Glossary of Bankruptcy Terms

In order to get a better understanding of bankruptcy law, you'll need to know all the basic bankruptcy terminolgy. Below you'll find a comprehensive list of terms related to bankruptcy and their definitions in alphabetical order:

 

341 Meeting

See: First Meeting of Creditors

 

Absolute Priority or Absolute Priority Rule

The order of payment to the different claimants as mandated by the Bankruptcy Code. Taxes, creditors, and lien holders have a higher priority and are paid first. Shareholders are paid after all other claimants have been paid.

 

Adequate Protection

The right of a party with interests in the debtor's property to assurance that its interests will not be reduced or dismissed during bankruptcy proceedings.

 

Administrative Claim or Administrative Expense Claim

Court approved debt acquired by the debtor after the bankruptcy filing. This debt can include costs of preserving the estate, wages, court costs, legal fees, accounting fees, administrative expenses, etc.

 

Adversary Proceeding

A lawsuit filed in bankruptcy court associated with a bankruptcy case such as in the case of complaints of discharge ability of debt or complaints to determine the degree and legitimacy of liens.

 

Allowed Claim or Allowed Interest

A creditors claim or an equity interest approved by the bankruptcy court under a reorganization plan.

 

Arrangement

A variety of agreements relating to the conditions that allow a bankrupt company to operate such as an extension of time allowed for the repayment of debt.

 

Assets

Everything that the debtor owns including property, business interest, investments, funds, and tangible and intangible effects that a debtor must disclose in the bankruptcy schedules.

 

Assume

An agreement to honor or continue performing duties under a contract or lease.

 

Automatic Stay

An automatic injunction that suspends any actions against the individual or company in bankruptcy when a bankruptcy petition is filed. This prevents creditors from seize assets or from taking legal actions against the debtor for unpaid debt.

 

Avoidance Power

The power of the bankruptcy court or bankruptcy trustee to invalidate certain liens, obligations, or transactions created prior to filing for bankruptcy. It is intended to reverse transfers of property that favor one creditor over another.

 

Bankruptcy or Insolvency

The legal procedure used to deal with the financial collapse or debt problems of an individual or a business.

 

Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005

The legislation designed to make it more difficult for a person, estate, or business to file for Chapter 7 bankruptcy.

 

Bankruptcy Act of 1898

The basic rules of the federal bankruptcy statutes used to keep creditors from seizing the assets of distressed companies until the Bankruptcy Reform Act of 1978. Primarily used in the liquidation of companies.

 

Bankruptcy Act of 1933

An expansion of the statutory rules of bankruptcy applicable to companies applying for reorganization.

 

Bankruptcy Act of 1934

Additional expansion of the statutory rules of bankruptcy applicable to companies applying for reorganization.

 

Bankruptcy Administrator

An officer of the bankruptcy judiciary for the judicial districts of Alabama and North Carolina responsible for supervising the administration of bankruptcy cases, estates in bankruptcy, and trustees assigned to manage bankruptcy cases.

 

Bankruptcy Amendments of 1984

Amendments to the Bankruptcy Reform Act of 1978 that contain various provisions including limiting the jurisdiction of the bankruptcy court and the right of companies to invalidate labor contracts while in bankruptcy.

 

Bankruptcy Code

The collection of statutory rules and regulations of the bankruptcy laws enacted after the Bankruptcy Reform Act of 1978.

 

Bankruptcy Court

The federal bankruptcy tribunal of judges assigned to hear and rule over bankruptcy cases in district bankruptcy courts.

 

Ballot Date

The appointment date and time designated by the bankruptcy court for confirmation or rejection of a plan of reorganization set forth by the debtor.

 

Bankruptcy Estate

The legal or equitable interests of the debtor at the time of the bankruptcy filing including all assets, property, and interests held by the debtor.

 

Bankruptcy Judge

The judicial officer and representative of the United States Bankruptcy District Court that presides over bankruptcy proceedings

 

Bankruptcy Mill

A business that is not authorized to practice law but provides bankruptcy counseling and files bankruptcy petitions on behalf of debtors.

