Filing Bankruptcy – A Glossary of Terms (Part 2)

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More terms for filing bankruptcy

More Terms You Need to Know When Filing Bankruptcy

RGG Law has previously covered some of the common terms that you are likely to hear when filing bankruptcy. A single blog entry will never be enough to fully explain every time so, in this ongoing series, we intend to look at some of the most common – from the simplest to the more complex.

As with many of our blogs, this entry is for general education purposes. If you need more detailed advice, contact one of our bankruptcy lawyers today.


The most common usage of the term “liquidation” in the legal sense is when a business is insolvent. This means that the business can no longer pay the money they need to keep running. In liquidation, the business is closed down and the financial assets are divided among shareholders and creditors.

Chapter 7 bankruptcy is a process whereby, when you file bankruptcy, it is a kind of liquidation, where your non-exempt assets are taken and sold to repay your debt.


In the context of filing bankruptcy, a trustee is appointed by the United States Trustee Program, which is part of the Department of Justice, to act as an administrator of the debtor’s estate.

In Chapter 7 bankruptcy, the trustee is the individual responsible for gathering the non-exempt assets and sells them on to repay the debt. In Chapter 13 bankruptcy, the trustee is the person who receives the debtor’s regular payments as part of the repayment process.

The trustee is in place to make sure the process – whichever type of bankruptcy applies – goes smoothly and to the letter of the law.


Though the term may same cryptic, “garnishment” has a fairly simple meaning. As part of repayment when filing bankruptcy, some of your wages or income are taken at regular intervals. This is “wage garnishment”.

There are a few different ways that this can be done, but the essential meaning means the same – any money you earn has a specific amount taken our regularly until your debt is considered repaid. If a wage garnishment is taken, only 25% of your disposable income can be used to pay.

Automatic Stay

An automatic stay is essentially the purpose in most cases of filing bankruptcy – stopping the impending threat of collections from creditors. Whenever you file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, an automatic stay is immediately put into effect. This means that all collections are halted until the terms of repayment are decided.

Dischargeable Debt and Non-dischargeable Debt

Dischargeable debt is debt that can be eliminated by filing bankruptcy, whereas non-dischargeable debt is debt that cannot. An example of non-dischargeable debt would be student loans or alimony payments.

Neither of these will be wiped whether you file Chapter 7 or Chapter 13 bankruptcy, and will still need to be paid by you. Examples of dischargeable debt include credit card debt, medical bills and personal loans.

Filing Bankruptcy and Knowing Your Terminology

When filing bankruptcy, there is a lot to know. Before you overwhelm yourself in researching the process, the meanings of certain key words, and how bankruptcy will affect your financial standing in the future, talk to a bankruptcy lawyer. Contact RGG Law today for a free consultation.