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Glossary
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Most debtors who file
a bankruptcy petition, and many of their creditors,
know very little about the bankruptcy process.
Bankruptcy Basics is designed to provide debtors,
creditors, judiciary employees, and the general
public with a basic explanation of bankruptcy
and how it works. This glossary on bankruptcy
terminology explains, in layman's terms, many
of the legal terms that are used in cases filed
under the Bankruptcy Code.
A B C D E F G H I J K L M N O P Q R S T U V W X Y
Z
A
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.
B
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.
ankruptcy 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.)
C
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).
D
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.
E
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.
F
family farmer or family fisherman
An individual, individual and spouse, corporation,
or partnership engaged in a farming or fishing
operation that meets certain debt limits and other
statutory criteria for filing a petition under
chapter 12.
fraudulent transfer
A transfer of a debtor's property made with intent
to defraud or for which the debtor receives less
than the transferred property's value.
fresh start
The characterization of a debtor's status after
bankruptcy, i.e., free of most debts.
(Giving debtors a fresh start is one purpose of
the Bankruptcy Code.)
I
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.
J
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.
L
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.
M
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.
N
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.
O
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.
P
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.
R
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.
S
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
debtDebt 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 caseA 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.
T
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
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.
V
Voluntary transfer
A transfer of a debtor's property with the debtor's
consent.
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