Definitions of The Most Common Bankruptcy Terms
341 meeting (first meeting of creditors)– a meeting that allows the bankruptcy trustee, all the creditors, and the US Trustee to ask the debtor questions under oath. This is a required meeting.
Absolute Priority– this term is used when referring to the order your creditors are paid.
Administrative Claim– Administrative claims are expenses incurred by the debtor, with court approval, including necessary costs of preserving the estate, wages, salaries, court costs, and lawyers’s fees.
Adversary Proceedings– lawsuits that arise by filing a complaint with the bankruptcy court to determine the validity of certain claims.
Automatic Stay– a petition that allows the debtor to establish a plan of repayment and suspends debt collections, foreclosures, collection calls, and any other creditor activities against the debtor.
Bankruptcy– a legal procedure that helps individuals or businesses, who face insolvency, regain control of their financial affairs.
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 – Legislation which made it more difficult for debtors to discharge unsecured debts through Chapter 7 Bankruptcy. It became effective on October 17, 2005.
Bankruptcy Attorney – Attorneys which help debtors file their bankruptcy petitions and schedules with the bankruptcy court. Although debtors can file bankruptcy on their own, debtors should contact a bankruptcy lawyer if they have a complicated bankruptcy case.
Bankruptcy Code – The set of federal laws and regulations that governs bankruptcy cases in the United States. The bankruptcy code is divided into chapters, including chapters which deal with bankruptcy proceedings.
Bankruptcy Confirmation – The approval process for the debtor’s Chapter 13 Bankruptcy reorganization plan. It includes confirmation by the creditors.
Bankruptcy Court – The federal tribunal where bankruptcy cases are heard or litigated.
Bankruptcy Estate – Includes all of the debtor’s equitable and legal interests. In bankruptcy, the estate becomes the legal owner of the debtor’s tangible and intangible assets, and assets held in a bankruptcy estate may be sold by the trustee to pay the debtor’s outstanding debt obligations.
Bankruptcy Judge – The bankruptcy judge is a judicial officer of the United States district court and is appointed for 14 year terms.
Bankruptcy Petition – The application by the debtor which is submitted to the bankruptcy court to declare their intent to file bankruptcy. All petitions must be approved by the bankruptcy court.
Bankruptcy Trustee – The bankruptcy trustee is responsible for administering the bankruptcy estate, which can include collecting the property from the debtor and converting the property to cash to repay creditors.
Chapter 7 Bankruptcy – Allows debtors to receive an immediate discharge of qualifying unsecured debts. This is the most common type of bankruptcy, but not all debtors will qualify to file Chapter 7 Bankruptcy.
Chapter 9 Bankruptcy – Chapter 9 bankruptcy is used by cities, towns, villages, counties and school districts to reorganize the debts of these municipalities.
Chapter 11 Bankruptcy – Chapter 11 Bankruptcy allows a debtor, generally a business, to reorganize their debts, allowing them time to restructure their financial affairs and assets while continuing their business operations.
Chapter 12 Bankruptcy – Chapter 12 Bankruptcy allows family farmers and fisherman, who are in financial distress, to reorganize their debts and repay them with a structured debt repayment plan.
Chapter 13 Bankruptcy – Chapter 13 Bankruptcy allows debtors to create a debt reorganization plan and repay their debt obligations over a 3 or 5 year repayment period.
Chapter 15 Bankruptcy – Allows a foreign company, who has filed bankruptcy protection in their own country, to allow the U.S. to recognize the foreign insolvency proceedings (also called an “Ancillary Cross Border Case”).
Claim– Written and filed by creditors, it outlines a creditors’ right to payment if a debtor has filed bankruptcy. There are three types of claims outlined in the United States Bankruptcy Code: priority claims, secured claims and unsecured claims.
Collateral– Assets which are “pledged” to a lender and act as security for the loan. If the borrower does not repay the loan the collateral can be given or transferred to the lender to settle the debt obligation.