 

Bankruptcy Petition

The document filed with the Bankruptcy Court to initiate a bankruptcy proceeding. This petition can be voluntary if filed by the debtor or involuntary if filed by the creditors.

 

Bankruptcy Reform Act of 1978

The first substantive revision to the Bankruptcy Code that upgraded the jurisdiction of the U.S. Bankruptcy Courts to rule over cases handled by other courts. The revisions allow for the filing of a joint petition by a husband and wife concerning business reorganization.

 

Bankruptcy Reform Act of 1994

Bankruptcy legislation that included provisions to expedite bankruptcy proceedings, standardize fees, encourage individual debtors to use Chapter 13 to reschedule their debts rather than use Chapter 7 to liquidate their debt, and provisions to aid creditors in recovering claims against bankrupt estates. The Act also created the National Bankruptcy Commission.

 

Bar Date

The last date permitted by the bankruptcy court for creditors to file a claim against the debtor.

 

Business Bankruptcy

A business or an individual with business related debt that files for bankruptcy. The U.S. Administrative Office of the Courts divides bankruptcies into business and non-business cases.

 

Cash Collateral

Cash or the equivalent owned by the debtor subject to liens by creditors.

 

Chandler Act of 1938

Legislation that provides substantial modifications to the Bankruptcy Act of 1898.

 

Chapter

The Bankruptcy Code is structured into Chapters. Each Chapter represents deferent applications of the bankruptcy code and is applicable to different bankruptcy conditions. Lesserknown Chapters include Chapters 1, 3, and 5 and cover matters of general application.

 

Chapter 7

This Chapter provides for liquidation of nonexempt assets by a trustee and creditors distribute the proceeds to settle claims. If it is company, they must cease operations after filing chapter 7 bankruptcy.

 

Chapter 7 Trustee

The person appointed by the bankruptcy court to represent the interests of the estate in bankruptcy and the unsecured creditors.

 

Chapter 9

This Chapter provides for bankruptcy and reorganization of municipalities (cities, towns, villages, counties, taxing districts, municipal utilities, and school districts).

 

Chapter 12

This Chapter provides for relief of debt to family farmers and family fishing enterprise.

 

Chapter 13

This Chapter provides for the adjustment of debt of an individual with regular income that wishes to reschedule the debt and paying the debt off over time. A sole proprietorship can file for Chapter 13 but a partnership or a corporation cannot.

 

Chapter 15

This Chapter provides for cross-border insolvency.

 

Chapter 20

This Chapter provides for combination filing, the filing of a Chapter 7 eliminating unsecured debts followed by a Chapter 13 to deal with continuing liens.

 

Chapter 22

This Chapter provides for double filing, a company that files for Chapter 11 twice.

 

Chapter 33

This Chapter provides for triple filing, a company that files for Chapter 11 three times.

 

Charged Off

This refers to debt that creditors do not expect to collect and it relates to the creditor's taxes but it does not mean that the debt is no longer legally collectable.

 

Claim

A creditor's affirmation of a right of payment from the debtor or the debtor's liquidated or un-liquidated property.

 

Class

The different categories of claims against a debtor.

 

Collateral

The debtor.s property that is subject to a lien for payment by a secured creditor. If more than one creditor holds a lien for the same collateral, the creditor that holds the first lien by date is paid first.

 

Complaint

A petition in a lawsuit that notifies the court and the debtor of a claim by a creditor for an award of relief against the debtor.

 

Confirmation

Creditors have approved Authorization of a debtor's plan of reorganization, liquidation, or repayment plan by the bankruptcy court after the plan.

 

Confirmed

A binding plan of reorganization approved by the Bankruptcy Court in Chapter 11, 12 or 13.

 

Consumer Debtor

A debtor that primarily owes consumer debts.

 

Consumer Debts

Debts acquired for personal reasons, as opposed to corporate or business debt.

