Bankruptcy Dictionary

A

Abandonment

The bankruptcy trustee’s relinquishment of estate property that is burdensome or of inconsequential value to the bankruptcy estate.

Abstention

The court’s dismissal or suspension of a bankruptcy case, or its refusal to entertain related proceedings, on grounds of fairness or in deference to another court.

Acceleration

The termination of the debtor’s right to pay a debt in installments or at a future maturity date. If a debt is accelerated, the debt becomes immediately due and payable. Many contracts have acceleration clauses entitling the creditor to allow for acceleration of payments upon default.

Accounts Payable

An obligation to pay for goods sold or services rendered.

Accounts Receivable

A right to payment for goods sold or services rendered.

Adequate Protection

A right which protects an entity’s (usually a secured creditor) interest in the debtor’s property from diminishment in value. In other words, such interest must have the same value at the end of the bankruptcy process as it had when the bankruptcy petition was filed.

Adversary Proceeding

A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court.

Allowed Claim

A claim of a creditor that is approved by the court. Only allowed claims receive distributions from the bankruptcy estate.

Allowed Interest

A claim of an equity holder that is approved by the court. Only allowed interests receive distributions from the bankruptcy estate.

Anti-alienation Provision

A restriction on transfer or assignment. Commonly found in trusts and ERISA qualified plans and essentially prevent the corpus of such trust or plan from becoming property of the bankruptcy estate.

Assume

An agreement between the debtor and the other party to an executory contract requiring each party to continue performing their respective duties under that contract. A lease is a common example of an executory contract.

Automatic Stay

An injunction that automatically issues against all of the debtor’s creditors upon the filing of a bankruptcy petition thereby stopping all lawsuits, foreclosures, garnishments, and collection activities against the debtor and the debtor’s property (subject to some minor exceptions).

Avoidance Powers

Rights given to the bankruptcy trustee or the debtor-in-possession to recover certain transfers of property such as preferences or fraudulent transfers or to void liens created before the commencement of a bankruptcy case.

B

Bankruptcy

A legal procedure for dealing with debt problems of individuals and businesses; specifically, a case filed under title 11 of the United States Code (the Bankruptcy Code).

Bankruptcy Code

The common name given to title 11 of the United States Code. A set of federal statutes that govern any and all bankruptcy matters, with the exception of property exemptions (property exemptions are determined by State law).  You my link to all of the exemptions available to Texas residents here.

Bankruptcy Court

A federal court where cases under the Bankruptcy Code are litigated. The Bankruptcy Court is a unit of the United States District Court.

Bankruptcy Estate

All legal and equitable interests of the debtor as of the commencement of a bankruptcy case.

Bankruptcy Judge

A judicial officer selected by United States Court of Appeals to serve as the judge to preside over federal bankruptcy cases.

Bankruptcy Petition

A formal request for the protection afforded by the Bankruptcy Code.

Bankruptcy Trustee

A private individual or corporation appointed in all chapter 7, chapter 12, and chapter 13 cases to represent the interests of the bankruptcy estate and the debtor’s creditors.  Follow the following links for additional information on chapter 7 and chapter 13.

C

Cash Collateral

Cash and cash equivalents (including proceeds) subject to the lien of creditors. Issues respecting cash collateral play a significant role in business reorganizations under chapter 11 of the Bankruptcy Code.

Chapter 7

A liquidation proceeding available to individuals, married couples, partnerships and corporations wherein a debtor’s nonexempt assets are sold and the proceeds are distributed to the creditors. In the case of individuals (including married couples), the Debtor receives a discharge. A discharge is not available under chapter 7 to legal entities such as corporations, limited liability companies, and partnerships

Chapter 11

A reorganization proceeding in which the debtor may continue in business or in possession of its property as a fiduciary.

Chapter 12

A simplified reorganization plan for family farmers whose debts fall within certain limits.

Chapter 13

A repayment plan for individuals (as opposed to corporations, limited liability companies and partnerships) with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income over 3 to 5 years. Chapter 13 is often an ideal vehicle for resolving tax debts and catching up on past due mortgage payments.

Claim

A right to payment.

Collateral

Property pledged as security for the satisfaction of a debt. Collateral may also refer to property that has become subject to the lien of one or more creditors through judicial process. Such creditors are often referred to as secured creditors.

Complaint

The original or initial pleading filed with a court which sets forth a claim for relief against the defendants.

