Bankruptcy Dictionary

automatic stay An injunction that automatically stops lawsuits, foreclosure, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.

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). 

Top

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.)   The bankruptcy estate also includes all property to which you are entitled at the time of filing.    It also includes an inheritance, even if the decedent died within six months after filing the bankruptcy.

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 mill A business not authorized to practice law that provides bankruptcy counseling and prepares bankruptcy petitions.    Only an attorney is in a position because of his education to give you legal advice.   Bankruptcy mills often get debtors into serious trouble;  if you file or file the wrong bankruptcy you may find that you will lose some property.

bankruptcy petition A formal request for the protection of the federal bankruptcy laws. (There is an official form for bankruptcy petitions.)

bankruptcy trustee A private individual or corporation appointed in all chapter 7, chapter 12, and chapter 13 cases to represent the interests of the bankruptcy estate and the debtor's creditors.

business bankruptcy A bankruptcy case in which the debtor is a business or an individual involved in business and the debts are primarily for business purposes.

cash collateral Section 363 defines "cash collateral" as cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents, whenever acquired, in which the estate and an entity other than the estate have an interest. It includes the proceeds, products, offspring, rents, or profits of property and the fees, charges, accounts or payments for the use or occupancy of rooms and other public facilities in hotels, motels, or other lodging properties subject to a creditor's security interest.

Certificate of Completion  After you take either the Financial Counseling Course or the Financial Management Course a certificate will be given to you.   If you do not present the certificates to the court, your bankruptcy will be dismissed or you will be denied a discharge.

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. Top

chapter 7 trustee A person appointed in a chapter 7 case to represent the interests of the bankruptcy estate and the unsecured creditors. (The trustee's responsibilities include reviewing the debtor's petition and schedules, liquidating the property of the estate, and making distributions to creditors. The trustee may also bring actions against creditors or the debtor to recover property of the bankruptcy estate.)

chapter 11 A reorganization bankruptcy, 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," as that term is defined in the 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 13 trustee A person appointed to administer a chapter 13 case. (A chapter 13 trustee's responsibilities are similar to those of a chapter 7 trustee; however, a chapter 13 trustee has the additional responsibilities of overseeing the debtor's plan, receiving payments from debtors, and disbursing plan payments to creditors.)

claim A creditor's assertion of a right to payment from a debtor or the debtor's property.

complaint The first or initiatory document in a lawsuit that notifies the court and the defendant of the grounds claimed by the plaintiff for an award of money or other relief against the defendant.

confirmation Approval of a plan of reorganization by a bankruptcy judge.  No payments to creditors are made by the trustee to creditors until the plan is confirmed.   

consumer bankruptcy A bankruptcy case filed to reduce or eliminate debts that are primarily consumer debts.

consumer debts Debts incurred for personal, as opposed to business, needs.

contingent claim A claim that may be owed by the debtor under certain circumstances, for example, where the debtor is a cosigner on another person's loan and that person fails to pay.

cramdown The action by which the court may order a plan approved over the negative vote of a class of dissenting creditors.

creditor A person to whom or business to which the debtor owes money or that claims to be owed money by the debtor.

Creditors' Committees Creditors' committees can play a major role in chapter 11 cases. The United States trustee, a federal employee to be distinguished from a private case trustee or panel trustee, appoints the committee, which ordinarily consists of unsecured creditors who hold the seven largest unsecured claims against the debtor. 11 U.S.C. § 1102. The committee may consult with the debtor in possession on the administration of the case, investigate the conduct of the debtor and the operation of the business, and participate in the formulation of a plan. 11 U.S.C. § 1103. A creditors' committee may, with the court's approval, hire an attorney or other professionals to assist in the performance of the committee's duties. A creditors' committee can be an important safeguard to the proper management of the business by the debtor in possession.

Current Monthly Income (CMI)   The Current Monthly Income is used to calculate the Means Test.   It include all income that you receive on a regular basis.    It is total gross income, whether or not subject to taxes, received from all sources for the six-month period ending on the last day of the month preceding the month in which the petition is filed, divided by six.

debtor A person who has filed a petition for relief under the bankruptcy laws. Top

debtor in possession The term refers to a debtor that keeps possession and control of its assets while undergoing a reorganization under chapter 11, without the appointment of a case trustee. A debtor will remain a debtor in possession until the debtor's plan of reorganization is confirmed, the debtor's case is dismissed or converted to chapter 7, or a chapter 11 trustee is appointed. The appointment or election of a trustee occurs only in a small number of cases. Generally, the debtor, as "debtor in possession," operates the business and performs many of the functions that a trustee performs in cases under other chapters.

defendant An individual (or business) against whom a lawsuit is filed.

discharge A release of a debtor from personal liability for certain dischargeable debts. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts (defined below) and prevents the creditors owed those debts from taking any action against the debtor or the debtor's property 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.

Dismissal of a Chapter 13 The court will dismiss a Chapter 13 if a debtor stops paying the required payments to the trustee.

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.

