by Dennis L. Plank, Attorney
If you live in Lancaster County and feel overwhelmed by debt, you may not be sure what options will help you get back on track. Dealing with debt can be intimidating and can sometimes feel hopeless. However, for some people, bankruptcy offers a way to escape debt without losing their home or their primary mode of transportation. For these people, Chapter 7 or Chapter 13 may be a way to get back on the right footing.
However, the terms used by creditors, bankruptcy courts, and even bankruptcy lawyers can be confusing. When you know the language of debt and bankruptcy, it’s often easier to assess your situation and make positive steps towards solvency. Here are some essential legal terms to help you understand the process.
341 Meeting
Named for a section of the Bankruptcy Code, a 341 meeting takes place within 50 days after the petition is filed. Debtors must provide the trustee with photo identification and proof of social security number. Importantly, failure to appear at a 341 meeting may result in dismissal of the case.
Assets
An asset is a legal term for anything owned at the time of filing, such as real estate and things the filer is entitled to receive in the future, such as an inheritance. Some assets are exempt from liquidation in Pennsylvania. Assets are assessed to determine repayment plans.
Assume
In bankruptcy terms, a trustee or debtor can take over, or assume, certain obligations. For example, if a loan is assumed, then all of the requirements and payments associated with that contract will remain in place.
Automatic Stay
A court order that immediately stops creditors from collecting on debts owed is called an automatic stay. In many cases, an automatic stay goes into effect as soon as the bankruptcy petition is filed.
Chapter 7
This type of bankruptcy eliminates debt and removes the obligation for repayment. Chapter 7 is an option for individuals or couples with unsecured debt, such as credit card debt. It does not eliminate taxes, student loans, or child support. Chapter 7 may require the filer to sell some assets to pay back creditors.
Chapter 13
This type of bankruptcy is an option for individuals or couples with a regular income. It allows people to pay back a portion of their debt through negotiated repayment plans. Chapter 13 is often a good option for people who have fallen behind on secured debts, such as mortgages and car loans.
Credit Counseling
All Pennsylvania residents who file for bankruptcy must attend credit counseling. This is a federal requirement designed to analyze debt and present various debt management options to determine the applicant’s best choice. Additional debtor education is required later in the bankruptcy process. Failure to meet counseling requirements can result in the dismissal of the case.
Discharge
In bankruptcy, a discharge is a court order that eliminates an obligation to pay back certain debt types. A discharge also prohibits creditors from calling, writing, or contacting the filer personally to collect a debt.
Executory Contract
This term refers to an agreement that is still in effect, such as a contract that requires a monthly or annual payment. Examples of an executory contract are a country club membership, a time-share, and a vehicle lease.
Exempt Property
Pennsylvania bankruptcy law has exemptions that may allow the filer to keep their home and a vehicle. These types of assets are referred to as exempt property.
Injunction
When a court issues an order requiring someone to cease a specific action, it is referred to as an injunction. In bankruptcies, injunctions are often used to stop creditors from trying to collect certain types of debts.
Liabilities
Liabilities are simply debts owed.
Lien
A lien is a legal claim on a property until the debt owed on that property is paid in full. In a home mortgage, the lender holds the lien–in this case a mortgage–until the loan is repaid in full. Should the homeowner fail to pay the loan, a lien allows the lender to repossess the home and sell it to offset losses.
Means Test
This bankruptcy evaluation tool compares the filer’s income to the median income in Pennsylvania and determines if they qualify for Chapter 7 bankruptcy. If filers are found to bring in enough income to repay some or all of their debt, they may be required to file for Chapter 13 bankruptcy.
No-Asset Case
In a no-asset case, the trustee doesn’t have assets to sell and creditors will not receive payment. Debts are eliminated without repayment.
Petition
A petition is the initial bankruptcy form. Once it is filed with the clerk of the court, the case can proceed.
Proof of Claim
Proof of claim is a form that a creditor files detailing why the debtor owes them money. In most cases, a creditor must submit the proof of claim within 70 days of the debtor’s bankruptcy filing.
Schedules
These detailed forms list all personal and financial information, such as property assets, personal assets, unsecured and secured debt, any exemptions along with the law associated with those exemptions, monthly income, and expenses. If schedules are not completed correctly and thoroughly, a bankruptcy case may be dismissed.
Secured Debt
Any debt tied to an asset, such as a car loan or a mortgage, is considered secured debt.
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 they may opt to keep the property and continue to make payments on it. A judge may have to give final approval.
Trustee
This term is used to describe 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.
Unsecured Debt
Any debt not tied to a specific asset. Credit card balances are considered unsecured debt.
The Value of an Experienced Bankruptcy Attorney
An experienced Lancaster bankruptcy attorney can evaluate if bankruptcy is the best option and if Chapter 7 or Chapter 13 is the best choice for eliminating debt while protecting assets. Call the Law Offices of Going and Plank in downtown Lancaster today for a free, no-obligation consultation.
Want to find out more about bankruptcy? We recommend these articles:
Chapter 7: An Easy-to-Understand Explanation
When Chapter 13 Bankruptcy may be a Good Idea
The Pros and Cons of Chapter 7 Bankruptcy
5 Questions to Ask When You’re Considering Bankruptcy
Chapter 7 Bankruptcy in Pennsylvania
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