 

Contested Matter

A dispute to a claim, initiated by the filing of a motion of the court but not adversary proceeding.

 

Contingent Claim

A claim that may be owed by the debtor under certain situations such as when the debtor is a cosigner on a defaulted loan

 

Contingent

Used to describe debts that are not fixed at the time of filing, but are dependent on the occurrence of some other event to fix the liability.

 

Convenience Claims

See Small Claims

 

Conversion

Changing Chapters in a bankruptcy filing after filing if the debtor is eligible.

 

Core Proceedings

The fundamental proceedings subject to the particular jurisdiction of the bankruptcy court inherent to the administration of a bankruptcy case.

 

Cramdown

Confirmation of a plan of reorganization over one or more creditor.s objections.

 

Credit Counseling

Seminar from a nonprofit budget and credit counseling agency or an instructional course in personal financial management. An individual must attend credit counseling before filing for Chapter 7 or Chapter 13 bankruptcy.

 

Creditor

A business or person that the debtor owes money to for services or goods provided to the debtor on credit.

 

Creditors' Committee or 341 Meeting

A committee of representatives of the creditors appointed by the U.S. Trustee to act on behalf of the creditor.s interests in negotiating a plan of reorganization.

 

Current Monthly Income

The average monthly household income of the six-month period prior to filing for bankruptcy, excluding certain benefit payments and social security payments.

 

Debtor

The person, couple, or entity filing for bankruptcy and seeking debt relief from creditors under the Bankruptcy Code.

 

Debtor in Possession

A debtor that retains control of company operations rather than relinquishing control to a trustee of the court.

 

Default

The failure to abide by contracts of debt obligations, nonpayment of debt.

 

Defendant

The person, couple, or entity against which a lawsuit for nonpayment is filed.

 

Discharge or Discharge of Debt

The satisfaction or elimination of debt, or the release of a debtor from certain debt obligations under the Bankruptcy Code.

 

Dischargeable Debt

The debt allowed to be eliminated by the Bankruptcy Code releasing the debtor from personal liability.

 

Disclosure Statement

A written comprehensive disclosure document prepared by the debtor and sent to creditors for consideration of a debtor.s plan of reorganization under Chapter 11 bankruptcy.

 

Dismissal

The termination of a bankruptcy proceeding by the bankruptcy court if it believes that the debtor or three creditors do not have an adequate case for bankruptcy.

 

Distressed

Entity under fear of failure to meet debt obligations near bankruptcy or insolvency.

 

Docket

The journal used by the clerk of the Bankruptcy Court to record all petitions, pleadings, orders, and all other court motions.

 

Domestic Support Obligation

Debts in the form of alimony, maintenance, or support owed to a child, spouse, or government entity for the financial support of a child or spouse.

 

ECF or Electronic Case Filing

A comprehensive case management system that allows debtors access to file information over the internet and permits courts to maintain electronic case files.

 

Effective Date

The date on which any decision handed down by the bankruptcy court becomes final or legal.

 

Equitable Subordination

The lowering of a claim.s priority by the court if the debtor is found to be engaging in inappropriate behavior.

 

Equity

The remaining value of a debtor.s interest in property after creditor.s interests and liens are deducted.

 

Examiner

An officer appointed by the court to investigate and supervise certain aspects of a bankruptcy cases including the debtor and/or the procedures.

 

Exchange Offer

An offer to exchange new securities for outstanding debt securities.

 

Exclusivity or Period of Exclusivity

The limited period (first 120 days after bankruptcy approval), a debtor in Chapter 11 has to file a plan of reorganization.

 

Executory Contract or Lease

Contracts or leases in which both parties still have part or all of the obligations remaining to be fulfilled.

 

Exemptions or Exempt Property

Certain assets or properties owned by the debtor that the Bankruptcy Code that cannot be recovered by creditors.

