A legal action for debtors who can no longer afford to make payments to creditors, whereby they enter a legal agreement with a bankruptcy trustee to either pay off their debts over an extended period of time, typically 3-5 years, or surrender their assets to pay creditors a reduced amount, and receive a discharge of remaining debts owed.

Bankruptcy Lawyer

A specialized attorney who works with debtors filing for bankruptcy. Bankruptcy lawyers negotiate with creditors and bankruptcy trustees to negotiate reduced payment arrangements, settlements and the discharge of debts.

Bankruptcy Trustee

A trustee from a bankruptcy court who administers bankruptcy cases and estates. Works as the authoritative party and the liaison between the debtor, creditor and bankruptcy lawyer.

Cease and Desist

A legal notice, typically in writing but sometimes verbally over the phone, from a debtor to creditors and collection agencies to stop phone calls and threatening mail. Once this letter is signed and sent, the creditor is legally obligated under the Fair Debt Collection Practices Act to stop making phone calls to the debtor, his/her family and place of employment.

Chapter 7 Bankruptcy

A bankruptcy filing whereby a debtor's assets are surrendered to creditors and outstanding unsecured debts are legally discharged by the court.

Chapter 11 Bankruptcy

A bankruptcy filing for businesses who are facing overwhelming debt, whereby the business works out extended payment plans while restructuring their business to restore it to financial profitability.

Chapter 13 Bankruptcy

A bankruptcy filing for individuals who wish to retain their secured assets, such as home and car, whereby the debtor enters into an extended payment arrangement of between 3-5 years of reduced payments that they can afford.

Collection Agent

An employee of a collection agency that acts as a third party debt collector and is hired by banks and credit card companies to attempt to collect debts via phone calls and mail, often by threatening legal action.

Credit Counseling

An educational course that is a prerequisite for filing many types of bankruptcy, including Chapter 7 and Chapter 13.


A bank, credit card company or other entity to which another party or business owes a debt.


Anyone who owes a debt to a bank or credit card company.

Debt Collector

Anyone who is employed to collect a debt on behalf of a bank or credit card company. See collection agent above.

Debt Settlement

A reduced payment on a debt that is negotiated, typically by a debt settlement attorney, for a debtor who is overwhelmed with debt and cannot afford to make payments. Often creditors are willing to settle for a reduced amount, lump sum settlement in order to avoid the lengthy process of bankruptcy, the result of which often leaves them receiving no money at all.

Debt Settlement Attorney

A lawyer who specializes in resolving debts and negotiating with creditors in order to save both the debtor and creditor from the long process of bankruptcy.

Discharged Debt

In Chapter 7 bankruptcy, many of a debtor's unsecured debts, such as credit card bills, are discharged after the surrender of assets.


The right to take another person’s property or assets if a financial obligation is not met.

Secured Debt

Debt that has some sort of collateral backing it, such as a mortgage or car loan. If payments are missed on secured debt, the bank has the legal right to repossess it.

Unsecured Debt

Debts such as credit card bills that are given on credit only, and have no collateral backing them. If payments are not met in a timely fashion, unsecured debtors can resort to legal actions to try and collect what is owed to them.

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