Adversary Proceeding A lawsuit filed in the bankruptcy court which is related to the debtor’s bankruptcy case. Examples are complaints to determine the dischargeability of a debt and complaints to determine the extent and validity of liens.
Arrearage The amount by which one is past due on a secured debt obligation. For example, if your mortgage payment is $1,000 per month and you are three months behind, your are $3,000 in arrears.
Assets Anything, in any form, that a debtor owns. This includes tangible assets such as real estate, cars, and jewelry, as well as intangible assets, such as business goodwill, the right to sue someone, stock options, or future interests in a will.
Assume or Assumption 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.The injunction issued automatically upon the filing of a bankruptcy case, which prohibits certain collection actions against the debtor, the debtor’s property, or the property of the estate.
Avoidance The Bankruptcy Code permits the debtor to eliminate (avoid) some kinds of liens that interfere with (or impair) an exemption claimed in the bankruptcy. Most judgment liens that have attached to the debtor’s home can be avoided if the total of the liens (mortgages, judgment liens and statutory liens) is greater than the value of the property in which the exemption is claimed. This is sometimes called “lien stripping.”
Avoidance Powers Rights given to the bankruptcy trustee or the debtor-in-possession to recover certain transfers of property such as preferences or fraudulent transfers or to void liens created before the commencement of a bankruptcy case.
Bankruptcy A condition where a debtor cannot pay debts now or as they become due, and uses the protection of the law to reorganize their financial affairs by liquidating certain property or formulating a repayment plan.
Bankruptcy Abuse Prevention and Consumer Protection Act The name (mis-name) given by Congress to the new bankruptcy law legislation passed and signed into law by President GW Bush, effective October 17, 2005 which was designed to dramatically changed the way eligiblity for filing bankruptcy was determined. It was neither designed to protect consumers nor to address actual bankruptcy abuse.
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 Title 11 of the United States Code governs bankruptcy proceedings. Bankruptcy is a matter of federal law and is, with the exception of exemptions, the same in every state. When federal bankruptcy law conflicts with state law, federal law controls.
Bankruptcy Court The bankruptcy judges in regular active service in each district; a unit of the district court.
Bankruptcy Estate The estate is all of the legal and equitable interests of the debtor as of the commencement of the case. From the estate, an individual debtor can claim certain property exempt; the balance of the estate is liquidated in a Chapter-7 to pay the administrative costs of the proceeding and the claims of creditors according to their priority.
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.)
Business-Bankruptcy A case in which the majority of total debts owed are business (or, non-consumer) related.
Chapter-7 The most common form of bankruptcy. A Chapter-7 case is a liquidation proceeding available to individuals, married couples, partnerships and corporations.
Chapter-11 A reorganization proceeding in which the debtor may continue in business or in possession of its property as a fiduciary. A confirmed Chapter-11 plan provides for the manner in which the claims of creditors will be paid in whole or in part by the debtor.
Chapter 12 A simplified reorganization plan for family farmers whose debts fall within certain limits. Chapter 12 was not renewed when it expired this session of Congress.
Chapter-13 A repayment plan for individuals with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income over 3 to 5 years.
Claim A creditor’s assertion of a right to payment from the debtor or the debtor’s property.
Collateral The property, which is subject to a lien. A creditor with rights in collateral is a secured creditor and has additional protections in the Bankruptcy Code for the claim secured by collateral. The measure of the secured claim is the value of the collateral available to secure the claim. It is possible to have a lien on property that is subject to a senior lien or liens such that the security available to pay the claim is really without value to the junior creditor.
Confirmation The court order, which makes the terms of the plan for repayment of debts in a Chapter-11, 12 or 13 binding. The terms of the confirmed plan replace the pre-petition rights of the debtor and creditor.
Conversion Cases under the Code may be converted from one chapter to another chapter; for example, a Chapter-7 case may be converted to a case under Chapter-13 if the debtor is eligible for Chapter-13. Even though the chapter of the Code which governs it changes, it remains the same case as originally filed.
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 The person or organization to whom the debtor owes money or has some other form of legal obligation.
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 A meeting required under Section 341 of the Bankruptcy Code, conducted by the trustee, and where the debtor can be examined concerning assets, finances or improper conduct having a bearing on the case.
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).
Debt Liability on a claim.
Debtor The debtor is the entity (person, partnership or corporation) who is liable for debts, and who is the subject of a bankruptcy case.
Debtor-in-Possession In a Chapter-11 case, the debtor usually remains in possession of its assets and assumes the duties of a trustee. The debtor-in-possession is a fiduciary for the creditors of the estate, and owes them the highest duty of care and loyalty.
Default A failure to perform a legal obligation imposed by law or contract.