 

Failure

See Bankruptcy or Insolvency

 

Family Farmer or Family Fisherman

An individual, couple, or entity that engages in the farming or fishing industry, these industries can file a petition under Chapter 12 if they cannot meet their financial obligations if they meet certain debt limits and other statutory criteria.

 

Fee Examiner

An officer appointed by the bankruptcy court to monitor fees paid to the professionals involved in bankruptcy cases.

 

Fiduciary

A person entrusted with financial duties on behalf of another person.

 

Filing Fees

The financial charge imposed by the government for the processing of a bankruptcy filing, different chapters have different filing fees.

 

First Meeting of Creditors or 341 Meeting

A mandatory meeting required by section 341 of the Bankruptcy Code between the creditors and the debtor. The creditors, the trustee, examiner, and/or the United States Trustee question the debtor under oath about his/her financial affairs.

 

Fraudulent Conveyance or Fraudulent Transfer

A transfer of a company's property made with intent to defraud. The transfer takes place when the company is officially insolvent, causes the company to become insolvent, or is made for less than the property's value.

 

Fresh Start

The classification of a debtor's status after bankruptcy and is one of the reasons for the Bankruptcy Code. Bankrupt companies have their assets valued at current market value after a bankruptcy.

 

Gap Period

The period between the filing of an involuntary petition, order for relief, or voluntary petition, and the dismissal of the petition or a ruling on the petition.

 

General Unsecured Claim

A creditor's claim without security or collateral and without a priority for payment. Unsecured claims are only paid in proportion to the size of the claim relative to the total of claims in the class of unsecured claims if there are funds left over after the secured claims are paid.

 

Going Concern Value

A company.s worth if sold as an ongoing business rather than liquidating the assets.

 

Homestead

The primary place of residence of a debtor, it may include a house, apartment, condominium, or any other dwelling.

 

Impairment

A plan of reorganization that alters the contractual rights of a class of claim holders. An unimpaired class is one in which the plan of reorganization is automatically accept.

 

Indemnify

The guarantee that one party will not be held liable for another.s debt as in the case of a divorced spouse being held liable for the debt of the ex-spouse.

 

Insider of Corporate Debtor

Refers to a director, officer, or person in control of the debtor, a debtor that is a general partner in a partnership, a general partner of the debtor, or a relative of a general partner, director, officer, or person in control of the debtor.

 

Insider of Individual Debtor

Refers to any relative or general partner of a debtor, a debtor that is a general partner in a partnership, the general partner of a debtor, or a debtor that is a director, officer, or person in control of a corporation.

 

Insolvency or Bankruptcy

The legal procedure used to deal with financial collapse or debt problems by an individual or a business.

 

Interests

The equity interests of stockholders as referred to in bankruptcy documents.

 

Involuntary Bankruptcy

A bankruptcy initiated against the debtor by at least three creditors holding unsecured claims that collectively equal at least $5,000.

 

Joint Administration

The court-approved combination of multiple bankruptcy proceedings of affiliated entities for administrative convenience

 

Joint Petition

A bankruptcy petition filed together by a husband and wife.

 

Lien

A right of charge upon a debtor.s specific property intended to secure payment of a debt of duty.

 

Liquidated Claim

A creditor's right or demand for payment of a fixed amount of money.

 

Liquidating Reorganization

When the company is liquidated through one or more asset sales in Chapter 11 proceeding.

 

Liquidation

A sale of a debtor.s property (company or individual) for cash to satisfy debt obligations to creditors.

 

Matrix

A debtor.s list of creditors required as part of a Chapter 11 bankruptcy filing.

 

Means Test

A test used to determine whether a Chapter 7 filing is dismissed or converted to another chapter (usually to Chapter 13). The test is used to screen Chapter 7 filings to search for debtors that are able to repay part of their debts.

 

Motion to Lift the Automatic Stay

An automatic stay would prohibit a request by a creditor for permission to take action against the debtor or his /her property that.

 

Net Operating Loss or NOL

See Tax Loss Carry-Forward

 

No-Asset Case

A Chapter 7 bankruptcy case where the debtor has no assets to satisfy any part of the creditors' unsecured claims.