Confirmation– Confirmation occurs when the bankruptcy court provides final approval for the debtor’s plan of reorganization.
Consumer debts– debts which include any purchase of a good or service that is consumed and is not secured by collateral. Credit card debt is the most common type of consumer debt in the United States.
Contested matter– Any issue or dispute which is not included in the Adversary Proceedings outlined in Rule 7001. It is important to discuss all information concerning contested matters with a bankruptcy lawyer.
Contingent Claim – Debts which occur after a triggering event. Contingent claims may occur before or after bankruptcy is initiated. For example, a contingent claim can occur if a filer is the co-signor on another person’s loan and that person fails to make the loan payment.
Conversion– The voluntary or involuntary action to convert bankruptcy from one chapter to another. Conversion requires the appointment of a new trustee and adherence to different bankruptcy rules.
Core Proceedings– Fundamental issues relevant to the bankruptcy case which are heard by the bankruptcy judge. Other none-core proceedings may be reviewed outside the bankruptcy court.
Cramdown– The “unofficial” term for the approval of a Chapter 11, Chapter 12 or Chapter 13 bankruptcy repayment plan over the objections of the debtor’s creditors. For example, the reduction of certain debts to the fair market value.
Credit Counseling– Credit counseling is a requirement for all bankruptcy filers and must be completed 180 days prior to filing bankruptcy. This requirement was implemented under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
Credit Report– Credit information provided by major credit reporting companies (most notably Experian, Trans Union and Equifax). These reports outline financial data for individuals including money they have borrowed, money they owe and the individual’s bill payment history.
Creditor– Person, business or any other entity who is owed payment for goods or services rendered.
Creditors’ meeting– Also known as the 341 Meeting, it is held 25 to 40 days after the debtor files a bankruptcy petition with the bankruptcy court. Creditors generally attend the meeting, although they can object to discharges even if they do not attend.
Creditors’ Committee– A committee created by the United States Trustee. The creditors’ committee is supposed to represent the interest of parties in a Chapter 11 Bankruptcy reorganization including creditors, retirees, bondholders and other security holders.
Current Monthly Income– Current monthly income is defined under U.S. Bankruptcy Code as the average monthly income from all sources during the 6-month period ending on the last day of the calendar month immediately preceding the date of the bankruptcy.
Debtor– Any person or entity who has purchased a service or product from another entity (creditor) but has failed to pay their financial obligations. Common debts include credit card debt, student loans, mortgages and tax debts.
Debtor Education – Given changes in bankruptcy laws, debtors who file bankruptcy must now complete a credit counseling course prior to filing bankruptcy and another debt education program prior to the discharge of the bankruptcy case, both of which are considered debtor education courses.
Debtor in Possession– Another name for the debtor in a Chapter 11 Bankruptcy case. The debtor in possession is allowed to retain their property, develop a bankruptcy repayment schedule, and continue to make money to pay their debts (unless the courts determine they are mismanaging the business or committing fraud).
Default– A default occurs if a debtor fails to meet their financial obligations outlined in agreements such as mortgage contracts, personal loan contracts or car loans.
Defendant– A defendant can be either a person accused of a crime (criminal case) or a person who has been sued (civil case). Defendants have the legal right to legal representation by a lawyer, to have a trial by their peers, to have a speedy trial, to remain silent and not to be tried for the same crime twice.
Delinquency– Delinquency in payment occurs if a debtor fails to meet their payment obligations. If the payment is more than 30 days late it can be reported to a credit bureau, lowering the debtor’s credit score.
Denial of Discharge– A bankruptcy court may refuse a discharge of certain debts through bankruptcy if the debtor performs certain actions such as concealing or destroying assets or financial records, or making incomplete or false statements on their bankruptcy schedules.
Discharge of debts– Qualifying debts may be discharged through bankruptcy after the bankruptcy is complete. The types of debts discharged will vary by bankruptcy, and some debts cannot easily be discharged through bankruptcy including certain tax debts, child support payments and student loans.