Confirmation

The process by which a plan of reorganization is approved by a Bankruptcy Judge.

Confirmation Order

The order issued by a Bankruptcy Judge, which order authorizes the implementation of the plan of reorganization thereby making the terms of the plan (under chapter 11, 12 or 13) binding upon the debtor and all creditors. The terms of the confirmed plan of reorganization effectively replace the pre-petition rights of the debtor and the creditors.

Consumer Bankruptcy

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

Consumer Debt

A debt incurred by an individual primarily for personal, family or household purposes.

Contested Matter

A disputed matter arising in the bankruptcy case that is brought before the Bankruptcy Court by motion.

Contingent Claim

A claim against a debtor that will only result in liability upon the occurrence of some future event, which event may never arise.

Contract for Deed

An agreement by a seller of real property to deliver a deed after certain conditions are satisfied (i.e. payment).

Conversion

(1) A change in the type of bankruptcy a debtor wishes to proceed under. For example, a debtor may convert a chapter 13 bankruptcy case into one under chapter 7. (2) The prepetition sale of nonexempt property coupled with the prepetition purchase of exempt property in anticipation of filing for bankruptcy. (3) The unauthorized exercise of ownership rights over property belonging to another.

Core Proceeding

Those proceedings which are unique to bankruptcy and fundamental to the administration of the bankruptcy case. See 28 U.S.C. § 157(b).

Credit Counseling

This phrase refers to a course that all individual debtors must complete prior to filing for bankruptcy.

Creditor

An entity that has a claim against the debtor that arose before the petition date.

Creditors’ Committee

A committee of creditors appointed by the Office of the United States Trustee in chapter 11 cases, and sometimes in chapter 7 cases, to specifically represent the interests of the creditors.

Creditors’ Meeting
Current Monthly Income

The average monthly income received by a debtor during the six months immediately preceding the month the bankruptcy case is commenced. This includes gifts and other financial assistance as well as all income from the debtor’s spouse or significant other (regardless of whether they file bankruptcy jointly or not). Current monthly income does NOT include social security income and certain reparations made because the debtor was a victim of certain crimes. 11 U.S.C. § 101(10A).

D

Debt

A liability on a claim.

Debtor

(1) A person who owes a debt; (2) a person who has filed a petition for relief under the Bankruptcy Code.

Debtor-in-Possession

A debtor that has filed for relief under chapter 11 of the Bankruptcy Code.

Default

The debtor’s material breach of a contract. The most common default is non-payment of interest or principal. Note that while some contracts provide that insolvency or bankruptcy constitute a default, such provisions are not valid in bankruptcy (with the exception of certain situations involving reaffirmation agreements) and do not thereby constitute a default.

Deficiency Balance

The difference between the amount due on a secured loan when combined with the value of the collateral where the collateral value is less than the loan balance.

Discharge

An order from the Bankruptcy Court releasing the debtor from any and all dischargeable debts which arose prior to the petition date.

Disclosure Statement

A written statement that accompanies a chapter 11 plan of reorganization intended to provide “adequate information”. A debtor’s creditors and other interested parties rely on the disclosure statement in determining whether they should accept the chapter 11 plan of reorganization.

Dismissal

The termination of a bankruptcy case prior to the issuance of a discharge. Dismissals may either be voluntary or involuntary. If a bankruptcy case is dismissed, all things revert to their status as of the time immediately preceding the filing of the bankruptcy petition.

Disposable Income

That portion of the debtor’s income not reasonably necessary for the maintenance and support of the debtor or a dependent of the debtor and not necessary for the operation and preservation of any business in which the debtor is engaged.

Docket

An official record of all documents filed with and all proceedings that take place before a court.

E

Entity

A general term encompassing a wide variety of legal persons, including individuals, corporations and governmental units.

Equity

The debtor’s unencumbered interest in property.

Execute

To carry out according to terms.

Executory Contract

A contract in which some or all of the obligations of each party have not yet been completed. A typical example is a lease agreement.

Exemption

A state or federal statute which shields certain property from the claims of unsecured creditors.

Exempt Property

Property or value in such property that is removed from the bankruptcy estate after having been properly declared as exempt in the bankruptcy schedules without any objection thereto.

F

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.

Fee Simple

Real property in which the owner is entitled to the entire property and subject to no conditions.

