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New bankruptcy filers are often faced with bankruptcy terms they don't understand. Below are explanations of terms that bankruptcy debtors should know:

Means Test

The means test is an income test that bankruptcy debtors must take to determine how much disposable income they have to pay their debts. The means test was instituted in 2005 when the bankruptcy system was reformed because legislators and creditors wanted more debtors to forgo Chapter 7 bankruptcy and file Chapter 13 bankruptcy instead. The result is that bankruptcy debtors must now look at the past six months of income to determine whether or not they qualify for Chapter 7 bankruptcy. Using their state's median income as a baseline and deducting their household expenses as allowed, debtors will either fail or pass the means test. If they pass the means test they are allowed to file Chapter 7 bankruptcy.

Meeting Of Creditors (341 Meeting)

The 341 meeting or what is commonly referred to as the meeting of creditors is actually a hearing where the debtor discusses his/her financial circumstances with the bankruptcy trustee. The meeting of creditors is NOT a judicial proceeding nor will the bankruptcy debtor face an interrogation. The debtor, the debtor's bankruptcy attorney and the bankruptcy trustee along with any creditors who want to be present are the only individuals involved in this hearing. The bankruptcy trustee will ask simple questions designed to confirm the debtor's assets and liabilities. The creditors may also have a right to ask brief questions; but if they want to engage in an in-depth questioning, they must request a special meeting. The bankruptcy attorney will direct the debtor beforehand in what type of questions to expect and how to answer them. If there is a question the bankruptcy attorney considers inappropriate they will speak up during the hearing so that the debtor doesn't have to answer.

Secured Debt

Secured debt is any liability that is supported by collateral. For example, a mortgage is a secured debt because the house is the collateral. The same applies to a car loan. In bankruptcy, secured loans must either be paid as agreed to in the terms and conditions or the debtor must surrender the property to the creditor to satisfy the loan.

Unsecured Debt

Unsecured debts are those debts which are not supported by collateral. For example, a credit card loan is a secured debt. But a secondary mortgage could also become an unsecured debt if the value of the house is not enough to cover the loan. The same applies to other secured debts such as a car loan. The portion of the loan which is not covered by the value of the property could be declared unsecured by the bankruptcy trustee.

Reed Allmand, sponsoring attorney for Bankruptcy.net, is constantly looking for ways to provide the best financial information for his clients. Whether you are considering filing for bankruptcy, or are currently going through a Chapter 7 or Chapter 13, visit http://www.bankruptcy.net for up to date news and information you need to know.

By Reed Allmand
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