Dischargeable debts– Dischargeable debts are those that can be discharged through bankruptcy. The most common dischargeable debts include medical bills, credit card debts and unsecured personal loans.
Disclosure Statement– A statement given to each creditor which outlines and summarizes all of the important information about the bankruptcy reorganization plan and the court processes.
Dismissal– Dismissals occur when the court stops the bankruptcy case. The most common reason for dismissals are misstatements or errors or violations of the bankruptcy court processes by the petitioner.
Distressed– Distressed companies are those that are unable to meet their financial obligations to their creditors. Chapter 11 Bankruptcy is a commonly used to help distressed companies restructure their debts.
Docket– The docket is the official record of court filings and provides information about the court case number, the judge assigned to rule on the case and the parties involved in the bankruptcy case.
Electronic Case Filing (ECF)– An automated case management system implemented by the bankruptcy court, allowing users to view and file court documents online at any time.
Equity– Equity is the value of an item or property. Equity can be calculated by determining the market value and subtracting any mortgages or liens against the property.
Examiner– Examiners may be assigned to Chapter 11 Bankruptcy cases to provide a limited role to investigate misconduct and perform other functions such as filing the reorganization plan, assisting with negotiations of the plan, and ensuring all the debtor’ss claims have been properly categorized on the bankruptcy schedules.
Exchange Offer– Allowing stockholders or bondholders to trade their stocks and bonds for other stocks and bonds instead of cash.
Exclusivity– Within a Chapter 11 Bankruptcy, exclusivity is the right for a debtor to file a bankruptcy plan of reorganization within a specified time period.
Executory Contract– A contract where the obligations or “performance is due to some extent by both parties” and have not been completed to fulfill the terms and conditions of the contract (for example property leases or equipment leases).
Exemptions– Items and assets that cannot be liquidated in bankruptcy to repay creditors. Exemptions are determined by federal and state bankruptcy laws.
Fee examiner– Appointed by the bankruptcy court to monitor fees paid to professionals who assist with bankruptcy cases.
FICO Score– Scores between 300 to 850 assigned to individuals that help identify the risk of lending them money. The information is gathered and disseminated by three major credit reporting agencies Experian, TransUnion and Equifax.
Filing Fees– The fees paid to the bankruptcy court to file bankruptcy. Filing fees do not include the cost of hiring a bankruptcy lawyer.
First Meeting of the Creditors– Also known as the 341 Meeting, it is the first meeting between the creditors and debtors. The meeting is generally held 30 days after the bankruptcy petition is filed.
Fraudulent Conveyance – Fraud committed when a debtor attempts to transfer their assets to another person to keep creditors from getting their property or assets.
Fresh Start– Debtors may be able to get a “fresh start” through bankruptcy by discharging certain unsecured debts while keeping certain exempt assets. Not all debts are discharged with bankruptcy.
Identity theft– Identify theft occurs when one person steals another person’s personal information such as their Social Security Number or credit card data in an attempt to commit fraud.
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. Source: U.S. Courts
Insolvency– Insolvency is the state where debts and liabilities are greater than the cash or assets of a company or person. Insolvency makes it difficult for entities to pay their financial obligations.
Interest– Interest can be defined as the equity interest of stockholders in a corporation. Although stockholders may have an interest in a company, if bankruptcy occurs stockholders may not receive any repayment of their interest especially if it is a Chapter 7 Bankruptcy.
Involuntary Bankruptcy– If bankruptcy is initiated against a debtor by creditors without the consent of the debtor it is considered involuntary. Involuntary bankruptcycommences with the filing of the bankruptcy petition in the bankruptcy court.
Joint Administration – Joint administration occurs if two or more bankruptcy cases are filed and administered together, saving time and money.
