Harvard Law School-grown nonprofit that provides free Chapter 7 bankruptcy services.

Watch past users who are just like you explain how it works. And join the millions who have gotten a second chance with bankruptcy. We can help you navigate your journey to a debt-free life.

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Hundreds got their fresh start! So can you!

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Upsolve is a 501(c)(3) legal aid nonprofit that started in 2016. Our mission is to help low-income Americans in financial distress get a fresh start through Chapter 7 bankruptcy at no cost. We do this by combining the power of technology with attorneys. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have mission-driven funders that include the U.S. government, former Google CEO Eric Schmidt, and private charities.

To learn more, read our reviews from past clients, or read our press coverage.


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