Bankruptcy Glossary: 50+ Essential Terms Defined (2026)

Adversary Proceeding

A lawsuit filed within a bankruptcy case. Unlike the main bankruptcy case, adversary proceedings address specific disputes such as determining whether a particular debt can be discharged, recovering fraudulent transfers, or objecting to the discharge of certain debts. These proceedings follow formal litigation rules similar to regular civil lawsuits.

Automatic Stay

A court order that automatically goes into effect the moment you file bankruptcy, stopping virtually all creditor collection activities. The automatic stay prevents creditors from pursuing lawsuits, wage garnishments, foreclosures, repossessions, utility shut-offs, and collection phone calls. This protection continues throughout your bankruptcy case unless a creditor gets court permission to proceed or the stay is lifted.

Bankruptcy Code

Title 11 of the United States Code, the federal law governing bankruptcy proceedings. The Bankruptcy Code is divided into chapters, with Chapters 7 and 13 being the most common for individuals. It sets the rules for filing, exemptions, discharge, and all other aspects of bankruptcy.

Bankruptcy Estate

All legal and equitable interests you have in property as of the date you file bankruptcy. This includes your home, car, bank accounts, retirement accounts, personal belongings, lawsuit claims, and any other assets. The bankruptcy trustee administers the estate, and exempt property is protected from liquidation.

Bankruptcy Petition

The formal document filed with the bankruptcy court to initiate a bankruptcy case. The petition includes detailed information about your income, expenses, assets, debts, and financial history. Filing the petition triggers the automatic stay and officially begins your bankruptcy case.

Chapter 7 Bankruptcy

Also called "liquidation bankruptcy" or "straight bankruptcy." The most common form of consumer bankruptcy, where non-exempt assets are sold to pay creditors, and most remaining unsecured debts are discharged. The process typically takes 3-4 months. Most Chapter 7 cases are "no-asset" cases where all property is exempt and nothing is sold.

Chapter 13 Bankruptcy

Also called "wage earner's plan" or "reorganization bankruptcy." Allows individuals with regular income to create a court-approved plan to repay all or part of their debts over 3-5 years. You keep all your property while making monthly payments to a trustee who distributes funds to creditors. Particularly useful for saving homes from foreclosure or catching up on secured debt arrears.

Claim

A creditor's assertion of a right to payment from the debtor or the bankruptcy estate. Creditors must file proof of claim forms in Chapter 13 cases to receive payment through your plan. In Chapter 7, claims are typically filed only if there are assets to distribute.

Cramdown

In Chapter 13, the ability to reduce a secured debt to the current value of the collateral. For example, if you owe $15,000 on a car worth only $10,000, and you've owned it for at least 2.5 years, you may be able to "cram down" the loan to $10,000. The $5,000 difference is treated as unsecured debt. This doesn't apply to mortgages on your primary residence.

Credit Counseling

A mandatory requirement before filing bankruptcy. You must complete an approved credit counseling session within 180 days before filing. The session typically costs $10-$50, lasts 60-90 minutes, and can be done online or by phone. The counselor reviews your budget and discusses alternatives to bankruptcy.

Creditor

A person or entity to whom you owe money. Creditors are classified as secured (holding collateral like a house or car), unsecured priority (like recent taxes or child support), or unsecured non-priority (like credit cards and medical bills). Different types of creditors receive different treatment in bankruptcy.

Debtor

The person or entity that files for bankruptcy protection. If you file bankruptcy, you are the debtor. In a joint case, both spouses are co-debtors.

Discharge

A court order releasing you from personal liability for certain dischargeable debts. After receiving a discharge, creditors can no longer pursue collection of discharged debts. The discharge is the ultimate goal of bankruptcy—it provides a fresh financial start by eliminating your obligation to repay certain debts. Not all debts can be discharged.

Dischargeable Debt

Debts that can be eliminated through bankruptcy. Most unsecured debts are dischargeable, including credit card balances, medical bills, personal loans, and utility bills. The discharge eliminates your personal liability, though liens on property may remain.

Dismissal

The termination of a bankruptcy case by court order. Unlike discharge (which is good—it eliminates debts), dismissal ends your case without eliminating debts. Common reasons for dismissal include failure to make plan payments, not filing required documents, or not completing credit counseling. After dismissal, creditors can resume collection activities.

Disposable Income

Income not reasonably necessary for your maintenance and support, or for your business operation if self-employed. In Chapter 13, your monthly disposable income determines your plan payment amount. It's calculated by subtracting allowable living expenses from your current monthly income using IRS standards.

Equity

The value of your ownership interest in property, calculated by subtracting what you owe from what the property is worth. For example, if your house is worth $300,000 and you owe $200,000 on the mortgage, you have $100,000 in equity. Exemptions protect a certain amount of equity in various types of property.

Exemptions

Legal protections that allow you to keep certain property when filing bankruptcy. Federal law provides one set of exemptions, and each state has its own. Some states allow you to choose between federal and state exemptions; others require you to use state exemptions. Common exemptions include homestead (home equity), vehicle, household goods, retirement accounts, and tools of trade.

Exempt Property

Property protected by exemptions that you can keep when filing bankruptcy. In Chapter 7, exempt property cannot be sold by the trustee. In Chapter 13, the value of exempt property affects how much you must pay unsecured creditors through your plan.

Filing Fee

The fee charged by the bankruptcy court to file a case. As of 2026, the filing fee is $338 for Chapter 7 and $313 for Chapter 13. These fees can sometimes be paid in installments, and may be waived in Chapter 7 if your income is below 150% of the federal poverty line.

