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Here are some bankruptcy definitions and bankruptcy terminology that should be helpful: Liquidation : In a Chapter 7 bankruptcy, substantially all assets of the individual or company are sold or otherwise turned into cash, which is then divided among the listed creditors of the debtor.
Reorganization : Used in a Chapter 13 or Chapter 11 bankruptcy, the reorganization provision allows the debtor to recalculate, restate or reallocate resources to continue “operating” while providing creditors with cash or a repayment plan that will give them some or all of their money due as of the date of the bankruptcy filing.
Exemption : Property or some equity in property owned by the debtor which can be exempted or removed from the bankruptcy process and kept by the debtor. There are both federal exemptions and state exemptions from which the debtor may choose to use.
Trustee : Appointed by the court to represent the interests of both the creditor and debtor, the trustee has a variety of duties. In a Chapter 7 bankruptcy, the trustee compiles and reviews all files for truth, propriety, and completion. They also act as chairperson for all creditor meetings and sell or convert all non-exempt debtor assets to cash. A trustee's duties expand in a Chapter 13 filing as he/she must monitor all payments made to creditors as part of the bankruptcy agreement.
Automatic Stay : Very important to most debtors, the “stay” is an injunction that stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor as soon as a bankruptcy petition is filed.