Debtor Education see credit counseling.
A debt relief agency is a made-up designation that our Congress created as part of the 2005 Bankruptcy Reform Act and is defined in 11 U.S.C. 101(12A). It includes “any person who provides any bankruptcy assistance to an ‘assisted person’ in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer…”. Debt Relief Agencies are required to give certain additional disclosures and incur more costs by virtue of this designation which is neither honorary nor punitive.
Defendant An individual (or business) against whom a lawsuit is filed.
Denial of discharge Penalty for debtor misconduct with respect to the bankruptcy case or creditors as a whole. The grounds on which the debtor’s discharge may be denied are found in 11 U.S.C. 727. When the debtor’s discharge is denied, the debts that could have been discharged in that case cannot be discharged in any subsequent bankruptcy. The administration of the case, the liquidation of assets and the recovery of avoidable transfers, continues for the benefit of creditors.
Discharge The legal elimination of debt through a bankruptcy case. When a debt is discharged, it is no longer legally enforceable against the debtor, though any lien which secures the debt may survive the bankruptcy case.
Dischargeable Debts that can be eliminated in bankruptcy. Certain debts are not dischargeable; that is, they may not be discharged through bankruptcy or may only be discharged through Chapter-13. Family support and criminal restitution are examples of debts, which cannot be discharged. Debts incurred by fraud can only be discharged in Chapter-13.
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.
Dismissal The termination of the case without either the entry of a discharge or a denial of discharge; after a case is dismissed, the debtor and the creditors have the same rights as they had before the bankruptcy case was commenced.
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 income. Current monthly income above 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.
Equity The value of property to its owner after all liens and encumbrances are satisfied and the costs of sale paid.
Exempt Property that is exempt is removed from the bankruptcy estate and is not available to pay the claims of creditors. The debtor selects the property to be exempted from the statutory lists of exemptions available under the law of his state. The debtor gets to keep exempt property for use in making a fresh start after bankruptcy.
Exemptions Exemptions are the lists of the kinds and values of property that is legally beyond the reach of creditors or the bankruptcy trustee. What property may be exempted is determined by state and federal statutes, and varies from state to state.
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.)
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.
Fiduciary One who is entrusted with duties on behalf of another. The law requires the highest level of good faith, loyalty and diligence of a fiduciary, higher than the common duty of care that we all owe one another. The debtor-in-possession in a Chapter-11 is a fiduciary for the creditors, owing loyalty to the creditors and not the shareholders of the debtor.
Foreclosure A forced sale of real estate by a creditor to satisfy a defaulted mortgage, delinquent property taxes or a judgment.
Insider (of individual debtor) Any relative of the 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.
Involuntary Petition A bankruptcy case may be commenced by a specific number of 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.
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 PetitionOne bankruptcy petition filed by a husband and wife together
Judgment ProofA debtor who has all exempt assets and income so that a creditor cannot collect anything from them even if they obtain a court judgment against them.
Judgment The legal outcome resulting from a court action determining that a liability does or does not exist.
General, Unsecured Claim A creditor’s claim without a priority for payment for which the creditor holds no security (or collateral). If the available funds in the estate extend to payment of unsecured claims, the claims are paid in proportion to the size of the claim relative to the total of claims in the class of unsecured claims.
Lien An interest in real or personal property which secures a debt; the lien may be voluntary, such as a mortgage in real property, or involuntary, such as a judgment lien or tax lien.
Lien Stripping Refers to the mechanism by which a lien (deed of trust, mortgage, etc.) 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 Debt 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.
Liquidated A debt that is for a known number of dollars is liquidated. An unliquidated debt is one where the debtor has liability, but the exact monetary measure of that liability is unknown. Tort claims are usually unliquidated until a trial fixes the amount of the liability of the tortfeasor.
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 (for relief from) 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.
Mortgage A lien on real estate.
Net Income this is basically “take-home” pay. The amount you receive after necessary tax withholding deductions have been taken, union dues, insurance, etc. If you are self-employed, this is the amount left after paying your ordinary business expenses.
New Bankruptcy Laws New bankruptcy laws. Bankruptcy Abuse Prevention and Consumer Protection Act.
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 nondischargeability action.
Non Contingent Debt Debt which is owed now without any contingent acts needing to occur first.
Non-dischargeable A debt that cannot be eliminated in bankruptcy. Non-dischargeable debts remain legally enforceable despite the bankruptcy discharge. Personal Property: Property that is not real property or affixed to real property, such as cars, stock, furniture, etc.
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.
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 someone that is not real estate. For example, cars, jewelry, clothes, stocks, rights to sue someone, etc.
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. 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 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.)
Preferential 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.