Joint Petition– Joint bankruptcy petitions are most frequently filed by spouses and must include all the property, assets and liabilities owned by both parties. Talk to a bankruptcy lawyer prior to filing jointly or separately for bankruptcy.
Lien– Liens allow the creditor to hold property as “collateral” and potentially force a sell, liquidation or repayment to clear the title prior to transferring the title to a new buyer.
Liquidated Claim– A “liquidated” claim is a right or a demand (even if disputed) to payment in a sum which all parties have agreed upon.
Liquidation– Liquidation is taking assets, selling them and converting them to profits to be paid to creditors. Chapter 7 Bankruptcy is frequently referred to as a “liquidation” bankruptcy.
Means Test– Debtors with income above the median income for their state must pass a means test to file Chapter 7 bankruptcy. Debtors who fail the means test cannot file Chapter 7 Bankruptcy, but instead, may be allowed to file Chapter 13 Bankruptcy.
Motion to Lift Automatic Stay– Filed by certain creditors, a motion to lift an automatic stay allows creditors to continue their debt collections for liabilities which are not protected by filing for bankruptcy protection.
No-asset Case– A bankruptcy case with no assets (or you do not own any possessions) is called a no asset case. Under this type of filing a debtor has no possessions for the creditors to liquidate for debt repayment.
Non Consensual Secured Debts– Liens placed on property without the consent of the debtor, allowing the creditor to sell the property without the consent of the owner to recover debt payments.
Non Dischargeable Debt– Debts not discharged through bankruptcy. The most common non dischargeable debts include certain taxes, cash advances within 70 days before filing, debts not listed on the petition, student loans and domestic support obligations.
Objection to Discharge– An objection of discharge occurs if a trustee or creditor asks the United States court to reject the debtor’ss discharge for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Most commonly occurs if property is not disclosed or the debtor acts improperly.
Objections to Exemptions– Exemptions or assets which cannot be seized are liquidated are defined in the bankruptcy code. Objections to these exemptions can be made if a trustee or creditor objects to the bankruptcy exemption.
Party in Interest– Party in interest are the entities and individuals who have an interest in a bankruptcy. Parties of interest can include debtors, creditors, trustees, the United States Trustee and equity security holders.
Petition– The petition is the official document filed with the bankruptcy court to initiate a bankruptcy. The petition includes information about the filer including financial information and creditor information. (See also Bankruptcy Petition)
Petition Preparer– The petition preparer is the person who is responsible for generating the bankruptcy petition and all necessary schedules and documents for the bankruptcy process.
Plaintiff– In bankruptcy law a plaintiff is the person who initiates a complaint. The plaintiff in an adversary proceeding may include the creditor, trustee, the debtor or an ex-spouse.
Plan– Also known as the bankruptcy repayment plan allows a debtor to consolidate their debts and repay them over a 3 or 5 year period. Bankruptcy repayment plans must be approved by the bankruptcy court.
Post Petition Transfer– Transfers of a debtor’s property which is initiated after the start of the bankruptcy process and are not considered a “normal” part of the debtor’s business. After the bankruptcy petition is filed transactions must be evaluated by the bankruptcy court to make sure they are in the best interest of all creditors.
Pre-Bankruptcy Planning– The process of preparing for bankruptcy and taking inventory of all of the debtor’s personal assets. This can be done with or without legal help from a bankruptcy lawyer.
Preferential Debt Payment– Payments made to certain creditors 90 days before filing a bankruptcy petition. Preferential debt payments are not legal because they promote unfairness and inequality of debt repayment to creditors.
Presumption of Abuse – The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) created a means test to stop debtors who were “abusing the system” and who could repay a portion of their debts by filing Chapter 13 Bankruptcy.
Priority Claims– Priority claims are identified in bankruptcy law and are paid first and in full (some exceptions may exist). Priority claims can include most taxes and the administrative costs of the bankruptcy process.
Proof of Claim– A form which must be completed by creditors to identify funds that they want to collect through the bankruptcy proceeding. Proof of Claim documents the amount of money the debtor owes and the creditor’s reasons for payments.
