Bankruptcy Basics
claim
A creditor's assertion of a right to payment from the debtor or the debtor's property.
liquidated claim
A creditor's claim for a fixed amount of money.
dischargeable debt
A debt for which the BK Code allows the debtor's personal liability to be eliminated.
preference or 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.
undersecured claim
A debt secured by property that is worth less than the full amount of the debt.
nondischargeable debt
A debt that cannot be eliminated in Bk. E.g. home mortgage, debts for alimony or child support, certain taxes, debts for most gov't funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime. Some debts, such as debts for $$ or prop obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action.
consumer debtor
A debtor whose debts are primarily consumer debts.
plan
A debtor's detailed description of how the debtor proposes to pay creditors' claims over a fixed period of time.
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.
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.
bankruptcy judge
A judicial officer of the United States district court who is the court official with decision-making power over federal bankruptcy cases.
adversary proceeding
A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankr. P. 7001.
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).
party in interest
A party who has standing to be heard by ct in a matter to be decided in the BK case. The debtor, the U.S. trustee or BK administrator, the case trustee and creditors are parties in interest for most matters.
plaintiff
A person or business that files a formal complaint with the court.
debtor
A person who has filed a petition for relief under the BK Code.
discharge
A release of a debtor from personal liability for certain dischargeable debts set forth in the BK Code. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.)
motion to lift the automatic stay
A request by a creditor to allow the creditor to take action against the debtor or the debtor's property that would otherwise be prohibited by the automatic stay.
liquidation
A sale of a debtor's property with the proceeds to be used for the benefit of creditors.
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.)
small business case
A special type of chapter 11 case in which there is no creditors' committee (or the creditors' committee is deemed inactive by the court) and in which the debtor is subject to more oversight by the U.S. trustee than other chapter 11 debtors. The BK Code contains certain provisions designed to reduce the time a small business debtor is in bankruptcy.
Voluntary transfer
A transfer of a debtor's property with the debtor's consent.
objection to dischargeability
A trustee's or creditor's objection to the debtor being released from personal liability for certain dischargeable debts. Common reasons include allegations that the debt to be discharged was incurred by false pretenses or arose because of the debtor's fraud while acting as a fiduciary.
objection to exemptions
A trustee's or creditor's objection to the debtor's attempt to claim certain prop as exempt from liquidation by the trustee to creditors.
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.
proof of claim
A written statement and verifying documentation filed by a creditor that describes the reason the 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.
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.)
reaffirmation agreement
An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession.
assume
An agreement to continue performing duties under a contract or lease.
defendant
An individual (or business) against whom a lawsuit is filed.
automatic stay
An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.
chapter 15
Deals with cases of cross-border insolvency.
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. Examples include home mortgages, auto loans and tax liens.
unscheduled debt
Debt that should've been listed by the debtor in the schedules filed with court but wasn't. (Depending on the circumstances, an unscheduled debt may or may not be discharged.)
consumer debts
Debts incurred for personal, as opposed to business, needs.
schedules
Detailed lists filed by the debtor along with (or shortly after filing) the petition showing the debtor's assets, liabilities, and other financial information. (There are official forms a debtor must use.)
U.S. trustee
An officer of the Justice Dep't responsible for supervising the administration of BK cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors' committees; monitoring fee applications; and performing other statutory duties. Compare, BK administrator.
chapter 12
Provides for adjustment of debts of a "family farmer," or a "family fisherman" as those terms are defined in the BK Code.
chapter 13
Provides for adjustment of debts of an individual with regular income. Allows a debtor to keep property and pay debts over time, usually three to five years.
chapter 9
Provides for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts).
prebankruptcy planning
The arrangement (or rearrangement) of a debtor's prop to allow the debtor to take maximum advantage of exemptions. (Prebankruptcy planning typically includes converting nonexempt assets into exempt assets.)
current monthly income
The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor's spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).
bankruptcy court
The bankruptcy judges in regular active service in each district; a unit of the district court.
bankruptcy petition
The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case. (There are official forms for bankruptcy petitions.)
Bankruptcy Code
The informal name for title 11 of the United States Code (11 U.S.C. §§ 101-1330), the federal bankruptcy law.
341 meeting
The meeting of creditors required by section 341 of the BK Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs. Also called creditors' meeting.
trustee
The rep of the BK 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 U.S. trustee or BK administrator. The trustee is a private individual or corp appointed in all ch 7, ch 12, and ch 13 cases and some ch 11 cases. The trustee's responsibilities include reviewing the debtor's petition and schedules and bringing actions against creditors or the debtor to recover prop of the BK estate. In ch 7, the trustee liquidates prop of the estate, and makes distributions to creditors. Trustees in ch 12 and 13 have similar duties to ch 7 trustees and the additional responsibilities of overseeing the debtor's plan, receiving payments from debtors, and disbursing plan payments to creditors.
lien
The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.
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 $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.)
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.)
secured creditor
A creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or all of the claim.
petition preparer
A business not authorized to practice law that prepares BK petitions.
no-asset case
A chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.
unliquidated claim
A claim for which a specific value has not been determined.
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.
contingent claim
A claim that may be owed by the debtor under certain circumstances, e.g., where the debtor is a cosigner on another person's loan and that person fails to pay.
bankruptcy administrator
An officer of the judiciary serving in the judicial districts of Alabama and North Carolina who, like the U.S. trustee, is 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. Compare U.S. trustee.
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.
transfer
Any mode or means by which a debtor disposes of or parts with his/her property.
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 a corporation of which the debtor is a director, officer, or person in control.
confirmation
Bankruptcy judges's approval of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.
exemptions, exempt property
Certain property owned by an individual debtor that the Bankruptcy Code or applicable state law permits the debtor to keep from unsecured creditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor's primary residence (homestead exemption), or some or all "tools of the trade" used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives in.
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.)
chapter 11
Generally provides for reorganization, usually involving a corp. or partnership. (A Ch. 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.)
chapter 7
Provides for "liquidation,"(i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.)
credit counseling
Generally refers to two events in individual BK cases: (1) the "individual or group briefing" from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the BK Code; and (2) the "instructional course in personal financial management" in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or BK administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.
joint petition
One bankruptcy petition filed by a husband and wife together. Return to Top
creditor
One to whom the debtor owes money or who claims to be owed money by the debtor.
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.)
priority
The BK 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. For example, under the BK Code's priority scheme, money owed to the case trustee or for prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.
contested matter
Those matters, other than objections to claims, that are disputed but are not within the definition of adversary proceeding contained in Rule 7001.
postpetition transfer
Transfer of debtor's prop made after commencement of case.
creditors' meeting
see 341 meeting
debtor education
see credit counseling
presumption of abuse
see means test
means test
§707(b)(2) of the BK Code applies a "means test" to determine whether an individual debtor's chapter 7 filing is presumed to be an abuse of the BK Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor's aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,950, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $6,575. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.
