Bankruptcy Glossary

Abandonment: The act of a trustee relinquishing possession and control of property out of the estate and giving it back to the debtor.

Absolute priority rule: In a Chapter 11 case, the rule that no junior class of claims or interests may receive anything of value from the estate unless a more senior non-accepting class of unsecured claims or interests is paid in full.

Accountant: A person authorized under applicable law to practice public accounting.

Action or civil action: An adversary proceeding or a contested petition or proceedings to vacate an order for relief or to determine any other contested matter.

Adequate protection: Security, collateral or some other measure undertaken or provided by the debtor in bankruptcy, to protect a claim holder from depreciation of its collateral pending confirmation of a plan, for the period during which the debtor has continued possession or use of the collateral.

Administrative expenses: Actual and necessary costs and expenses involved in preserving an estate, including wages, salaries, or commissions for services rendered.

Adversary matter: A dispute in a bankruptcy proceeding that may be adjudicated by means of an adversary proceeding (lawsuit) filed in bankruptcy court.

Allowed claim: A claim or debt deemed allowed in a bankruptcy case

Antecedent debt: A debt that is accrued or acquired prior to the debtor making a payment to the creditor on account of the debts

Anti-alienation clause: A term or provision of a trust that forbids transfer of the debtor’s beneficial interest in the trust to another.

Assignment: A transfer of a right or property and duties in connection with a contract, to another.

Assumption: A debtor or the estate may assume or reject a lease or executory contract; the act of continuing to be responsible for the lease or contract.

Avoidance of lien: The act of obtaining a release from the effect of a lien, judgment or security interest in property, typically in connection with exempt property but also on any grounds provided by the Bankruptcy Code.

Avoidance powers: The trustee’s or debtor’s powers to avoid a lien.

Badges of fraud: Various kinds of conduct that may suggest fraudulent intent on the part of the debtor.

Bankruptcy: Legal process that takes place because of insolvency; unable to pay one’s debts; insolvent.

Bankruptcy Act of 1898: The bankruptcy statute enacted in 1898 and repealed in 1978 to be replaced by the Bankruptcy Reform Act of 1978 (the current statute followed for bankruptcy cases).

Bankruptcy estate: All legal or equitable interests of the debtor in property at the time of the bankruptcy filing.

Bankruptcy Reform Act of 1978: The 1978 statute under which bankruptcy would be governed, establishing the current Bankruptcy Code and replacing the former Bankruptcy Act.

Bankruptcy Reform Act of 1994: The 1994 legislation amending the Bankruptcy Code. This enactment included provisions to expedite bankruptcy proceedings, standardize fees, and encourage consumers to file chapter 13 instead of chapter 7. Created the National Bankruptcy Review Commission to do a thorough review of the Bankruptcy Code and recommendations for additional changes.

Bankruptcy rules: Also known as the Federal Rules of Bankruptcy Procedure, the rules that govern the procedures in bankruptcy and adversary cases. In addition to these rules, each bankruptcy court typically adopts is own “local rules” that supplement the Federal Rules.

Best interests test: Under the “test” the plan must provide to pay the general unsecured creditors at least as much as they would have been paid had the debtor filed in Chapter 7 instead.

Cash collateral: Various kinds of cash assets such as, money, securities, documents of title, and proceeds, products, offspring, rents or profits of property, upon which a creditor has a lien or other secured interest.

Chapter 7: A liquidation bankruptcy for an individual, husband and wife, partnership or corporation; typically, nonexempt property is liquidated (sold) and the proceeds paid out to creditors on a pro-rata bases, and the debtor is discharged of liability for the debts. Certain categories of debtors are not entitled to a discharge, and certain categories of property are exempt (i.e., can not be taken from the debtor).

Chapter 9: A financial reorganization of a public entity.

Chapter 11: A financial reorganization of a business.

Chapter 12: A financial reorganization of a family farming enterprise.