Foreclosure

Process used by a mortgagee (bank) to recover its collateral (real property) upon the default (typically failure to make parents) of a debtor.

Fresh Start

The rehabilitation of a debtor through the process of bankruptcy and the discharge of pre-petition debt.

G

Going Concern Value

The value of a business based upon its continued operation as opposed to the liquidation value of its assets.

H

Homestead

The dwelling and adjoining land where the debtor resides.

Homestead Exemption

An exemption under state or federal law which protects all or a portion of the homestead.

I

Impaired Claim

The modification of the prepetition contractual rights of a claim pursuant to the terms of a plan of reorganization.

In Personam

Latin for an action against the person.

In Rem

Latin for an action against property or a thing.

Insider (Individual)

Includes: (1) a relative of a debtor or of a general partner of the debtor; (2) a partnership in which the debtor is a general partner; (3) a general partner of the debtor; or (4) a corporation of which the debtor is a director, officer, or person in control.

Insider (Entity)

Includes: (1) a director, officer, or person in control of the debtor; (2) a partnership in which the debtor is a general partner; (3) a general partner of the debtor; or (4) a relative of a general partner, director, officer, or person in control of the debtor.

Insolvent

(1) The inability to pay ones debts as they come due. (2) When one’s liabilities exceed the value of one’s assets.

J

Joint Administration

A mechanism, subject to court approval, under which two or more cases can be administered together.

Joint Petition

One bankruptcy petition filed by a husband and a wife. From a practical standpoint it is identical to the joint administration of each spouse’s bankruptcy case, the only difference being there is only one filing fee.

Joint Tenancy

Real property owned by two or more persons each of which has an undivided interest in the whole as well as a right of survivorship.

Judgment

Ruling issued by a judge in a court of law

Judicial Lien

A lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.

K

Keeper

A custodian, manager, or superintendent who has care, custody or management of thing or place.

L

Levy

(1) The legal process of seizing and liquidating the assets of a debtor in satisfaction of a judgment. (2) The assessment or collection of a tax.

Lien

A charge against or interest in property to secure payment of a debt or performance of an obligation.

Lien Holder

The holder of a lien (a secured creditor).

Lien Stripping

In the consumer bankruptcy context, a strategy often employed by chapter 13 debtors to reduce the amount of a secured claim to the actual value of the collateral where the secured claim is undersecured (the debt is greater than the value of the collateral).

Liquidation

The sale of a debtor’s executable (non-exempt) property, the proceeds of which are used to pay the creditors.

M

Materailman’s Lien

A statutory lien afforded to persons who furnish materials for the construction, improvement or alteration of a structure.

Means Test

Mathematical test set forth in section 707(b)(2) of the Bankruptcy Code premised upon the debtor’s income, expenses, debt and certain federal census bureau data. This test is utilized to initially determine whether or not a debtor with primarily consumer debts can file for chapter 7 relief.

Meeting of Creditor

N

No Asset Case

A chapter 7 bankruptcy case in which there are no assets available for distribution.

Nondischargeable Debt

A debt that is excluded from the debtor’s discharge on one or more of the grounds enumerated in the Bankruptcy Code. See 11 U.S.C. § 523.

O

Objection to Discharge

A formal request asking the Bankruptcy Court to deny the debtor a discharge.

Objection to Dischargeability

A formal objection by a bankruptcy trustee’s or other interested party to the debtor being discharged from a specific debt.

Objection to Exemptions

A formal request made by an interested party or bankruptcy trustee asking the Bankruptcy Court to deny the debtor certain exemptions claimed on the bankruptcy schedules.

P

Pari Passu

Latin phrase meaning ratably or without preference.

Petition

The pleading which initiates the bankruptcy process.

Petition Date

The date a bankruptcy petition is filed with the Bankruptcy Court.

Plan

The terms and conditions under which the debtor will pay creditors’ claims.

Postpetition

That period which transpires after the commencement of a bankruptcy case and typically ends with the closing of the bankruptcy case.

Prebankruptcy Planning

The transmutation of a debtor’s property in an effort to maximize the benefits afforded by the exemption statutes. Prebankruptcy planning typically includes converting nonexempt assets into exempt assets.

Preference

A voidable transfer of an asset (including money) to a creditor made prior (90 days or one year, depending) to the petition date such that the creditor receiving the asset receives more than it otherwise would if the transfer had not been made and the case were one under chapter 7.

