By Dennis L. Plank, Attorney
Many of us have financial struggles at one time or another in our lives. Sometimes, our overspending is at fault. Other times, mounting debt comes with life situations that are out of our control, such as job loss, illness, or a death in the family.
If you are living in Lancaster County and you feel overwhelmed by debt, bankruptcy may be the right option for you. While some may view bankruptcy as a sign of failure, it may be a sound financial decision that gets you back on the right footing.
If you are considering filing for Chapter 7 or Chapter 13 bankruptcy, here are some important terms to help you understand the process.
Named for a section of the bankruptcy code, a 341 meeting takes place about a month after you file for Chapter 7 bankruptcy. A trustee assigned to your case will review your bankruptcy forms, make sure you’ve reported all assets, and investigate potential fraud. Most 341 meetings will last no more than 10 minutes.
An asset is anything you own now, such as real estate, or anything you are entitled to receive later, such as an inheritance, that could be sold to pay your creditors. Some assets are exempt from liquidation in Pennsylvania. Make sure you list all your assets by type on your bankruptcy schedules.
To take over an existing obligation. In bankruptcy, a trustee or debtor can assume or reject certain obligations. If a contract or lease is assumed, then all requirements and payments associated with that contract will remain in place.
An automatic stay is a court order that immediately stops creditors from trying to collect on the debts you owe them. In most cases, the stay goes into effect as soon as you file your bankruptcy petition.
Chapter 13 Bankruptcy
A type of bankruptcy for people who have fallen behind on secured debt, such as mortgages and car loans. It is a viable option if you have regular income and can afford to pay back a portion of your debt through a repayment plan.
Chapter 7 Bankruptcy
A type of bankruptcy that wipes out debt without the need for repayment. Chapter 7 is an option if you have a lot of unsecured debt, such as credit card debt, but it may require you to sell some of your assets to pay back some of your creditors.
In bankruptcy, a claim is a right to payment. Creditors who want to get paid through a debtor’s bankruptcy must file a proof of claim.
Credit counseling is a federal requirement designed to review the type of debt you have and other debt management options for relief to determine if filing for bankruptcy is the right choice. Additional debtor education is required later in the bankruptcy process. Failure to meet counseling requirements can result in the dismissal of your bankruptcy case.
Anyone to whom money is owed by a debtor.
Current Monthly Income
Your average monthly income from all sources over the last six months before you filed for bankruptcy.
The person who owes money and is filing for bankruptcy.
In bankruptcy, a discharge is a court order that frees you from your obligation to pay back certain types of debt. A discharge also prohibits creditors from calling, writing or contacting you personally about repaying those outstanding debts.
The difference between the market value of a debtor’s property and the claims against it, such as the mortgage and unpaid property taxes. For example, if your home is valued at $100,000 and you have a mortgage of $70,000, you would have $30,000 in equity.
Executory Contract/Unexpired Lease
An agreement that is still in effect and requires action. An executory contract could be a service contract, gym membership, or similar contract that requires a monthly payment. An unexpired lease could be a rental agreement that hasn’t run out.
Types of property you do not have to sell off to pay creditors during the bankruptcy process. While you may have to sell things like property, jewelry, and investments, Pennsylvania bankruptcy law has exemptions that may allow you to keep your home and a vehicle for transportation.
A court order requiring someone to cease doing a specific action. In the case of bankruptcy, an injunction prohibits creditors from trying to collect discharged debts.
Liabilities are debts you owe. Some examples are credit card debts, student loans, medical bills, taxes, child support, alimony, car loans, and mortgages.
A lien is a legal claim on a property until the debt owed on that property is paid in full. In the case of a car loan, for example, the bank would hold the title to the car as a lien until the loan is repaid in full. Should the debtor fail to pay, the bank can repossess the car and sell it to recoup the money loaned.
Converting a debtor’s non-exempt assets to cash by selling them, and then using that cash to pay off creditors.
A means test compares your income to the median income in Pennsylvania and helps to determine if you qualify for Chapter 7 bankruptcy. If you have enough income to pay back all or part of your debt, then you will probably need to file for Chapter 13 bankruptcy instead.
Most Chapter 7 bankruptcies are no-asset cases, meaning the debtor can protect all of their assets with exemptions. If you have a no-asset case, the trustee can’t sell anything you own, and creditors will not receive any payment through your bankruptcy.
A petition is the first bankruptcy form you complete. Once you file it with the clerk of bankruptcy court, your bankruptcy case officially begins. There are four types of bankruptcy petitions, but most people use the one for individuals filing on their own behalf.
Latin for “in one’s own behalf,” pro se is a legal term meaning you are representing yourself in court without the assistance of an attorney.
Proof of Claim
Proof of claim is a form that a creditor files detailing why the debtor owes them money. The bankruptcy trustee will review the form and determine if the creditor will get paid. In most cases, a creditor must submit the proof of claim within 70 days of the debtor’s bankruptcy filing.
Forms included in your bankruptcy petition that detail all personal and financial information, such as property assets, personal assets, unsecured and secured debt, any exemptions you are claiming along with the law associated with those exemptions, monthly income, and expenses. Completing the schedules can be time-consuming and complicated. Be sure to complete them correctly and thoroughly, or your case may be dismissed.
Debt that is tied to an asset, such as a car loan or a mortgage. Such debt is secured by a lien on the debtor’s property.
Statement of Intention
In a Chapter 7 case, a statement of intention is a declaration in writing that tells the court what the debtor wants to do with property associated with a secured debt. The debtor may choose to surrender the property and eliminate the debt or keep the property and continue to make payments on it. A judge may have to give final approval.
An official appointed by the bankruptcy court to administer the estate. In a Chapter 7 case, the trustee will liquidate assets and pay creditors. In a Chapter 13 case, the trustee will administer the repayment plan.
An experienced bankruptcy attorney can help you determine if filing for bankruptcy is the right choice for you. Call the Law Offices of Going and Plank in downtown Lancaster today for a free, no-obligation consultation. We can review your financial situation and discuss all of your debt relief options. If you decide that bankruptcy is a wise financial decision for you, we will guide you through the entire process, from activating an automatic stay to stop collections to filing the complicated paperwork, and put you on the path to a better financial future.