Chapter 13: An adjustment of debts of an individual.

Chapter 20: Courthouse slang; a chapter 7 bankruptcy which, after final discharge, is quickly followed by the same debtor filing a chapter 13.

Claim: Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, un-matured, disputed, undisputed, legal, equitable, secured, or unsecured; or a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, un-matured, disputed, undisputed, secured, or unsecured.

Claims agent: A claims agent is a person appointed to manage the filing and retention of proofs of claim.

Class of creditors: A group of creditors entitled to similar treatment in a bankruptcy case

Co-debtor stay: In Chapter 13 cases, an automatic stay which restrains creditor actions against someone who is co-liable with the debtor on a consumer debt, but who has not filed bankruptcy, and the debtor has agreed to pay the 100% of the debt through the chapter 13 plan.

Collateral Property pledged to secure payment of a debt

Collective bargaining agreement: An employment agreement entered into by an employee with a group of employees to negotiate with the employer over pay, benefits etc.

Confirmation: A court’s approval of a debtor’s proposed plan in one of the reorganization chapters.

Consensual lien: A lien granted by agreement between the lien holder and the debtor, such as a mortgage or a UCC security interest.

Constructive trust: An equitable remedy under which a person who has acquired property by a wrongful act is deemed to hold the property in trust for the victim of the wrong.

Consumer debt: Debt incurred by an individual primarily for a personal, family, or household purpose.

Contested matter: A dispute in a bankruptcy proceeding that may be adjudicated by motion in the bankruptcy court.

Contingent debt: A claim for which the debtor’s legal duty to pay does not come into existence until triggered by the occurrence of a future event. conversion Changing a case from one chapter to another.

Core proceeding: A proceeding in a bankruptcy case that involves the adjudication of rights created by the Code, or concerns issues that could only arise in a bankruptcy case.

Creditor: An entity that has a claim against the debtor.

Custodian: May mean any of the following:

(A) a receiver or trustee of any of the property of the debtor, appointed in a case or proceeding not under this title; or

(B) an assignee under a general assignment for the benefit of the debtor’s creditors; or

(C) a trustee, receiver, or agent that is appointed or authorized to take charge of property of the debtor for the purpose of enforcing a lien against such property.

Customer property: Cash, security, or other property received, acquired, or held by or for the account of the debtor, from or for the securities account of a customer.

Debt: Liability on a claim.

Debtor: A person or municipality concerning which a case under this title has been commenced.

Discharge: Extinguishing the debtor’s personal liability on debts, through the granting of a permanent injunction protecting the debtor from efforts to collect such debts as a personal liability.

Disclosure statement: A written document prepared by the chapter 11 debtor that is designed to provide adequate information to creditors allowing them to evaluate the plan of reorganization

Dismissal: The court’s termination of the bankruptcy case upon voluntary request or withdrawal by the petitioner, or due to a motion filed by a party of interest.

Dismissal with prejudice: The court’s dismissal of a bankruptcy case with the added condition that the debtor is barred from refiling a bankruptcy for a period of time, or barred from discharging certain debts in any future bankruptcy case.

Distribution: The payment to creditors of money generated by the liquidation of a debtor’s property.

Disposable income: Income which is received by the debtor and which is not reasonably necessary for maintenance or support of the debtor or a dependent of the debtor.

Drop-dead clause: A provision in a contract or rehabilitation plan that requires exact compliance with the debtor’s obligations and gives the creditor an immediate right of action in th event of default.

Equity: The value of an asset over and above any encumbrances.

Estate: The commencement of a bankruptcy case creates an “estate.” The estate technically becomes the temporary legal owner of all of the debtor’s property.
The debtor’s creditors are paid from nonexempt properties of the estate.

Examiner: A person appointed by the court to investigate the debtor usually in Chapter 11 case only.

Exception from discharge: A debt that is not allowed to be discharged in a bankruptcy case.