Prepetition

That period which arises prior to the petition date.

Priority Claim

An unsecured claim that is paid ahead of other unsecured claims based upon the priority scheme established by the Bankruptcy Code.

Proof of Claim

A formal request by a creditor to share in the distribution of any assets derived from the bankruptcy estate accompanied by documentation supporting the amount and nature of the claim.

Pro Rata

Latin phrase meaning proportionately.

Pro Tanto

Latin phrase meaning for so much or as far as it will go.

Property of the Estate

All legal and equitable interests of the debtor in property as of the petition date.

Q

Qua

Latin word meaning in the character or capacity of.

Quid Pro Quo

Latin phrase meaning something for something.

Quit

To leave or remove from. Commonly used in the context of leases when a tenant is served with a notice to “quit or pay rent.”

Quit Claim Deed

To leave or remove from. Commonly used in the context of leases when a tenant is served with a notice to “quit or pay rent.”

R

Reaffirmation Agreement

An agreement by a chapter 7 debtor to continue paying a dischargeable debt after the bankruptcy, usually for the purpose of keeping collateral or mortgaged property that would otherwise be subject to repossession.

Receiver

A person appointed by a court to manage property in litigation.

Rejection

The repudiation by the debtor (or trustee) of a pre petition executory contract. Rejection relieves the estate of any performance obligations leaving the other party to the contract with a pre petition unsecured claim for damages.

Relief From Stay

A Bankruptcy Court order authorizing a creditor to proceed with certain collection efforts.

Repossession

To recover goods sold on credit when a person fails to pay for those goods. Rules respecting repossession vary from state to state.

Res

A Latin word meaning a thing or an object.

S

Schedules

Lists of a debtor’s assets, liabilities, income and expenses, which are required to be filed with the Bankruptcy Court.

Section 341(a) Meeting

A meeting of creditors at which the debtor is questioned under oath by creditors, a trustee, examiner, or the United States trustee about his/her financial affairs.

Secured Claim

A loan or debt for which some form of property has been pledged or mortgaged.

Secured Creditor

An entity holding a claim against the debtor that is secured by a lien on property of the estate or that is subject to a right of setoff.

Secured Agrement

An agreement that creates or provides for a security interest.

Secured Interest

A lien created by an agreement.

Spendthrift Trust

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 Financial Affairs

A series of questions the debtor must answer in writing concerning sources of income, transfers of property, lawsuits by creditors, etc.

Statement of Intentions

A declaration required of all chapter 7 debtors concerning plans for dealing with consumer debts that are secured by property of the estate.

T

Transfer

Every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or with an interest in property.

Trustee

See Bankruptcy Trustee supra.

Turnover

The process by which any entity in possession of property of the estate is surrenders such property to the bankruptcy trustee.

U

Undersecured Claim

A secured claim where the collateral value is less than the amount due and owing the secured creditor.

United States Trustee

An agent of the United States Department of Justice responsible for supervising the administration of the bankruptcy process.

Unlawful Detainer Action

A lawsuit brought by a landlord against a tenant to evict the tenant from rental property.

Unliquidated

A claim for which the debtor is liable but the amount of which remains incalculable.

Unscheduled Claim

A prepetition claim that, regardless of reason, was omitted from the bankruptcy schedules.

Unsecured Claim

A claim for which their is no collateral backing the obligation. Credit card obligations are good example of an unsecured claim.

U.S.C.

An abbreviation for the United States Code. The Bankruptcy Code is set forth in title 11 of the United States Code (i.e. 11 U.S.C.).

V

Vest

To give an immediate fixed right in an asset.

Void

To have no legal force or effect.

Void Ab Initio

A Latin phrase meaning a contract or agreement is void from the outset. Compare this to a contract that may subsequently be declared void by one of the parties.

Voidable

That which may be avoided.

W

Wage Earner’s Plan

A chapter 13 plan of reorganization.

Wage Garnishment

A statutory process which permits the satisfaction of a judgment from a person’s wages.

Waiver

The voluntary relinquishment of a right.

Warehouseman’s Lien

A statutory lien which affords a warehouseman the right to retain possession of goods stored until storage charges are paid in full.

Warranty Deed

A deed in which the grantor warrants good title (warranties of siezin; quiet enjoyment; right to convey; and free of encumbrances and defenses of title).