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Bankruptcy Advisory Center

Glossary of Bankruptcy Terms

 

adversary proceeding

A  lawsuit arising in or related to a bankruptcy case that is commenced by  filing a complaint with the court. A nonexclusive list of adversary  proceedings is set forth in Fed. R. Bankr. P. 7001.


assume

An agreement to continue performing duties under a contract or lease. 


automatic stay

An  injunction that automatically stops lawsuits, foreclosures,  garnishments, and all collection activity against the debtor the moment a  bankruptcy petition is filed.

 

bankruptcy

A  legal procedure for dealing with debt problems of individuals and  businesses; specifically, a case filed under one of the chapters of  title 11 of the United States Code (the Bankruptcy Code).


bankruptcy administrator

An  officer of the judiciary serving in the judicial districts of Alabama  and North Carolina who, like the U.S. trustee, is responsible for  supervising the administration of bankruptcy cases, estates, and  trustees; monitoring plans and disclosure statements; monitoring  creditors' committees; monitoring fee applications; and performing other  statutory duties. Compare U.S. trustee. 


Bankruptcy Code

The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.


bankruptcy court

The bankruptcy judges in regular active service in each district; a unit of the district court.


bankruptcy estate

All  legal or equitable interests of the debtor in property at the time of  the bankruptcy filing. (The estate includes all property in which the  debtor has an interest, even if it is owned or held by another person.)


bankruptcy judge

A  judicial officer of the United States district court who is the court  official with decision-making power over federal bankruptcy cases.


bankruptcy petition

The  document filed by the debtor (in a voluntary case) or by creditors (in  an involuntary case) by which opens the bankruptcy case. (There are  official forms for bankruptcy petitions.)

 

chapter 7

The  chapter of the Bankruptcy Code providing for "liquidation,"(i.e., the  sale of a debtor's nonexempt property and the distribution of the  proceeds to creditors.) 


chapter 9

The  chapter of the Bankruptcy Code providing for reorganization of  municipalities (which includes cities and towns, as well as villages,  counties, taxing districts, municipal utilities, and school districts).


chapter 11

The  chapter of the Bankruptcy Code providing (generally) for  reorganization, usually involving a corporation or partnership. (A  chapter 11 debtor usually proposes a plan of reorganization to keep its  business alive and pay creditors over time. People in business or  individuals can also seek relief in chapter 11.) 


chapter 12

The  chapter of the Bankruptcy Code providing for adjustment of debts of a  "family farmer," or a "family fisherman" as those terms are defined in  the Bankruptcy Code. 


 

chapter 13

The  chapter of the Bankruptcy Code providing for adjustment of debts of an  individual with regular income. (Chapter 13 allows a debtor to keep  property and pay debts over time, usually three to five years.) 


chapter 15

The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency. 


claim

A creditor's assertion of a right to payment from the debtor or the debtor's property.


confirmation

Bankruptcy judges's approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.


consumer debtor

A debtor whose debts are primarily consumer debts. 


consumer debts

Debts incurred for personal, as opposed to business, needs. 


contested matter

Those  matters, other than objections to claims, that are disputed but are not  within the definition of adversary proceeding contained in Rule 7001. 


contingent claim

A  claim that may be owed by the debtor under certain circumstances, e.g.,  where the debtor is a cosigner on another person's loan and that person  fails to pay.


creditor

One to whom the debtor owes money or who claims to be owed money by the debtor. 


credit counseling

Generally  refers to two events in individual bankruptcy cases: (1) the  "individual or group briefing" from a nonprofit budget and credit  counseling agency that individual debtors must attend prior to filing  under any chapter of the Bankruptcy Code; and (2) the "instructional  course in personal financial management" in chapters 7 and 13 that an  individual debtor must complete before a discharge is entered. There are  exceptions to both requirements for certain categories of debtors,  exigent circumstances, or if the U.S. trustee or bankruptcy  administrator have determined that there are insufficient approved  credit counseling agencies available to provide the necessary  counseling. 


creditors' meeting

see 341 meeting


current monthly income

The  average monthly income received by the debtor over the six calendar  months before commencement of the bankruptcy case, including regular  contributions to household expenses from nondebtors and income from the  debtor's spouse if the petition is a joint petition, but not including  social security income and certain other payments made because the  debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).

 

debtor

A person who has filed a petition for relief under the Bankruptcy Code. 


debtor education

see credit counseling 


defendant

An individual (or business) against whom a lawsuit is filed. 


discharge

A  release of a debtor from personal liability for certain dischargeable  debts set forth in the Bankruptcy Code. (A discharge releases a debtor  from personal liability for certain debts known as dischargeable debts  and prevents the creditors owed those debts from taking any action  against the debtor to collect the debts. The discharge also prohibits  creditors from communicating with the debtor regarding the debt,  including telephone calls, letters, and personal contact.) 


dischargeable debt

A debt for which the Bankruptcy Code allows the debtor's personal liability to be eliminated. 


disclosure statement

A  written document prepared by the chapter 11 debtor or other plan  proponent that is designed to provide "adequate information" to  creditors to enable them to evaluate the chapter 11 plan of  reorganization.

