A dictionary
of bankruptcy terms…
A
adversary
proceeding - A lawsuit arising in or related to a bankruptcy case that is
commenced by filing a complaint with the bankruptcy court. A nonexclusive list
of adversary proceedings is set forth in Fed. R. Bankr.
P. 7001. Bankruptcy courts can hear and decide any issue that relates to
the bankruptcy case, subject (in some cases) to review by the federal District
Court.
assume - An
agreement to continue performing duties under a contract or lease.
automatic stay-
A statutory injunction that automatically stops lawsuits, foreclosures,
garnishments, and all collection activity against the debtor the moment a
bankruptcy petition is filed. The automatic stay does not require any
action by the bankruptcy judge unless there has been a previous case for the
debtor within the last year.
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, and even if it
is in some distant location. The jurisdiction of the bankruptcy court is
world-wide.)
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.)
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. A recent amendment to chapter 11 provides a special set of
procedures for small business debtors (but not individuals).
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 or
international insolvency.
Claim - A
creditor's assertion of a right to payment from the debtor or the debtor's
property. The code defines "claim" and "debt"
differently; for a "claim" to become a "debt", the debtor
must be liable on the claim. A potential creditor must file a "Proof
of Claim" with the bankruptcy court, which legally is presumed to be
valid; if the debtor disagrees, the burden is on the debtor to prove it is not
valid.
Confirmation-
Bankruptcy judge'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. Not all debts
that you might think are "consumer debts" actually are; for example,
taxes and student loans generally are NOT "consumer debts".
contested
matter - Those disputes that 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 non-debtors 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, personally, to collect the debts. The discharge also prohibits
creditors from communicating with the debtor regarding the debt, including
telephone calls, letters, and personal contact. The discharge does NOT
prevent a debtor from voluntarily repaying a debt; it only removes the
creditors’ legal ability to compel payment from the debtor. Secured
creditors (mortgages, car loans) can still repossess the property if payments
stop.
dischargeable
debt - A debt for which the Bankruptcy Code allows the debtor's personal
liability to be eliminated. The discharge does NOT prevent the creditor
from repossessing or foreclosing, if state law permits it.
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 value 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 honest but unfortunate debtors a fresh start is a central
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 by a bankruptcy trustee, 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) $10,000, or (ii)
25% of the debtor's nonpriority unsecured debt, as long as that amount is at
least $6,000. 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 or for relief from 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 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 non-dischargeability action. A mortgage debt is
dischargeable, but unless the mortgage is paid in full during or after the
bankruptcy case, the lender can still foreclose if the mortgage is not paid,
but it cannot collect a deficiency if the foreclosure does not result in full
payment.
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 chapter 7 trustee to
creditors, or to reduce the amount a chapter 13 debtor must pay to the trustee.
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. A petition preparer cannot give legal advice.
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.
Post-petition
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. This can be done but should be done only with the advice and
assistance of an attorney.
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
(e.g., 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, wherever
located, 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 (e.g, a car) that would
otherwise be subject to repossession. We generally discourage clients
from reaffirming debts because it means that the client remains personally
liable for the debt. For mortgages or car loans, reaffirmation really
isn't necessary since the creditor can still repossess the car or foreclose the
mortgage after discharge where state law permits it.
S
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, even after a bankruptcy discharge.
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.
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.
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 written statement made by a chapter 7 debtor concerning plans for
dealing with consumer debts that are secured by property, such as mortgages.
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". Generally speaking, very few creditors actually attend.
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 United States Department of Justice 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. Mortgages are often undersecured.
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. Care should be take to be sure all creditors are scheduled, even if the
debtor believes the creditor does not actually have a claim
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.