Property of the Estate– Property of the Estate includes the assets and property the debtor owns. Some property may be excluded from the state and is exempted through Federal or State bankruptcy law (unless an objection is filed by the trustee and the court disallows the exemption).
Reaffirmation Agreement– A reaffirmation agreement allows the debtor and creditor to redesign the original contract, allowing the debtor to keep paying the debt, which would generally have been discharged through the Chapter 7 Bankruptcy process through a liquidation.
Redemption – Redemption is the legal process which allows a debtor to “redeem” property by paying a lump sum payment generally to release a lien. A Chapter 7 debtor must generally pay the fair market value for the claim, not the contractual or loan amount.
Relief from the Automatic Stay– A relief from the automatic stay (an injunction to stop debt collections) may be granted if a secured creditor request relief from the court and the court agrees to allow them to continue their debt collection efforts.
Schedules– Schedules are the official forms that a debtor files with the bankruptcy court after the bankruptcy petition is filed. Schedules outline the debtor’s assets (real and personal property), liabilities, exemptions, contracts, leases, and monthly income.
Secured Creditor– Creditors who have made loans for secured assets. If a debtor fails to make loan payments for secured debts the assets can be repossessed to repay the loan.
Secured Debt– Debts can be secure or unsecured. Secured debt is debt which is backed by collateral which can be repossessed to repay the loan. Common secured loans include a home loan and an auto loan.
Small Business Case– Bankruptcy cases where the business has liquidated, non-contingent unsecured and secured debts of $2,190,000 or less and the U.S. Trustee has appointed a creditors’s committee or has decided the creditors’s committee is unable to sufficiently oversee the debtor.
Statement of Financial Affairs– The Statement of Financial Affairs is provided by debtors and includes business and personal information for the bankruptcy. Creditors can also review the information on the Statement including information about secured debts (home mortgages, car loans) and unsecured debts (credit card debt, personal loans).
Statement of Intention– A Chapter 7 Bankruptcy form which provides information about any type of consumer debt which is considered secured and details the debtor’s intention to surrender or redeem the asset.
Substantive Consolidation– Allows the court to combine assets and liabilities of two separate and distinct legally related entities and pay the creditors as a single party. This process may be allowed when companies are intertwined and separating the business relationship may increase delays in the payment to creditors.
Transfer– A term used to describe any method used by a debtor to dispose of their property, although in bankruptcy terms it can refer to fraudulent transfers of property to avoid letting a creditor repossess the property.
Trustee– Trustees oversee the bankruptcy process. Trustees manage the debtor’s estate by gathering assets, liquidating property and using the money to repay creditors.
U.S. Trustee– The United States Trustee is an officer of the Justice Department. U.S. Trustees have a variety of jobs all of which are intended to promote integrity and efficiency in the Federal bankruptcy system.
Under secured Secured Claims– Claims which are greater than the amount of the collateral of the claim are considered under secured. This means that the realization of the collateral will not repay the full value of the debt.
United States Trustee– See U.S. Trustee
Unliquidated Claim– If the debtor owes debts which have not been assigned a value they are termed “unliquidated” claims. Bankruptcy courts will estimate the value of the claim within a specified time period.
Unscheduled Debt– Debts not included on the bankruptcy schedules are considered unscheduled debts. Under certain conditions the courts may allow unscheduled debts to be non-dischargeable.
Unsecured Claim– Unsecured claims or debts are not backed by collateral or any type of asset that can be repossessed in the case of non-payment. If a debtor defaults on payment for an unsecured claim the creditor may not receive compensation, even through bankruptcy.
Voluntary Bankruptcy – Voluntary bankruptcy is a bankruptcy initiated by the debtor.
Wage-earner Bankruptcy– Another name for Chapter 13 Bankruptcy which requires debtors to have a job or wage so they can make payments on the bankruptcy repayment plan.