Lien

A creditor's legal claim against property as security for a debt. Liens survive bankruptcy even if the debt is discharged. Common liens include mortgages, car loans, tax liens, and judgment liens. If you don't pay the debt, the creditor can foreclose or repossess the property regardless of your bankruptcy discharge.

Liquidation

The process of selling non-exempt property to pay creditors, which occurs in Chapter 7 bankruptcy. The trustee converts assets to cash and distributes proceeds to creditors according to priority rules. However, most Chapter 7 cases are "no-asset" cases where all property is exempt and nothing is sold.

Means Test

A calculation required to determine Chapter 7 eligibility based on your income and expenses. If your household income is below your state's median income for your household size, you automatically pass. If above median, you must calculate your disposable income using IRS standards. Those with too much disposable income must file Chapter 13 instead.

Meeting of Creditors (341 Meeting)

A mandatory meeting where the bankruptcy trustee and any creditors can question you under oath about your finances and bankruptcy petition. Despite the name, creditors rarely attend. The meeting typically lasts 10-15 minutes and is held 20-40 days after filing. You must attend with photo ID and proof of Social Security number.

No-Asset Case

A Chapter 7 bankruptcy where all property is exempt, so there's nothing for the trustee to sell. The vast majority (90%+) of Chapter 7 consumer bankruptcies are no-asset cases. In these cases, creditors typically don't file claims because there will be no distribution.

Non-Dischargeable Debt

Debts that cannot be eliminated through bankruptcy. Common non-dischargeable debts include most student loans, recent tax debts (less than 3 years old), child support, alimony, criminal fines and restitution, debts from fraud or willful injury, and drunk driving judgments. You remain liable for these debts after bankruptcy.

Priority Debt

Unsecured debts that must be paid before other unsecured debts according to bankruptcy law. Priority debts include recent taxes, child support, alimony, and certain wages owed to employees. In Chapter 7, priority debts are paid before non-priority unsecured debts. In Chapter 13, priority debts must be paid in full through your plan.

Pro Se

Latin for "for oneself." Refers to representing yourself in bankruptcy without an attorney. While legal, pro se filing has significantly higher failure rates due to the complexity of bankruptcy law. About 70% of pro se cases are dismissed compared to 30% of cases with attorneys.

Proof of Claim

A form filed by creditors to establish the amount and nature of their claim against you. In Chapter 13, creditors must file proof of claim to receive payment through your plan. The deadline is typically 70 days after the first date set for the 341 meeting.

Reaffirmation Agreement

A legally enforceable agreement to remain personally liable for a dischargeable debt, typically to keep collateral like a car. By reaffirming, you agree to continue making payments and waive the discharge of that specific debt. The agreement must be filed with the court and may require court approval. You're not required to reaffirm any debt.

Schedules

Official bankruptcy forms that list all your assets, liabilities, income, expenses, and recent financial transactions. The schedules provide a complete financial picture. Accuracy is critical because you sign them under penalty of perjury. Deliberately hiding assets or providing false information is bankruptcy fraud, a federal crime.

Secured Debt

Debt backed by collateral that the creditor can repossess or foreclose if you don't pay. Common examples include mortgages (secured by your house) and car loans (secured by your vehicle). The creditor's lien survives bankruptcy, so even if the debt is discharged, the creditor can still take the property if you don't pay.

Statement of Financial Affairs

A required bankruptcy form disclosing your income, payments to creditors, lawsuits, foreclosures, repossessions, closed financial accounts, and property transfers over the past several years. The trustee uses this form to identify potential fraud, preferential transfers, or recoverable assets.

Statement of Intention

A Chapter 7 form where you state what you intend to do with secured property—either surrender it, redeem it (pay current value in lump sum), or reaffirm the debt and keep making payments. You must file this within 30 days of filing bankruptcy and carry out your stated intention within 45 days.

Trustee

A person appointed to oversee your bankruptcy case. In Chapter 7, the trustee reviews your petition, conducts the 341 meeting, and sells any non-exempt assets to pay creditors. In Chapter 13, the trustee reviews your plan, collects your monthly payments, and distributes funds to creditors. Trustees are fiduciaries who must act in the best interests of creditors while ensuring the bankruptcy process is fair.

Undersecured Debt

A secured debt where the collateral is worth less than the amount owed. For example, if you owe $20,000 on a car worth only $12,000, the debt is undersecured. In Chapter 13, you may be able to "cram down" certain undersecured debts, treating the deficiency as unsecured debt.

Unsecured Debt

Debt not backed by collateral. If you default, the creditor cannot automatically take property—they must sue and obtain a judgment. Common unsecured debts include credit cards, medical bills, personal loans, and utility bills. Most unsecured debts are dischargeable in bankruptcy.

Wage Garnishment

A court-ordered deduction from your paycheck to repay a debt. Creditors must obtain a judgment before garnishing wages (except for child support, taxes, and student loans). Filing bankruptcy immediately stops wage garnishments through the automatic stay. Discharged debts cannot be garnished post-bankruptcy.

Wildcard Exemption

An exemption that can be applied to any property of your choice. Some states and the federal exemptions include wildcard amounts. For example, the federal wildcard is $1,475 plus up to $13,950 of unused homestead exemption, allowing you to protect cash, bank accounts, or other property not covered by specific exemptions.

Bankruptcy Glossary

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