Practice Areas: Bankruptcy

Bankruptcy Glossary of Terms

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A

Adversarial proceeding: A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court.

Arrearage:  The amount by which a person is past due on a debt obligation.

Assets:  anything  that a debtor owns, including tangible assets such as real estate, cars, and jewelry, as well as intangible assets, such as business goodwill, or future interests in a will.

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

Automatic stay: An injunction that automatically stops lawsuits, foreclosures, garnishments, or any other collection activity against the debtor when the bankruptcy petition is filed.

Avoidance:  the ability to remove a lien.  The bankruptcy code allows certain types of liens to be avoided if they impair an exemption claimed in the bankruptcy case.

Avoidance powers:  rights to recover certain transfers of property such as preferences or fraudulent transfers, or to void liens created prior to filing a bankruptcy case.

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 B

Bankruptcy: A legal procedure dealing with the debt of individuals and businesses filed under one of the chapters of title 11 of the United States Code.

Bankruptcy Code:  Title 11 of the United States Code (11 U.S.C. 101-1330).
bankruptcy estate: All legal or equitable interests of the debtor in property at the time of the bankruptcy filing, including 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 presiding over federal bankruptcy cases.

Bankruptcy Petition:  The initial document filed to initiate a bankruptcy case.

Business bankruptcy:  a case in which the majority of total debts owed are business (non-consumer) related.

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C

Chapter 7: The chapter of the Bankruptcy Code providing for “liquidation,”(the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors.)

Chapter 11: The chapter of the Bankruptcy Code providing for reorganization, usually involving a corporation or partnership.

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

Claim: A creditor’s assertion of a right to payment from the debtor or the debtor’s estate.

Confirmation: Bankruptcy judge’s approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 13.

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 statutory definition of adversary proceeding.

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.

Current monthly income: The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case.

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 D

Debt:  liability to a creditor

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

Denial of discharge:  a creditor, trustee, US Trustee or other party in interest may file a complaint to deny the discharge of any debtor if certain circumstances are present.  If successful at trial, this results in the entire discharge being denied, not just the discharge of a particular individual debt.

Discharge:  A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. Discharge also protect the debtor from further action by creditors.

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

Dismissal: the termination of a case without either entry of a discharge or a denial of discharge.

Disposable income:  In general, this is any income left over each month after you pay all your necessary monthly expenses.  However, for Chapter 13 bankruptcy purposes, Congress has re-defined this to mean your current monthly less allowed expenses according to IRS standards.

Domestic support obligation:  debts owed for alimony, maintenance or support to a child, spouse or other entity for support or maintenance of a child or spouse.

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E

Equity:  The value of a debtor’s interest in property that remains after liens and other creditors’ interests are considered.

Executory contract: Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed.

Exempt property:  Certain property that the Bankruptcy Code 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, or “tools of the trade” used by the debtor to make a living.

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F

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.

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G

General Unsecured Claim:  a claim by a creditor against a bankrupt debtor which does not have a priority for payment and for which the creditor holds no security interest or collateral.

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I

Insider:  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. 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.

Involuntary Petition:  A bankruptcy case may be commenced by creditors against a debtor without the debtor’s consent.   There are specific requirements for the amount of claims the creditors must hold and number of valid creditors who may commence the case.

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J

Joint administration: A court-approved mechanism under which two or more cases can be administered together.

Joint petition: One bankruptcy petition filed by spouses  together.

Judgment:  a court order giving a creditor the ability to take any collection remedy allowed under applicable state or federal law against a debtor (for example, wage garnishment, liens, levies, etc.)

Judgment proof:  a debtor who has only exempt assets and income. A creditor cannot collect anything against such a debtor.

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L

Lien:  The right to take, hold or sell the property of a debtor as security or payment for a debt or duty.  (Deeds of trust, mortgages, for example).

Lien stripping:  Refers to the mechanism by which a lien against property is removed  when  the value of the property is less than the amount owed to any liens senior (above) the one(s) being stripped.

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.  Even if the amount is not known, it is liquidated if it is “readily capable” of being determined.

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M

Means test:  A test set out in Section 707(b)(2) of the Bankruptcy Code 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 over 5 years is more than $10,000 or 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $6,000.

Motion for relief from 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.

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N

Net income:  The amount you receive after necessary tax withholding deductions have been taken, union dues, insurance.  If a debtor is self-employed, this is the amount left after paying your ordinary business expenses.

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. The statutory definition of nondischargeable debt includes 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.

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O

Objection to dischargeability:  A trustee’s or creditor’s objection to the debtor being released from personal liability for certain debts.

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.

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P

Party in interest:  Any 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.

Personal bankruptcy:  A bankruptcy where the majority of debts are non-business.  Usually this is a Chapter 7, but can also be Chapter 11 or Chapter 13 depending on the circumstances.

Personal property:  Any property or interests held by a debtor other than real estate.

Plan:  A debtor’s proposal to pay creditors’ claims over a fixed period of time.  Plans are required in Chapter 13 and Chapter 11 cases (also in Chapter 9 and 12).

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

Postpetition transfer:  A transfer of the debtor’s property after the commencement of a bankruptcy case.

Prebankruptcy planning:  The arrangement or rearrangement of a debtor’s property to allow the debtor to take maximum advantage of exemptions, including the conversion of 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.

Priority:  The Bankruptcy Code’s statutory ranking of unsecured claims to determine the order in which unsecured claims will be paid if there is not enough money to pay all unsecured claims in full.

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 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.

Property of the estate:  All legal or equitable interests of the debtor at the commencement of the case.

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R

Reaffirmation agreement: An agreement by a chapter 7 debtor to continue paying a dischargeable debt after the bankruptcy.  Debts are most often reaffirmed so that the debtor can keep the collateral.

Real property:   land and, generally, anything affixed to the land.

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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 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.

Statement of financial affairs:   A series of questions the debtor must answer in writing concerning, among other things, sources of income, transfers of property and lawsuits by creditors.

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.)

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T

Transfer:  Any mode or means by which a debtor disposes of or his or her assets.

Trustee:  A private individual or corporation that exercises statutory powers under the general supervision of the court and the direct supervision of the U.S. trustee or bankruptcy administrator.

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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.

Undue hardship:  A Congressionally-created and undefined term used to describe the level required to discharge a student loan in bankruptcy.

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.

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.

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V

Voluntary Petition: A bankruptcy petition commenced by the debtor

Voluntary transfer:   A transfer of a debtor’s property with the debtor’s consent.

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