As regular readers of our blog should know, Financial Freedom Advocates believes firmly that bankruptcy is a viable option for resolving debt and rebuilding your financial condition. For too many people, bankruptcy is still seen as a sort of failure or misstep, but this is not an accurate perception. The truth is that bankruptcy protections are among the oldest legal protections altogether, and there is a good reason why this is the case. In most cases, those who seek bankruptcy protections are merely people who have either suffered a negative life event (such as divorce, illness or a car accident) or made honest mistakes, as opposed to people who are trying to scam the system.
If you’re going to explore bankruptcy as a possibility, becoming familiar with certain key terminology may be quite helpful.
The “automatic stay” is the temporary pause on debt collection provided to those who initiate any form of bankruptcy. With the automatic stay, all collection efforts are frozen for the duration of the case, and so creditors cannot pursue any debts until the stay is over. The automatic stay also halts garnishment actions and foreclosure sales. Of course, depending on the outcome of the case, the debts may be resolved entirely.
In the case of a defaulted mortgage, the term “deficiency judgment” refers to the unpaid balance on the debt which remains after a foreclosure sale. When a foreclosure sale fails to yield proceeds which completely satisfy the unpaid mortgage balance, the debtor becomes personally liable for this excess unpaid amount. This term can also be applied to defaults on loans for personal property whenever a repossession sale fails to fully resolve the unpaid balance.
Means Test (Presumptive Abuse)
In a Chapter 7 bankruptcy screening, the “means test” refers to the methodology for determining the surplus income of a debtor. The purpose of the test is to determine the eligibility of a debtor to utilize a Chapter 7 bankruptcy. Under the means test, if a debtor’s income exceeds the total allowable expenses by a given amount, then Chapter 7 becomes unusable for the debtor. Instead, the debtor would need to pursue a Chapter 13.
Non-dischargeable debt refers to certain types of debts which cannot ordinarily be discharged under normal circumstances, or debts which simply cannot be discharged altogether. Since 2005, student loan debt falls into this category, as this kind of debt cannot typically be discharged without “undue hardship.” Other types of non-dischargeable debt, such as “domestic support obligations” – i.e. child support, alimony, etc. – cannot be discharged at all.
The trustee is essentially the person appointed by the bankruptcy court to oversee various functions of the bankruptcy procedure; in other words, the trustee provides managerial services which are critical for the whole process. Trustees have different functions depending on the particular form of bankruptcy being sought; for instance, in a Chapter 7, the trustee’s duties include liquidating the estate assets, investigating the debtor’s finances, making a final report to the court, and so forth. Whereas a Chapter 13 trustee’s duties are centered on ensuring that the Chapter 13 payment plan is properly funded to pay the allowable creditor debts.
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