Glossary of Bankruptcy Terms

There are a number of terms that commonly circulate bankruptcy law. While they may seem like industry-relevant buzzwords, they are critical to understand when considering filing for bankruptcy.

Listed below are several of the more important terms. It may be wise to familiarize yourself with the meaning of each, and when and where these terms will pop up in the event that you or your small business may run into them in the process of filing.


Automatic Stay

An injunction that goes into effect automatically when a debtor files for bankruptcy. The automatic stay prohibits most creditor collection activities, such as foreclosure, garnishments, filing or continuing lawsuits, making written requests for payment, or notifying credit reporting agencies of an unpaid debt.

Bankruptcy Discharge

The release of the debtor from personal liability for certain types of debts after debtor’s completion of the bankruptcy; it is a permanent order prohibiting creditors from trying to collect discharged debts.

Community Property

The law presumes that all assets acquired and debts incurred during the marriage is community property, except property received by one party as a result of a gift, devise, bequest or personal injury settlement or judgment. Generally speaking, property acquired or debt incurred before marriage is separate property.


The person or organization to which the debtor owes money.


A person who is in debt or under financial obligation to a creditor. A person who files a Chapter 7 or Chapter 13 bankruptcy is referred to as the debtor.

Dischargeable Debt

Debts a debtor does not have to pay if his or her bankruptcy case is discharged.


Certain types and amounts of property protected by law from creditors; the court cannot take exempt property from the debtor to help pay their creditors.

Judgment Proof

When a debtor cannot afford to pay their creditors and has no assets or income that the creditor can take from him or her (aka Collection Proof).

Non-Dischargeable Debt

Debts that a debtor will still have to pay even if they are awarded a Bankruptcy Discharge by the Court.

Secured Debt

When a creditor has a lien on an item and the debtor hasn’t paid in full, the creditor can take back the item, i.e., car or house (the “Collateral”).


An officer appointed by the court who oversees a debtor’s bankruptcy case and prioritizes payments to the creditors, if any.

Unsecured (Nonpriority) Debt

Debt that is not attached to any specific item that will usually be erased if a debtor is granted a bankruptcy discharge (e.g., credit cards, medical bills, payday loans).

Unsecured (Priority) Debt

Debt that is not attached to any specific item but the creditor still has to be paid (e.g., taxes, child support).

Wage Garnishment

When the court holds a debtor’s earnings in order to pay his or her debts (i.e., owed child support).

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