 

equity

The  value of a debtor's interest in property that remains after liens and  other creditors' interests are considered. (Example: If a house valued  at $100,000 is subject to a $80,000 mortgage, there is $20,000 of  equity.) 


executory contract or lease

Generally  includes contracts or leases under which both parties to the agreement  have duties remaining to be performed. (If a contract or lease is  executory, a debtor may assume it or reject it.) 


exemptions, exempt property

Certain  property owned by an individual debtor that the Bankruptcy Code or  applicable state law permits the debtor to keep from unsecured  creditors. For example, in some states the debtor may be able to exempt  all or a portion of the equity in the debtor's primary residence  (homestead exemption), or some or all "tools of the trade" used by the  debtor to make a living (i.e., auto tools for an auto mechanic or dental  tools for a dentist). The availability and amount of property the  debtor may exempt depends on the state the debtor lives in.

 

insider (of individual debtor)

Any  relative of the debtor or of a general partner of the debtor;  partnership in which the debtor is a general partner; general partner of  the debtor; or a corporation of which the debtor is a director,  officer, or person in control.


insider (of corporate debtor)

A  director, officer, or person in control of the debtor; a partnership in  which the debtor is a general partner; a general partner of the debtor;  or a relative of a general partner, director, officer, or person in  control of the debtor.

 

joint administration

A  court-approved mechanism under which two or more cases can be  administered together. (Assuming no conflicts of interest, these  separate businesses or individuals can pool their resources, hire the  same professionals, etc.)


joint petition

One bankruptcy petition filed by a husband and wife together.

 

lien

The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.


liquidation

A sale of a debtor's property with the proceeds to be used for the benefit of creditors.


liquidated claim

A creditor's claim for a fixed amount of money.

 

means test

Section  707(b)(2) of the Bankruptcy Code applies a "means test" to determine  whether an individual debtor's chapter 7 filing is presumed to be an  abuse of the Bankruptcy Code requiring dismissal or conversion of the  case (generally to chapter 13). Abuse is presumed if the debtor's  aggregate current monthly income (see definition above) over 5 years,  net of certain statutorily allowed expenses is more than (i) $10,950, or  (ii) 25% of the debtor's nonpriority unsecured debt, as long as that  amount is at least $6,575. The debtor may rebut a presumption of abuse  only by a showing of special circumstances that justify additional  expenses or adjustments of current monthly income.


motion to lift the automatic stay

A  request by a creditor to allow the creditor to take action against the  debtor or the debtor's property that would otherwise be prohibited by  the automatic stay.

 

no-asset case

A chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.  


nondischargeable debt

A  debt that cannot be eliminated in bankruptcy. Examples include a home  mortgage, debts for alimony or child support, certain taxes, debts for  most government funded or guaranteed educational loans or benefit  overpayments, debts arising from death or personal injury caused by  driving while intoxicated or under the influence of drugs, and debts for  restitution or a criminal fine included in a sentence on the debtor's  conviction of a crime. Some debts, such as debts for money or property  obtained by false pretenses and debts for fraud or defalcation while  acting in a fiduciary capacity may be declared nondischargeable only if a  creditor timely files and prevails in a nondischargeability action.

 

objection to dischargeability

A  trustee's or creditor's objection to the debtor being released from  personal liability for certain dischargeable debts. Common reasons  include allegations that the debt to be discharged was incurred by false  pretenses or that debt arose because of the debtor's fraud while acting  as a fiduciary.


objection to exemptions

A  trustee's or creditor's objection to the debtor's attempt to claim  certain property as exempt from liquidation by the trustee to creditors.

 

party in interest

A  party who has standing to be heard by the court in a matter to be  decided in the bankruptcy case. The debtor, the U.S. trustee or  bankruptcy administrator, the case trustee and creditors are parties in  interest for most matters.


petition preparer

A business not authorized to practice law that prepares bankruptcy petitions.

plan

A debtor's detailed description of how the debtor proposes to pay creditors' claims over a fixed period of time.

plaintiff

A person or business that files a formal complaint with the court.

postpetition transfer

A transfer of the debtor's property made after the commencement of the case.

prebankruptcy planning

The  arrangement (or rearrangement) of a debtor's property to allow the  debtor to take maximum advantage of exemptions. (Prebankruptcy planning  typically includes converting nonexempt assets into exempt assets.)

