Know The Language Of Bankruptcy
If you are considering a bankruptcy filing, it might be helpful to understand some of the usual terms. For those about to file, the below terms are commonly used to describe some of the more important aspects of bankruptcy. Read on and find out what it means when you hear and see these terms.
1. Credit Counseling – This term can apply to the two required bankruptcy educational classes you must complete. One determines your ability to file and must be done prior to your filing. The other class covers general financial issues and must be complete before your bankruptcy is final.
2. Discharge – This term is used to describe the final outcome of a bankruptcy. The debts that you include on your chapter 7 bankruptcy filing will be "discharged" when the bankruptcy is complete—meaning that those debts no longer exist.
3. Exemptions – Each state has its own particular set of exemptions. This is a method of reducing the value of your property so that you might keep it. A chapter 7 filing allows the bankruptcy courts to seize and sell certain types and amounts of property. That includes real estate, vehicles, personal property, and more. The proceeds from a seizure and sale goes to your creditors. For example, if your state allows a $35,000 homestead exemption for your home and your home equity is $30,000, you get to keep your home. Exemptions are sometimes doubled for couples filing jointly. Certain items are automatically exempted, such as work tools and a vehicle for each filer.
4. Lien – When you owe money to a creditor, they can take you to court and gain certain powers over your property. If a lien is placed on your property, you are no longer free to sell or dispose of that property until the debt is settled, paid, or you declare bankruptcy. All liens (except those imposed for taxes or back child support) are automatically canceled when you file for bankruptcy.
5. Means Test – You must be able to show that you cannot pay your debts before you can file for a chapter 7 bankruptcy. The means test takes into consideration your income, your debts, your budget, and your assets to determine the potential for repaying your debt without having to file bankruptcy. If you make too much money to file a chapter 7, you might need to file a chapter 13 instead since it has no means test requirements.
These are but a few terms you might encounter. Speak to a bankruptcy 7 attorney to learn more.