Michael T. Chulak & Associates, Attorneys, Lawyers, Law Firm

Bankruptcy Glossary – Terms

Most debtors who file a bankruptcy petition, and many of their creditors, know very little about the bankruptcy process. This glossary on bankruptcy terminology explains, in layman's terms, many of the legal terms that are used in cases filed under the Bankruptcy Code.

341 Meeting. The meeting of creditors required by section 341 of the Bankruptcy 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.

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.

Automatic Stay. An injunction that automatically stops lawsuits, foreclosures, 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).

Bankruptcy Administrator. An officer of the Judiciary serving in the judicial districts of Alabama and North Carolina who, like the United States 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.

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 estate technically becomes the temporary legal owner of all of the debtor’s property.

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 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 Trustee. A private individual or corporation appointed in all Chapter 7 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 for business purposes.

Case File. A complete collection of every document filed in court in a case.

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.) In order to be eligible for Chapter 7, the debtor must satisfy a "means test." The court will evaluate the debtor's income and expenses to determine if the debtor may proceed under Chapter 7.

Chapter 7 Trustee. A person appointed in a Chapter 7 case to represent the interests of the bankruptcy estate and the 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. The Chapter of the Bankruptcy Code providing (generally) for reorganization, 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 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 debtor.

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

Common Law. The legal system that originated in England and is now in use in the United States that relies on the articulation of legal principles in a historical succession of judicial decisions. Common law principles can be changed by legislation.

Confirmation. Bankruptcy judges's approval of a plan of reorganization or liquidation in Chapter 11, or payment plan in Chapter 12 or 13.

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

Consumer Debtor. A debtor whose debts are primarily consumer debts.

Consumer Debts. Debts incurred for personal, as opposed to business, needs.

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.

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.

Court Reporter. A person who makes a word-for-word record of what is said in court, generally by using a stenographic machine, shorthand or audio recording, and then produces a transcript of the proceedings upon request.

Creditor. One to whom the debtor owes money or who claims to be owed money by the debtor.

Credit Counseling. Generally refers to two events in individual bankruptcy 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 Bankruptcy 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 bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.

Creditors' Meeting. see 341 meeting

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).

Debtor. A person who has filed a petition for relief under the Bankruptcy Code.

Debtor's Plan. A debtor's detailed description of how the debtor proposes to pay creditors' claims over a fixed period of time.

Debtor Education. see credit counseling

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

Discharge. A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy 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.)

Dischargeable Debt. A debt for which the Bankruptcy Code allows the debtor's personal liability to be eliminated.

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.

Disposable Income. Income not reasonably necessary for the maintenance or support of the debtor or dependents. If the debtor operates a business, disposable income is defined as those amounts over and above what is necessary for the payment of ordinary operating expenses.

Docket. A log containing the complete history of each case in the form of brief chronological entries summarizing the court proceedings.

Equity. The value of a debtor's interest in property that remains after liens and other creditors' interests are considered.

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 Assets. Property that a debtor is allowed to retain, free from the claims of creditors who do not have liens on the property.

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.

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.)

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.)

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.

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.)

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

Lien. A charge on specific property that is designed to secure payment of a debt or performance of an obligation. A debtor may still be responsible for a lien after a discharge.

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. Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual debtor's Chapter 7 filing is presumed to be an abuse of the Bankruptcy 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.

Motion. A request by a litigant to a judge for a decision on an issue relating to the case.

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.

No-Asset Case. A Chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.

Nondischargeable Debt. A debt that cannot be eliminated in bankruptcy. Examples include a home mortgage, debts for alimony or child support, certain taxes, debts for most government 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 money or property 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.

Nonexempt Assets. Property of a debtor that can be liquidated to satisfy claims of creditors.

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 that debt 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 property as exempt from liquidation by the trustee to creditors.

Party in Interest. A party who has standing to be heard by the court in a matter to be decided in the bankruptcy case. The debtor, the U.S. trustee or bankruptcy administrator, the case trustee and creditors are parties in interest for most matters.

Petition Preparer. A business not authorized to practice law that prepares bankruptcy petitions.

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 the 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.)

Precedent. A court decision in an earlier case with facts and legal issues similar to a dispute currently before a court. Judges will generally "follow precedent" - meaning that they use the principles established in earlier cases to decide new cases that have similar facts and raise similar legal issues. A judge will disregard precedent if a party can show that the earlier case was wrongly decided, or that it differed in some significant way from the current case.

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.

Presumption of Abuse. see means test

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. For example, under the Bankruptcy 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.

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 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.

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.

Redemption. A procedure in a Chapter 7 case whereby a debtor removes a secured creditor's lien on collateral by paying the creditor the value of the property. The debtor may then retain the property.

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.)

Secured Creditor. A creditor (an individual or business) 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.

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.

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 Bankruptcy Code contains certain provisions designed to reduce the time a small business debtor is in bankruptcy.

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.

Subpoena. A command, issued under a court's authority, to a witness to appear and give testimony.

Subpoena Duces Tecum. A command to a witness to appear and produce documents.

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.

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 U.S. trustee or bankruptcy administrator. The trustee is a private individual or corporation appointed in all Chapter 7, Chapter 12, and Chapter 13 cases and some Chapter 11 cases. The trustee's responsibilities include reviewing the debtor's petition and schedules and bringing actions against creditors or the debtor to recover property of the bankruptcy estate. In Chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in Chapter 12 and 13 have similar duties to a Chapter 7 trustee and the additional responsibilities of overseeing the debtor's plan, receiving payments from debtors, and disbursing plan payments to creditors.

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.

U.S. Attorney. A lawyer appointed by the President in each judicial district to prosecute and defend cases for the federal government. The U.S. Attorney employs a staff of Assistant U.S. Attorneys who appear as the government's attorneys in individual cases.

U.S. 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. Compare, bankruptcy administrator.

Undersecured Claim. A debt secured by property that is worth less than the full amount of the debt.

Undue Hardship. The most widely used test for evaluating undue hardship in the dischargeability of a student loan includes three conditions: (1) the debtor cannot maintain––based on current income and expenses––a minimal standard of living if forced to repay the loans; (2) there are indications that the state of affairs is likely to persist for a significant portion of the repayment period; and (3) the debtor made good faith efforts to repay the loans.

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

Unscheduled Debt. A debt that should have been listed by the 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.

Venue. The geographic area in which a court has jurisdiction. A change of venue is a change or transfer of a case from one judicial district to another.

Voluntary Transfer. A transfer of a debtor's property with the debtor's consent.

Wage Garnishment. A nonbankruptcy legal proceeding whereby a plaintiff or creditor seeks to subject to his or her claim the future wages of a debtor. In other words, the creditor seeks to have part of the debtor's future wages paid to the creditor for a debt owed to the creditor.