 

Non-Business Bankruptcy

The bankruptcy of an individual or a family farm categorized by the U.S. courts as a non-business bankruptcy.

 

Nondischargeable Debt

A debt that cannot be eliminated in bankruptcy such as most taxes, a primary home mortgage, alimony, child support, most government funded or guaranteed educational loans, reimbursement of benefit overpayments, DUI wrongful death debt, restitution debts, criminal fines, and debts acquired because fraudulent activities.

 

Objection to Dischargeability

An objection by a trustee or creditor to a debtor.s release from personal liability for certain dischargeable debts.

 

Objection to Exemptions

An objection by a trustee or creditor to a debtor.s attempt to claim certain property or assets as exempt from liquidation to settle outstanding debt.

 

Omnibus Hearing

A proceeding before the Bankruptcy Court where the Court may hear different arguments pertaining to one bankruptcy case.

 

PACER or Public Access to Court Electronic Records

An electronic service provided by the court system that grants the public access to information about bankruptcy filing.

 

Party in Interest

Refers to any party that has standing interests in a bankruptcy case and has the right to be heard by the court in a matter of bankruptcy. This includes the debtor, U.S. trustee, bankruptcy administrator, case trustee, and all creditors.

 

Period of Exclusivity

See exclusivity

 

Personal Bankruptcy

An individual, household bankruptcy, consumer bankruptcy, or wageearner bankruptcy.

 

Personal Property

Any personal assets except real property.

 

Petition, Bankruptcy Petition, or Petition For Relief

The document filed with the Bankruptcy Court that initiates a bankruptcy proceeding.

 

Plaintiff

The person or business that initiates a formal complaint with the court.

 

Plan

A detailed report by the debtor of how the debt is to be repaid to creditors over a fixed period.

 

Plan of Reorganization

A document that details how a bankrupt company plans to restructure itself, stay in operation, and satisfy its creditors in Chapter 11 bankruptcy.

 

Post-Petition

Anything that occurs after filing a bankruptcy petition.

 

Postpetition Transfer

A transfer of the debtor's property or assets that is made after the commencement of a bankruptcy case.

 

Pre-Bankruptcy Planning

The transfer of a debtor's nonexempt assets to exempt assets to allow the debtor to take maximum advantage of exemptions.

 

Preference or Preferential Debt Payment

A debt payment by a debtor made during a specified period before a debtor files for bankruptcy (90 days or within one year) and may be recovered by the trustee for the benefit of all creditors.

 

Prepackaged Bankruptcy

When a company agrees to a plan of reorganization that is approved by creditors before the company files a bankruptcy petition.

 

Prepetition

Anything that occurs before filing a bankruptcy petition.

 

Priority Claim

A prepetition unsecured debt that is entitled to be paid before other unsecured claims such as taxes, administrative expenses, unpaid wages, employee benefits, and customer deposits.

 

Priority

The statutory ranking used by the Bankruptcy Code to establish the order of payment of unsecured claims if there is not enough money to pay all unsecured claims.

 

Pro Rata or Pro-Rata

In proportion or proportionately.

 

Proof of Claim

A statement and documentation filed by a creditor establishing the creditor's claim against a debtor.

 

Property of the Estate

All legal or equitable property interests of the debtor in the beginning of a bankruptcy case.

 

Reaffirmation Agreement

An agreement by a debtor to continue paying a dischargeable debt after Chapter 7 bankruptcy.

 

Receiver

A person appointed by the court to take charge of a debtor's property.

 

Relief From Stay

When a judge lifts an order of automatic stay to allow action against a debtor or against the property of an estate.

 

Reorganization

The process by which a company can emerge from bankruptcy and become viable again in Chapter 11 bankruptcy. The company settles on a plan of repayment of debt with creditors and the plan is confirmed by the court.

 

Restructuring

An attempt to reorganize and satisfy debts out of court.

