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Bankruptcy comes with its own vocabulary, and many of the terms have specific legal meanings that don’t necessarily match how they are used in everyday conversation. Understanding these terms helps you navigate the process with confidence and reduces confusion when reading court documents, trustee correspondence, or financial instructions. This expanded glossary provides clear, detailed explanations of the most essential terms involved in Chapter 7 bankruptcy.

Automatic Stay

The automatic stay is one of the most powerful protections in bankruptcy. It stops most collection efforts immediately when your case is filed. This includes phone calls, letters, lawsuits, garnishments, repossessions, foreclosures, utility shut-offs, and certain tax collection actions. Creditors who violate the stay can face penalties. The stay remains in effect until the case is dismissed, discharged, or converted, though secured creditors can request permission to resume collection under certain circumstances.

Asset

Anything you own or have a legal interest in. Assets include both physical items (like furniture, cars, and electronics) and non-physical items (like bank accounts, tax refunds, and legal claims). Assets also include property you may become entitled to soon, such as inheritances received within 180 days of filing. Even low-value items must be listed, because the trustee—not you—determines what has value.

Bankruptcy Estate

When you file Chapter 7, your property becomes part of a temporary legal entity called the bankruptcy estate. The trustee controls this estate and decides whether any non-exempt property can be liquidated. The estate may include assets you own now, assets acquired shortly after filing, and certain financial entitlements like lawsuit proceeds.

Bankruptcy Petition

The primary document that officially starts your case. It includes basic identifying information about you and triggers the automatic stay. The petition is filed along with multiple schedules and statements that contain detailed financial information.

Chapter 7

A liquidation-based bankruptcy intended for individuals with limited income and heavy unsecured debt. Most Chapter 7 cases are no-asset cases, which means filers keep all their property due to exemptions. Chapter 7 eliminates most unsecured debts quickly, usually within a few months.

Chapter 13

A reorganization bankruptcy where you repay part of your debts over a period of three to five years. It is often used by individuals who need to catch up on secured debts like mortgages or car loans, or who have assets that would not be protected in Chapter 7.

Claim

A creditor’s assertion of a right to payment. Claims can be secured, unsecured, disputed, or priority. In an asset case, creditors must file a proof of claim to receive payment from the bankruptcy estate.

Creditor

Any person or business you owe money to. This includes lenders, service providers, medical offices, landlords, and collection agencies. Creditors have specific rights and must follow strict rules once a bankruptcy case is filed.

Credit Counseling

A mandatory educational session required before filing bankruptcy. Credit counseling must be completed through an approved provider. The course reviews your finances and discusses possible alternatives to bankruptcy. The certificate must be filed with your petition.

Debtor

The person filing for bankruptcy. All documents, schedules, and forms refer to the filer as the debtor.

Debtor Education

A post-filing course on budgeting and money management that must be completed before discharge. The court will not grant a discharge until the certificate is filed.

Discharge

The court order that permanently eliminates qualifying debts. After discharge, creditors are barred from collecting those debts. Secured creditors may still enforce liens against property if payments are not kept current.

Disposable Income

The amount of money left after basic living expenses. In Chapter 7, disposable income helps determine eligibility through the means test. In Chapter 13, it determines the repayment plan amount.

Equity

The difference between the value of an asset and the amount owed on it. For example, if your home is worth $200,000 and you owe $180,000, your equity is $20,000. Whether that equity is protected depends on exemption laws.

Exemption

Legal protections that allow you to keep certain property in bankruptcy. Exemption laws vary by state and may include protections for homes, vehicles, household items, tools, and retirement accounts. Exemptions determine whether a case is a no-asset case.

Fair Market Value

The current value of an item in its used condition. Bankruptcy requires you to use fair market value—not original purchase price—when listing assets. This often results in lower values and helps protect property under exemption limits.

Garnishment

A legal process where a creditor takes money directly from your wages or bank account. The automatic stay usually stops garnishments immediately upon filing.

Joint Filing

A bankruptcy case filed by spouses together. Both spouses list their combined income, assets, and debts. Joint filing can save time and filing costs and reduce duplication of paperwork.

Lien

A creditor’s legal interest in property. If you default on a secured loan, the creditor can repossess or foreclose on the collateral. Bankruptcy can eliminate personal liability on the debt, but the lien remains unless paid or negotiated.

Means Test

A calculation that determines whether you qualify for Chapter 7. It compares your six-month average income to your state’s median income. If your income is above the median, further calculations consider allowable expenses to determine eligibility.

Motion

A formal written request asking the court to take action. Motions may be filed by the debtor, the trustee, or creditors. Examples include motions to avoid liens, motions to modify the stay, or motions to extend deadlines.

No-Asset Case

A case where the trustee determines that all property is exempt or not worth liquidating. Most consumer Chapter 7 cases are no-asset, meaning creditors receive no payments and the filer keeps everything.

Nondischargeable Debt

Debts that cannot be eliminated in bankruptcy. Common examples include child support, alimony, certain taxes, most student loans, court fines, and debts involving fraud. These debts must still be listed but remain after discharge.

Petition Preparer

A non-attorney who assists with preparing and typing bankruptcy forms. They cannot give legal advice, represent you in court, or tell you how to categorize or handle debts. Their role is strictly administrative.

Priority Debt

Unsecured debts that receive special treatment under bankruptcy law. These are paid first if the trustee liquidates assets. Priority debts include certain taxes, child support, alimony, and wages owed to employees.

Proof of Claim

A document a creditor files to show how much they are owed. In no-asset cases, creditors usually do not file claims. In asset cases, claims determine how the trustee distributes funds.

Reaffirmation Agreement

A voluntary contract in which you agree to continue paying a secured debt after bankruptcy. Often used for cars. Reaffirming creates risk because you remain personally liable if you default later. The court must approve the agreement.

Secured Debt

Debt backed by collateral. The creditor has a right to repossess or foreclose on the property if payments stop. Common examples include mortgages, car loans, and title loans. Bankruptcy may eliminate your personal liability, but the lien remains.

Schedules

The detailed forms submitted with your petition that outline your assets, debts, income, expenses, financial history, leases, contracts, and co-debtors. Schedules are the heart of the bankruptcy filing and must be complete and accurate.

Statement of Financial Affairs (SOFA)

A document that details your financial history, including income, lawsuits, transfers of property, business activity, and payments to creditors made before filing. The trustee reviews the SOFA closely for inconsistencies or unusual activity.

Trustee

A court-appointed individual who administers your case. The trustee reviews your paperwork, asks questions during the 341 meeting, verifies income and assets, identifies non-exempt property, and distributes funds to creditors if assets exist.

Unsecured Debt

Debt with no collateral attached. These debts are typically discharged in Chapter 7. Examples include credit card balances, medical bills, unpaid utilities, and personal loans. Some unsecured debts—like certain taxes or student loans—may survive discharge.