Bankruptcy Law Blog

Tuesday, June 28, 2016

What Does That Really Mean? Common Bankruptcy Terms Explained

What Does That Really Mean? Common Bankruptcy Terms Explained 

When the attorneys at our firm talk with someone who is thinking about filing bankruptcy, or someone who is already going through the bankruptcy process, we try to talk like normal humans rather than the legal mutants we are. There is a lot of technical, legal mumbo jumbo involved in the bankruptcy process, and it is our goal to talk about it by talking about how each step, each unfamiliar term, applies to everyday life. Below is a glossary we have put together of common bankruptcy terms and their legalese to English translation.


Automatic Stay

Filing for bankruptcy is like hitting a giant pause button on all of your debts, this is known as an automatic stay. During the automatic stay, collectors cannot hassle you for payment, wage garnishments and foreclosures are paused, and most other lawsuits you are involved in will stop.


Chapter 7

Bankruptcies are referred to by the chapter of the statute they come from. Chapter 7 bankruptcies are “fresh start” bankruptcies. Assets can be sold off (liquidated) in order to pay debts. Debtors can typically keep their house and car. At the end of the bankruptcy process, almost all of a debtor’s unsecured debts such as credit cards and medical bills are eliminated.

Chapter 11

Bankruptcies are referred to by the chapter of the statute they come from. Chapter 11 bankruptcies are typically filed by businesses who want to reorganize. You can click here to see a list of companies that have gone through Chapter 11 Bankruptcy.

Chapter 13

Bankruptcies are referred to by the chapter of the statute they come from. In a Chapter 13 case, a person or family hits a pause button on their debts, then works with the court to renegotiate debts and create a monthly payment plan that will allow a debtor to repay all or a portion of their debt over a 3 to 5 year period.


People or businesses who are owed money are known as creditors.



People or businesses who owe money are known as debtors.


At the end of a Chapter 7 bankruptcy, many debts are forgiven. The legal word for forgiving the debts is discharge.



If a debtor files for Chapter 7 Bankruptcy and is going to sell off assets to repay debts, the debtor can exempt certain assets from sale. For example, most debtors are allowed to stay in their house and keep their car because these items are exempt. Most debtors get to keep a lot more stuff than they expected because of how exemptions work, so be sure to talk to your attorney about this.



If a buyer had to go into debt to purchase an item, the seller might have a lien on the item. This means that the seller has the right to repossess the item and either hold it until they are repaid by the debtor, or sell it and use the profits to pay themselves back.


If you have ever been to a going out of business sale you might have seen signs saying it is a liquidation. It’s a fancy way of saying everything is getting sold off to pay off debts.


Secured Debt

There are two basic kinds of debt - secured and unsecured. Secured debt is typically attached to items that can be repossessed to pay back the seller if necessary. A house with a mortgage on it is an example secured debt. Unsecured debt isn’t attached to something that can be repossessed to pay back the seller. Medical debt is a good example of unsecured debt. A hospital isn’t going to come take away your good health if you can’t pay them back for care you received. 

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”

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