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 $60,000 is subject to a $30,000 mortgage, there is $30,000 of equity.) Top

Examiner The appointment of an examiner in a chapter 11 case is rare. The role of an examiner is generally more limited than that of a trustee. The examiner is authorized to perform the investigatory functions of the trustee and is required to file a statement of any investigation conducted. If ordered to do so by the court, however, an examiner may carry out any other duties of a trustee that the court orders the debtor in possession not to perform. 11 U.S.C. § 1106. Each court has the authority to determine the duties of an examiner in each particular case. In some cases, the examiner may file a plan of reorganization, negotiate or help the parties negotiate, or review the debtor's schedules to determine whether some of the claims are improperly categorized. Sometimes, the examiner may be directed to determine if objections to any proofs of claim should be filed or whether causes of action have sufficient merit so that further legal action should be taken. An examiner may not serve as a trustee.

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.)

exempt A description of any property that a debtor may prevent creditors from recovering.

exemption Property that the Bankruptcy Code or applicable state law permits a debtor to keep from creditors.

exempt property Property or value in property that a debtor is allowed to retain, free from the claims of creditors who do not have liens.

face sheet filing A bankruptcy case filed either without schedules or with incomplete schedules listing few creditors and debts. (Face sheet filings are often made for the purpose of delaying an eviction or foreclosure.) family farmer An individual, individual and spouse, corporation, or partnership engaged in a farming operation who meet certain debt limits and other statutory criteria for filing a petition under chapter 12.

Financial Counseling Course  This is a required session with an approved counselor to determine whether you have the ability to pay your debts without the need of bankruptcy.   This course must be done within 180 days before the filing of your bankruptcy.

Financial Management Course  This is also a required session with an approved provider to give you instructions on how to handle your finances.    You must attend this session after the filing of your bankruptcy and before the date of the discharge or the discharge will not be granted.

  Top

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.)

homestead The way the various exemption acts refer to your principal residence whether it be a house, apartment, condo or other real property.Top

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 corporation of which the debtor is a director, officer, or person in control. Top

impaired claims Claims which will have their contractual rights modified or which will be paid less than the full value under a Chapter 11 reorganization.

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.

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.) Top

joint petition One bankruptcy petition filed by a husband and wife together.

lien A charge upon specific property designed to secure payment of a debt or performance of an obligation. Top

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.

Means Test is designed to determine an ability to pay debts  and, therefore, whether the filing of a petition under Chapter 7 presumptively constitutes an abuse.   The process involves the computation of Current Monthly Income, deducting allowable monthly expenses to find a monthly net income. 

Median Family Income The median income in the state in which the debtor resides for a family of the same or smaller size reported by the Bureau of the Census for the most recent year.

motion to lift the automatic stay A request by a creditor to allow the creditor to take an action against a debtor or the debtor's property that would otherwise be prohibited by the automatic stay. Top

movant The party in a lawsuit or other legal proceeding who makes a motion (application for a court order or judgment).

no-asset case A chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims. Top

nondischargeable debt A debt that cannot be eliminated in bankruptcy.

objection to discharge A trustee's or creditor's objection to the debtor's being released from personal liability for certain dischargeable debts. Top

objection to exemptions A trustee's or creditor's objection to a debtor's attempt to claim certain property as exempt, i.e., not liable for any prepetition debt of the debtor.

order for relief An order issued by the court following the filing of a Chapter 11 petition.

party in interest A party who is actually and substantially interested in the subject matter, as distinguished from one who has only a nominal on technical interest in it. Top

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 a 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 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 that determines 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 these unsecured claims are to be paid.

proof of claim A written statement, filed by a creditor, describing the reason a 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.

reaffirmation agreement An agreement by a chapter 7 debtor to continue paying a dischargeable debt after the bankruptcy, usually for the purpose of keeping collateral or mortgaged property that would otherwise be subject to repossession. Top

secured creditor An individual or business holding a claim against the debtor that is secured by a lien on property of the estate or that is subject to a right of setoff. Top

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.

schedules Lists submitted by the debtor along with the petition (or shortly thereafter) showing the debtor's assets, liabilities, and other financial information. (There are official forms a debtor must use.)

stalking horse is the name given to the party submitting the first bid to purchase assets. The stalking horse bid can be used to solicit interest from other bidders and also acts as a floor for what will be realized at the auction.

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.

statutory lien A lien arising under a statute, not including a security interest or judicial lien. A real estate tax lien is an example of a statutory lien.

stripdown The writing down of a secured debt to the value of the asset that secures it. For example, if a secured debt on a vehicle is $4,000 but the vehicle is only worth $2,500 the debt could be set at $2,500.

substantial abuse The characterization of a bankruptcy case filed by an individual whose debts are primarily consumer debts where the court finds that the granting of relief would be an abuse of chapter 7 because, for example, the debtor can pay its debts.

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.)

transfer Any mode or means by which a debtor disposes of or parts with his/her property. Top

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 United States trustee or Bankruptcy Administrator.

typing service A business not authorized to practice law that prepares bankruptcy petitions.

United States 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. Top

undersecured claim A debt secured by property that is worth less than the amount of the debt.

unlawful detainer action A lawsuit brought by a landlord against a tenant to evict the tenant from rental property--usually for nonpayment of rent.

unliquidated claim A claim for which a specific value has not been determined.

unscheduled debt A debt that should have been listed by a 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.

voluntary transfer A transfer of a debtor's property with the debtor's consent. Top