 

Retired Benefits Bankruptcy Protection Act

This Act was created to allow a company to continue paying insurance premiums for its employees while the company is in bankruptcy proceedings.

 

Reverse Leveraged Buyout

When a former leverage buyout company restructures its debt by issuing new equity in exchange for part or all of its outstanding debt from the original leveraged buyout.

 

Schedules

Comprehensive lists submitted by the debtor with the petition for bankruptcy or shortly after filing that details the debtor.s assets

 

Secured Creditor

A creditor holding a claim against the debtor that is secured by collateral or a lien.

 

Secured Debt

A claim secured by a lien in the debtor's property mortgage, pledge of collateral.

 

Set-Off

The ability of a creditor to discharge or reduce a debt by applying a counter claim against other assets owned by the debtor.

 

Skeleton Filing

A bankruptcy filing that is missing some of the necessary forms. Some courts will allow the initiation of a case if the most crucial forms are filed with the petition and the missing forms are promised within a specified period.

 

Small Business Case

A particular type of Chapter 11 case where there is no need for a creditors' committee or if the creditors' committee is considered inactive by the court, and if the debtor is subject to more oversight by the U.S. trustee than other Chapter 11 debtors. This is designed to reduce the time a small business debtor spends in bankruptcy.

 

Small Claims or Convenience Claims

For administrative convenience, numerous of small claims under a plan of reorganization or liquidation (hundreds or thousands of dollars) are sometimes grouped into a single class and settled for cash.

 

Stalking Horse

This is the party submitting the first bid to purchase assets in an auction.


Statement of Financial Affairs

A series of questions that a debtor must answer in writing and present with the petition relating to sources of income, transfers of property, lawsuits by creditors, etc.

 

Statement of Intention

A declaration by a Chapter 7 debtor relating to plans for dealing with consumer debts secured by property of an estate.

 

Substantial Abuse

This refers to the abuse of the privilege or fraud in cases of personal bankruptcy.

 

Substantive Consolidation

The combination of the assets and liabilities of two or more related debtors to satisfy their combined liabilities.

 

Super-Priority Claim

An administrative claim that takes precedence for payment over other administrative claims or priority claims.

 

Tax Loss Carry-Forward

Financial losses that can be carried forward and applied to future taxable income.

 

Transfer

Any method or manner used by a debtor to distribute part or all of his/her property.

 

Trustee

An officer of the court assigned to manage the property of a debtor for the benefit of the unsecured creditors under the supervision of the court and the U.S. trustee or bankruptcy administrator.

 

Under-secured Claim

Debt secured by property that is valued less than the amount of the debt.

 

United States Trustee

An agent of the U.S. Department of Justice appointed to help in bankruptcy cases by administrating various duties of the court and appointing officers to assist in the bankruptcy process except in North Carolina and Alabama.

 

Un-liquidated Claim

A claim without a specific value.

 

Unscheduled Debt

A debt left out of the required schedules filed with the petition that should have been included.

 

Unsecured Claim

A claim or debt secured by property that is worth less than the amount of debt and for which a creditor holds no special assurance of payment.

 

Unsecured Creditor

A creditor that extended credit to a debtor without sufficient collateral for security of payment.

 

Unsecured

A claim or debt without collateral as security for the debt, such as consumer debts.

 

VCIS or Voice Case Information System

A telephone service provided by the court system that supply automated information on bankruptcy case filings.

 

Voluntary Bankruptcy

A petition for bankruptcy filed by the debtor.

 

Voluntary Transfer

When a debtors consents to a transfer of his/her property.


Vulture Funds, Vulture Capitalists, or Vulture Investors:

Companies that aggressively seek financially troubled or bankrupt companies to restructure the ailing company by buying, selling, or brokering the purchase or sale of the company or portions of its debt or equity.

 

Wage-Earner Bankruptcy

See Chapter 13 or Personal Bankruptcy

 

Workout

An agreement between a debtor and the creditors for payment or rescheduling of the debt.

 

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