Exclusivity period: The period following the filing of a Chapter 11 petition, during which the debtor has the exclusive right to file a plan.

Executory contract: A contract in which both parties have duties remaining to be satisfied

Exempt property: Category of debtor’s property that is not taken to satisfy debts.

Final discharge: Extinguishing the debtor’s personal liability on certain debts, through the granting of a permanent injunction protecting the debtor from efforts to collect such debts as a personal liability.

Foreclosure: Foreclosure occurs when a property owner has defaulted on a mortgage or installment agreement the process of a mortgagor or other holder of an encumbrance on the debtor’s property, seizes and sells the property to pay off the debt.

Fraudulent transfer or conveyance: a debtor’s conveyance or transfer of an asset, without adequate consideration, primarily for the purpose of concealing it from his creditors or the bankruptcy estate.

Gap period: The time between the filing of an involuntary petition and adjudication that the debtor is a “bankrupt.”

Garnishment: A creditor’s seizure of property of the debtor in the possession of a third party (for example a wage garnishment).

Good faith: Debtors who have filed their cases or plans in an honest way showing they are trying to solve their debt problems without unfair manipulation of the system or fraud against a creditor.

Homestead exemption: Protecting the debtor’s residence against seizure. This is an exemption that must be granted under state law.

Insolvent: When the total debt of an entity is greater than all of its property.

Intellectual property: Intellectual Property, or IP, is the group of legal rights to things people create or invent. Intellectual property rights typically include patent, copyright, trademark and trade secret rights.

Involuntary bankruptcy: A chapter 7 or chapter 11 case initiated by a debtor’s creditors rather than by the debtor.

Joint petition: One bankruptcy petition filed by a husband and wife together.

Judicial lien: Lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.

Judgment: A decision by the court.

Lien: Charge against or interest in property to secure payment of a debt or performance of an obligation.

Liquidate: The selling of a debtor’s property; proceeds distributed to creditors.

Matrix: A list of the names and addresses of creditors typically filed with the petition and schedules upon commencement of the bankruptcy case.

Motion: A request filed setting a court hearing and seeking an order from the judge.

“New debtor” syndrome: A practice whereby a company in trouble transfers a parcel of “distressed” real property that is on the eve of foreclosure, to a new corporation, then puts the new corporation into chapter 11 to halt the foreclosure.

No-asset case: A Chapter 7 case where there are no assets available to satisfy the creditor’s unsecured claims; a case in which all of the debtor’s property is “exempt.”

Nol: Net operating loss

Non-dischargeable debt: A debt that may not be discharged under one or more chapters of the Bankruptcy Code.

Nonexempt property: Property that the debtor owns free and clear of liens and the debtor’s property which has market value above the amount of any security interest or lien and any exemption that the debtor holds in the property.

Objection to discharge: An objection filed requesting the court to prohibit the discharge of a particular debt, or to deny the debtor a discharge as to all of the debts.

Objection to claim: An objection filed in a bankruptcy case requesting the court to deny a creditor’s claim or the creditor’s characterization of it as secured, priority, or other.

Objection to exemption: An objection filed in a bankruptcy case requesting the court to deny a debtor’s claim of exemption in property.

Party-in-interest: May includes the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee.

Permanent injunction: Extinguishing the debtor’s personal liability on dischargeable debts, through the granting of a permanent injunction protecting the debtor from efforts to collect such debts as a personal liability.

Plan: A detailed description of how the debtor proposes to pay creditors’ claims over a fixed period of time.

Preferential lien: A lien obtained under circumstances which make it a preferential payment or transfer and subject to being avoided.

Prepackaged bankruptcy: Before filing a bankruptcy case debtor and creditors may have negotiated an agreed upon plan of reorganization. The bankruptcy petition can then be filed and the plan confirmed with much less time and expense.

Present value: The present value of a future amount adjusted to account for inflation.

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 the claims in full.