Pre-petition Occurring prior to the commencement of a bankruptcy-petition case
Post-petition Occurring after the commencement of a bankruptcy 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 repetition 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.
Petition The document that initiates a bankruptcy case. The filing of the petition constitutes an order for relief and institutes the automatic stay. Events are frequently described as “pre-petition”, happening before the bankruptcy petition was filed, and “post petition”, after the bankruptcy.
Preference A transfer to a creditor in payment of an existing debt made within certain time periods before the commencement of the case. Preferences may be recovered by the trustee for the benefit of all creditors of the estate.
Pre-petition Claims or events arising before the commencement of the bankruptcy case, that is, before the filing of the bankruptcy petition. Generally only pre-petition debts may be discharged in a bankruptcy proceeding.
Priority The Bankruptcy Code establishes the order in which claims are paid from the bankruptcy estate. All claims in a higher priority must be paid in full before claims with a lower priority receive anything. All claims with the same priority share pro rata.
Priority Claims Certain debts, such as unpaid wages, spousal or child support, and taxes are elevated in the payment hierarchy under the Code. Priority claims must be paid in full before general unsecured claims are paid.
Proof of Claim The form filed with the court establishing the creditor’s claim against the debtor.
Property of the Estate The property that is not exempt and belongs to the bankruptcy estate. Property of the estate is usually sold by the trustee and the claims of creditors paid from the proceeds.
Reaffirm The debtor can chose to reaffirm debts that would otherwise be discharged by the bankruptcy. Generally, when a debt is reaffirmed, the parties to the reaffirmed debt have the same rights and liabilities that each had prior to the bankruptcy filing; the debtor is obligated to pay and the creditor can sue or repossess if the debtor doesn’t pay.
Reaffirmation Agreement A reaffirmation agreement is an agreement by which a bankruptcy debtor becomes legally obligated to pay all or a portion of an otherwise dischargeable debt. Such an agreement must be timely filed by the debtor within 60 days after the first date set for the meeting of creditors. Reaffirmation agreements are strictly voluntary. They are not required by the Bankruptcy Code or other state or federal law. A debtor can voluntarily repay any debt instead of signing a reaffirmation agreement, but there may be valid reasons for wanting to reaffirm a particular debt. Since a reaffirmation agreement takes away some of the effectiveness of the debtor’s discharge, it is advisable to seek legal counsel before agreeing to a reaffirmation. Even if the debtor signs a reaffirmation agreement, the debtor has 60 days after the agreement is filed with the court to change his/her mind. If the debtor’s discharge date is more than 60 days after the agreement is filed with the court, the debtor has until the discharge date to change his/her mind. If the debtor reaffirms a debt and fails to make the payments as agreed, the creditor can take action against the debtor to recover any property that was given as security for the loan and the debtor may remain personally liable for any remaining debt. Therefore a reaffirmation agreement should not be entered into without careful consideration of your responsibilities and knowledge of the right to rescind or cancel the agreement within sixty days.
Real Property Land and, generally, anything affixed to the land.
Relief From Stay A creditor can ask the judge to lift the automatic stay and permit some action against the debtor or the property of the estate. If the motion is granted, the moving party (but no one else) is free to take whatever action the court permits. Relief can be absolute, for example, permitting the creditor to foreclose on property, or limited, as for example, allowing the recordation of a notice of default.
Schedules The debtor must file the required lists of assets and liabilities to commence a bankruptcy case, collectively called the schedules.
Secured Debt A claim secured by a lien in the debtor’s property by reason of the debtor’s agreement or an involuntary lien such as a judgment or tax lien. The creditor’s claim may be divided into a secured claim, to the extent of the value of the collateral, and an unsecured claim equal to the remainder of the total debt. Generally a secured claim must be perfected under applicable state law to be treated as a secured claim in the bankruptcy. Examples include home mortgages, auto loans and tax liens.
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.
Small Business Case A special type of 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.)
341a 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 or assets.
TrusteeThe court appoints a trustee in every Chapter-7 and Chapter-13 case to review the debtor’s schedules and represent the interests of the creditors in the bankruptcy case. The role of the trustee is different under the different chapters.
Unsecured A claim or debt is unsecured if there is no collateral that is security for the debt. Most consumer debts are unsecured.
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. To see how this term is defined and analyzed in the ninth circuit, see more on student loan discharge.
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 a debt for which credit was extended based solely upon the creditor’s assessment of the debtor’s future ability to pay.
Voluntary Petition A bankruptcy petition may be commenced by the debtor, as a voluntary petition, or it can be commenced involuntarily by creditors (see involuntary petition).
Voluntary Transfer A transfer of a debtor’s property with the debtor’s consent.