Glossary of Bankruptcy Terms

Here are some quick definitions on terms that are closely related to bankruptcy and are usually used when talking about bankruptcy.

Adversary Proceeding – This is a legal action that has arisen from a bankruptcy case. This is often begun by filing a grievance in court.

Assume – This is an arrangement to carry on doing the obligations under a lease or contract.

Automatic Stay – this is a sanction that mandatorily ceases garnishments, any collection activity against the debtor, foreclosures and lawsuits, from the onset of the filing of bankruptcy petition.

Bankruptcy – Specifically, this is a case filed under the Bankruptcy Code of the United States. In its broad sense, this is a legal process in solving a debt problem of a business or individual.

Bankruptcy Administrator – Is a person, specifically an officer of the judiciary. This officer serves in the judicial districts of North Carolina and Alabama. This judiciary officer typically performs duties like: monitoring of creditors’ committees, supervision of administration of bankruptcy estates, trustees and cases, monitoring of plans and disclosure statements and doing other statutory duties.

Bankruptcy Code – This pertains to the federal bankruptcy law. Also, an informal name for the title 11 of the United States code (11 U.S.C. sections 101-1330).

Bankruptcy Court – This is a unit of the district court. Each federal judicial district has a bankruptcy judge who is in regular active service.

Bankruptcy Estate – This pertains to all of the equitable or legal assets of a debtor during the bankruptcy filing. The term estate encompasses all properties of the debtor to which the debtor has an interest even if the said property is held or owned by another individual.

Bankruptcy Judge – Pertains to the court official who has the authority to decide over federal bankruptcy cases. This person is a judicial officer of the United States district court.

Bankruptcy petition – This is a form filed by a creditor, which is termed as involuntary case, or a document filed by the debtor himself, which is a voluntary case that will lead to opening of a bankruptcy case.

Chapter 7 – This is a chapter in the Bankruptcy code that offers liquidation of a debtor’s nonexempt property and the subsequent distribution of the sale to the creditors.

Chapter 9 – This is a chapter in Bankruptcy code that provides reorganization to municipalities, including villages, municipal utilities, towns, taxing districts, cities school districts, and counties.

Chapter 11 – This is a chapter in the Bankruptcy code that provides reorganization of business. In this bankruptcy plan, a business usually formulates a plan of reorganization to continue running the business, while being able to pay creditors in a certain length of time. Individuals can also find relief in a chapter 11 bankruptcy.

Chapter 12 – This is a chapter in the bankruptcy code that provides debt adjustments to family fisherman or family farmer. In the Bankruptcy code, these terms are specifically defined.

Chapter 13 – This is a chapter in the Bankruptcy code that provides debt adjustment for individuals with consistent income. Under this type of bankruptcy, an individual is able to retain ownership of property while spreading the payment of debt over a period of time, which is between 3 to 5 years.

Claim – This is an assertion of rights by the creditor to payment from the debtor’s property or bankruptcy debtor.
Confirmation – This is the approval of the Bankruptcy judge regarding a payment plan under chapters 12 or 13, or a plan of reorganization for chapter 11 or 9 or a liquidation in chapter 11.

Consumer Debtor – refers to a type of debtor from which his debts stems from consumer products.

Consumer Debts – These debts pertains to debts acquired from personal use as opposed to debts incurred from business.

Contested matter – Other than objections to claims, these are matters that do not fall under adversary proceeding, but are still disputed.

Contingent Claim – Under certain circumstances, these are claims that a debtor may owe. An example could be when the debtor signs as a guarantor on somebody else’s loan and the principal borrower defaults on payments.

Creditor – Is an individual or agency from who a debtor owes money. This could also be an entity that claims that the debtor owes him money.

Credit Counseling – This refers to two different events in an individual’s bankruptcy case. One, it is a meeting or a briefing of an individual or group of individuals with a credit counseling agency, that a person must attend in order to file for bankruptcy. Two, it could also pertain to the instructional course in personal financial management, under bankruptcy chapter 13 and 7, before a debtor can be duly discharged of his debts.

Creditor’s meeting – please refer to 341 meeting.

Defendant – pertains to a business or an entity on which a legal case is filed against.