Proof of claim: The official form prescribed by the Bankruptcy Rules by which a creditor files his claim or evidence of debt in a bankruptcy case.

Property of the estate: The commencement of a bankruptcy case creates an “estate.” The estate technically becomes the temporary legal owner of all of the debtor’s property. Generally speaking, the debtor’s creditors are paid from nonexempt property of the estate.

Purchase money security interest: A security interest in property, to the extent that it secures credit given to the debtor for the purpose of acquiring the property and actually used by the debtor for that purpose.

Reaffirmation agreement: Agreement between the debtor and the creditor that states the debtor will pay all, or a portion, of the balance owed on the installment agreement, even though the debtor has filed bankruptcy. In return, the creditor promises that, as long as payments are made, the creditor will not repossess or take back the personal property constituting the collateral for the debt.

Reach-back period: The period immediately prior to filing the bankruptcy within which transfers of money or property may be deemed fraudulent or preferential.

Redemption: The act of a bankruptcy debtor retaining title and possession of an asset for which there is a balance owed, by paying off in a lump sum the present value of the property and discharging any unsecured balance.

Remand: The act of a court of appeal returning a case to the lower court (i.e., the bankruptcy court) for further adjudication of the issues.

Reorganization: A form of bankruptcy in which an entity’s financial affairs are reorganized in order to provide relief from debt. Generally this will be done by rescheduling payments or discharging a debt.

Schedules: Documents consisting of lists of debts, property and other information that are filed together with the petition at the commencement of a bankruptcy case.

Secured debt: Debts for which the extension of credit was based upon the creditor’s right to seize pledged property on default, in addition to the debtor’s ability to pay.

Security: May include the following:

• note
• stock
• treasury stock
• bond
• debenture
• collateral trust certificate
• pre-organization certificate or subscription
• transferable share
• voting-trust certificate
• certificate of deposit
• certificate of deposit for security

Security interest: A lien created by an agreement

Setoff: A creditor’s right to keep debtor’s money that they have in their possession in order to apply it to a pre-petition debt owed by the debtor.

Spendthrift provision: A trust with restrictions on alienation designed to protect the fund from dissipation by the beneficiary or seizure by the beneficiary’s creditors.

Statement of intentions: A document that the debtor files at the commencement of a bankruptcy case describing what he or she intends to do with secured assets.

Statutory lien: Lien arising solely by force of a statute on specified circumstances or conditions.

Stay: A restraining order arising out of the filing of a bankruptcy case.

Straight bankruptcy: Chapter 7 bankruptcy in which debts are discharged, non-exempt property is liquidated and there is no extended payment plan involved.

Substantial abuse: The characterization of a bankruptcy case filed by an individual whose debts are primarily consumer debts and where the court finds that the granting of relief would be an abuse under the chapter 7 laws because 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.

UCC: Uniform Commercial Code. A statute adopted that covers sales, negotiable instruments, security interests and other commercial transactions.

Under-secured debt: Debt secured on certain parts of the debtor’s property by means of a security interest, lien or other security instrument, but for which the value of the property securing the debt is less than the amount of the debt.

Unliquidated claim: A claim for which the amount and liability have not been precisely determined and which cannot be determined without an evidentiary hearing.

Unmatured claim: A claim for a debt that has come into existence but whose date of payment has not yet come due.

Unscheduled debt: A debt that should have been listed by a debtor in the schedules filed with the court but was not.

Unsecured debt: Those debts for which the extension of credit was based solely on an evaluation of the debtor’s ability to pay, as opposed to secured debts.

Venue: The proper district in which to file a bankruptcy case.

Violation of the stay: The unauthorized act of a creditor attempting to take property or money of the debtor to satisfy a claim during the time the automatic stay is in effect.

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

Voluntary case: A bankruptcy filed voluntarily by the debtor as opposed to a bankruptcy filed by a debtor’s creditors.

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