preference or preferential debt payment

A  debt payment made to a creditor in the 90-day period before a debtor  files bankruptcy (or within one year if the creditor was an insider)  that gives the creditor more than the creditor would receive in the  debtor's chapter 7 case.

presumption of abuse

see means test 

priority

The  Bankruptcy Code's statutory ranking of unsecured claims that determines  the order in which unsecured claims will be paid if there is not enough  money to pay all unsecured claims in full. For example, under the  Bankruptcy Code's priority scheme, money owed to the case trustee or for  prepetition alimony and/or child support must be paid in full before  any general unsecured debt (i.e. trade debt or credit card debt) is  paid.

priority claim

An  unsecured claim that is entitled to be paid ahead of other unsecured  claims that are not entitled to priority status. Priority refers to the  order in which these unsecured claims are to be paid.

proof of claim

A  written statement and verifying documentation filed by a creditor that  describes the reason the debtor owes the creditor money. (There is an  official form for this purpose.)

property of the estate

All legal or equitable interests of the debtor in property as of the commencement of the case.

 

reaffirmation agreement

An  agreement by a chapter 7 debtor to continue paying a dischargeable debt  (such as an auto loan) after the bankruptcy, usually for the purpose of  keeping collateral (i.e. the car) that would otherwise be subject to  repossession.

 

schedules

Detailed  lists filed by the debtor along with (or shortly after filing) the  petition showing the debtor's assets, liabilities, and other financial  information. (There are official forms a debtor must use.)


secured creditor

A  creditor holding a claim against the debtor who has the right to take  and hold or sell certain property of the debtor in satisfaction of some  or all of the claim.


secured debt

Debt  backed by a mortgage, pledge of collateral, or other lien; debt for  which the creditor has the right to pursue specific pledged property  upon default. Examples include home mortgages, auto loans and tax liens.


small business case

A  special type of chapter 11 case in which there is no creditors'  committee (or the creditors' committee is deemed inactive by the court)  and in which the debtor is subject to more oversight by the U.S. trustee  than other chapter 11 debtors. The Bankruptcy Code contains certain  provisions designed to reduce the time a small business debtor is in  bankruptcy.


statement of financial affairs

A  series of questions the debtor must answer in writing concerning  sources of income, transfers of property, lawsuits by creditors, etc.  (There is an official form a debtor must use.)


statement of intention

A  declaration made by a chapter 7 debtor concerning plans for dealing  with consumer debts that are secured by property of the estate.


substantive consolidation

Putting  the assets and liabilities of two or more related debtors into a single  pool to pay creditors. (Courts are reluctant to allow substantive  consolidation since the action must not only justify the benefit that  one set of creditors receives, but also the harm that other creditors  suffer as a result.)


341 meeting

The  meeting of creditors required by section 341 of the Bankruptcy Code at  which the debtor is questioned under oath by creditors, a trustee,  examiner, or the U.S. trustee about his/her financial affairs. Also  called creditors' meeting.

 

transfer

Any mode or means by which a debtor disposes of or parts with his/her property.


trustee

The  representative of the bankruptcy estate who exercises statutory powers,  principally for the benefit of the unsecured creditors, under the  general supervision of the court and the direct supervision of the U.S.  trustee or bankruptcy administrator. The trustee is a private individual  or corporation appointed in all chapter 7, chapter 12, and chapter 13  cases and some chapter 11 cases. The trustee's responsibilities include  reviewing the debtor's petition and schedules and bringing actions  against creditors or the debtor to recover property of the bankruptcy  estate. In chapter 7, the trustee liquidates property of the estate, and  makes distributions to creditors. Trustees in chapter 12 and 13 have  similar duties to a chapter 7 trustee and the additional  responsibilities of overseeing the debtor's plan, receiving payments  from debtors, and disbursing plan payments to creditors.

 

U.S. trustee

An  officer of the Justice Department responsible for supervising the  administration of bankruptcy cases, estates, and trustees; monitoring  plans and disclosure statements; monitoring creditors' committees;  monitoring fee applications; and performing other statutory duties.  Compare, bankruptcy administrator.


undersecured claim

A debt secured by property that is worth less than the full amount of the debt.


unliquidated claim

A claim for which a specific value has not been determined.


unscheduled debt

A  debt that should have been listed by the debtor in the schedules filed  with the court but was not. (Depending on the circumstances, an  unscheduled debt may or may not be discharged.)


unsecured claim

A  claim or debt for which a creditor holds no special assurance of  payment, such as a mortgage or lien; a debt for which credit was  extended based solely upon the creditor's assessment of the debtor's  future ability to pay.

 

Voluntary transfer

A transfer of a debtor's property with the debtor's consent.

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