Discharge – This is the liberation of a debtor from his debts. These dischargeable debts are specified in the Bankruptcy Code. Release of the debtor from his dischargeable debts inhibits his creditors from harassing him to pay the said amount dues.

Dischargeable Debt – These are types and kinds of debts that are specified in the bankruptcy code that will be wiped out once a debtor files for a bankruptcy, eliminating the debtor’s personal liability for the said debts.

Disclosure Statement – This is a written document designed to give out enough information to creditors. This document must be prepared by a chapter 11 debtor or any supporter, so that the creditors can assess the reorganization scheme.

Equity – This is the total value of a debtor’s ownership to a property after all the creditor’s interest rates and debtor’s encumbrances have been extracted. Example: A person owns a house worth $120,000 with a $90,000 mortgage, so the equity is just $30,000.

Executory Contract or Lease – This is a lease or contract wherein both parties still have duties and obligations that are unfulfilled. A debtor may either reject or accept a contract or lease that is executor.

Exemptions, Exempt Property – These are property or properties of a debtor that are exempted from being sold to cover his debts as specified in the Bankruptcy code or applicable state law. Examples of these types of properties are tools of the trade of a debtor that he uses in making a living or his profession. The actual amount and availability of the asset that a debtor may discharge also depends on which state the debtor lives.

Family Fisherman or Family Farmer – Refers to a corporation, partnership, individual or individual and spouse who are connected with the business of fishing or farming that files for a bankruptcy under chapter 12 and meets statutory criteria and other debt limits.

Fraudulent Transfer – This is the turning over of a debtor’s asset with an intention to scam him or a debtor obtains a lesser value for the asset compared to its market price.

Fresh Start – This features the status of a debtor after a bankruptcy, wherein the debtor is free from liabilities. In the bankruptcy Code, this is one of its goals.

Insider (of an Individual Debtor) – Pertains to a general partner of the debtor or any relative of a debtor. It could also mean the debtor’s general partner; a partnership where the debtor is the general partner; where a debtor is the person in control, director or officer of a corporation.

Insider (of a Corporate Debtor) – where the debtor is a general partner in a partnership; a general partner of a debtor; any relative of a debtor.

Joint Administration – A mechanism that is court approved where two or more legal suits are administrated together, provided that there are no conflicts in interests so that individuals or businesses can hire the same professionals to handle the case and group their resources together.

Joint Petition – This is filed together by a wife and husband for a single bankruptcy petition.

Lien – This is the right of a creditor to dispose or confiscate a debtor’s property in order to pay or secure the debtor’s debts.

Liquidation – This pertains to the selling of a debtor’s assets and the profits from the sale are paid to the debtor’s creditors.

Liquidated claim – This is a fixed amount of money being filed or claimed by a creditor.

Means Test – This is a test that is used in a Bankruptcy Code filed under chapter 7 in order to asses an individual’s appropriateness for the said bankruptcy filed. This test is done to discourage the abusive use of chapter 7.

Motion to Lift the Automatic Stay – This is a motion filed by a creditor in order for them to make a move in claiming the debtor’s debts, which is otherwise illegal under the automatic stay.

No-Asset case – Pertains to a bankruptcy case under chapter 7 where the debtor has no asset or properties to be liquidated in order to pay for the debtor’s creditors.

Nondischargeable debt – This is a type of debt under the bankruptcy code that cannot be eliminated. Examples of these are: certain taxes, debts for alimony, debts arising from personal injury or death caused by driving under the influence of drugs or intoxicated, home mortgage, debts for restitution debts for child support and among many others.

Objection to Dischargeablity – This is an objection made by the creditors against the release of the debtor from his dischargeable debts. The usual allegations is that the debt was incurred under false pretenses or that the debtor was fiduciary at that time.

Objection to Exemptions – This is an objection made by the creditor or trustee in order to claim payment from an exempted property of the debtor.

Party in Interest – These are individual (party) or individuals (parties) who are waiting to be heard in court regarding a bankruptcy matter. The usual parties are bankruptcy administrator, creditors, debtor and case trustee.

Petition Preparer – the one who prepare a bankruptcy petition and is usually a business not authorized to practice law.

Plan – this is the scheme of a debtor detailing how he will pay his debts to his creditors on a specified length of time.

