Bankruptcy definition: This occurs when a person is unable to pay their debts and they qualify to have all or part of them discharged under the Bankruptcy Code. To understand bankruptcy, we must first understand the basic definitions of the words that are used to describe it.
Assets: The things of value that the debtor owns. Examples would include boats, cars, stocks and bonds, the proceeds of a law suit, cash in a checking or savings account, cash kept at home. Some assets are exempt in a bankruptcy, meaning that they will not be sold to pay debts. Some assets are not exempt and they may have to be sold to pay debts. Bankruptcy attorneys help debtors determine which assets are exempt and which are not, and how to best declare exempt property.
Bankruptcy Petition: Also called an application or a request is a document submitted to the court declaring bankruptcy and listing creditors and assets. A petition is a series of forms that are filled out that discloses creditors and assets of the debtor. There is a filing fee to file the bankruptcy forms necessary to file a bankruptcy.
Creditor: A person or a company to whom the debtor owes money. This includes your mortgage, car loan, and credit card companies. There are different types of creditors. Some creditors are secured creditors. A secured creditor has a right to the property they loaned the money for (or sometimes even other property). A common example of a secured creditor is the bank that loaned you the money for your car. Their name is usually on the title and that shows that they are a secured creditor. A non-secured creditor does not have a right to any property if the loan is not paid. A common example of a non-secured creditor is a credit card company.
Debtor: The person declaring bankruptcy. Throughout bankruptcy proceedings the person that is bankrupt is also referred to as the debtor or petitioner. A debtor is technically anyone who owes money to another person (so basically most everyone).
Discharged: To discharge a debt is to legally require a creditor to forgive it under the law, even against their will. Once a debt is discharged, creditors are not permitted to take any action to collect the debt. Sometimes creditors may do this if they don’t know you have filed for and been granted a discharge or other bankruptcy status.
When bankruptcy lawyers fill out and submit bankruptcy forms, they declare which kind of bankruptcy they will file and provide advice to clients as to how to handle and preserve different kinds of property. The types of bankruptcies are listed in separate sections of the law and they are named for the section they appear in. Consequently, Chapter 7, Chapter 11, and Chapter 13 are all different sections of the bankruptcy code and they are also all different types of bankruptcy.
Consequently, bankruptcy can be defined in general, as in a state of being bankrupt, or it can be defined in terms of the type of bankruptcy one would file.
One of the most frequent questions we receive is “What type of bankruptcy should I file?” In other words, where does my particular situation fit in the bankruptcy definition, if at all? Every bankruptcy case is individual and we give careful attention to each client to ensure that the path they take is the best one for them. There is no one answer to this difficult question. Even if you qualify for bankruptcy, it may not be the option for you. It is important to consult with a lawyer to make these important decisions and to decide the best course.