Plaintiff – this refers to a business or person who files legally a complaint in court.

Postpetition Transfer – This is done after the commencement of the bankruptcy case where the transfer of the debtor’s property is made.

Prebankruptcy Planning – This is the planning or arrangement made regarding the debtor’s asstes and properties so that the debtor will have maximum advantage of the exemptions on his properties or assets. This is usually done by changing the nonexempt assets into exempted ones.

Presumption of Abuse – refer to Means Test

Priority – If the debtor does not have enough money to pay for all his debts, the bankruptcy code has statutory rankings of unsecured debts that specify which types of debts need to be paid over other debts. For example, a debt on child support or alimony should be paid first and in full before paying other unsecured debts such as credit card debt or trade debt.

Priority Claim – This is an unsecured claim of a creditor that needs to be paid first above other unsecured debt. The word priority pertains to the arrangement of unsecured claims to be paid from first to last. A creditor needs to file a written statement, proofs and the reason why the credit was made to the debtor. An official form for this purpose is available.

Property of The Estate – Pertains to all equitable or legal assets of the creditor from the beginning of the case.

Reaffirmation Agreement – This is an arrangement under chapter 7 bankruptcy by a debtor to pay continually a dischargeable debt such as car loan even after bankruptcy in order to keep the car that would be repossessed by the creditor.
Secured creditor – A type of creditor that has the capacity to take hold or sell a specific property of the debtor in payment for the debtor’s debt whether partially or fully.

Schedules – There is an official form for this process that the debtor must follow or use. It contains a detailed list made by the debtor along or shortly after filing of the bankruptcy that shows the debtors financial information such as liabilities and assets.

Small Business Case – This is a special type of case in chapter 11 that does not go through a creditors’ committee. However, the debtor is under strict supervision of the US trustee and there are certain provisions in the code where the business has a lesser span of time spent under this type of bankruptcy.

Statement of Financial Affairs – There is an official form for this process wherein it consists a sequence of questions that the debtor needs to respond to in written form. The questions may concern the debtor’s lawsuits by creditors, transfers of property, sources of income and many others.

Statement of Intention – This under chapter 7 bankruptcy where the debtor declares his plans for agreement on consumer debts that are secured by property of the estate.

Substantive Consolidation – This is the process of pooling the assets and liabilities of two or more related debtors in order to pay their debts. The courts are usually disinclined to undergo this process because the court’s action must be justified in cases like the benefit and harm that each creditor receives.

341 Meeting – This is also known as creditor’s meeting. This meeting is attended by the trustee, examiner, the debtor and creditor. The debtor will be questioned by the creditors under oath in order to know more about the debtor’s financial state.

Transfer – It pertains to the debtor’s way of marshalling or disposing off his properties.

Trustee – A trustee is appointed by the bankruptcy administrator who has the power to exercise statutory powers solely for the advantage of unsecured creditors. The trustee is a representative of the bankruptcy estate that exercises his power with the guidance of the court and direct supervision of the bankruptcy administrator. One of the many responsibilities of a trustee are: bringing actions versus creditors, evaluating the debtor’s petition and schedules, liquidation of the property of the debtor and using the proceeds from the liquidation to pay the debtor’s creditors. A trustee is appointed in bankruptcy cases filed under chapters 7, 12, 13 and some chapter 11 cases.

U.S. Trustee – A Justice Department officer who is in charge of overseeing the administration of bankruptcy estates, trustees and cases. This person also has the following responsibilities: performance of statutory duties, checks plans and disclosure statements, examines fee applications and monitors creditors’ committees.

Undersecured Claim – This is a type of debt that has a collateral that is worth less than the amount needed to pay the debt.

Unliquidated Claim – This is a type of claim where the exact amount has not been decided.

Unscheduled Debt – This is a debt which was not included by the debtor when listing all his debts inside the schedules form that was filed in court. This type of debt may or may not be discharged by the court, depending on the nature of the situation.

Unsecured Claim – This is a type of debt where a creditor does not hold a guaranteed payment in the form of lien or mortgage or collateral. This debt is usually extended based on the creditor’s evaluation of the debtor’s ability to pay.

Voluntary Transfer – This is done with the consent of the debtor where the latters property are handed over.