A Short Glossary of Bankruptcy Terms

A Short Glossary of Bankruptcy Terms -- Lee Legal -- DC MD VA

Here is a short glossary of essential bankruptcy terms. Many definitions are not included. Do not attempt to manipulate concepts you do not fully understand. Call an attorney if you have a legal problem.

Bankruptcy terms: A – C

Adversary Proceeding: A lawsuit related to a bankruptcy case and commenced by filing a complaint with the court under Fed. R. Bankr. P. 7001.

Assumption: An agreement to continue performing duties under a contract or lease post-bankruptcy.

Automatic Stay: An automatic, court-ordered injunction that stops lawsuits, foreclosure, garnishments, and all other collection activities against the debtor at the very moment a bankruptcy petition is filed. To learn more, read my article The Automatic Stay.

Bankruptcy: The legal procedure for solving intractable debt complications.

Bankruptcy Administrator: An officer of the court in certain districts who, like the U.S. Trustee, is responsible for supervising the administration of bankruptcy cases.

Bankruptcy Code: Title 11 of the U.S. Code, the law of federal bankruptcy.

Bankruptcy Court: Subsections of District Courts, the courts controlled by judges with expertise in bankruptcy law.

Chapter 7: The chapter of the Bankruptcy Code providing for “liquidation,” or the sale of the debtor’s nonexempt property. Proceeds are distributed to creditors. Many cases are considered “no asset.”

Chapter 9: The chapter of the Bankruptcy Code providing for reorganization of cities, towns, counties, utilities, and school districts.

Chapter 11: The chapter of the Bankruptcy Code providing for reorganization of corporations, partnerships and individuals with significant assets and income. A Chapter 13 for the wealthy.

Chapter 12: The chapter of the Bankruptcy Code providing for debt restructuring of a family farmers or fisherman. Infrequently used in the DMV.

Chapter 13: The chapter of the Bankruptcy Code providing for reorganization, usually over three to five years, of the debts of individuals with regular incomes. Otherwise known as the “wage-earner’s bankruptcy.”

Chapter 15: The chapter of the Bankruptcy Code dealing with cases of international insolvency according to the model law as promulgated by the United Nations Commission on International Trade Law (“UNCITRAL”) in 1997.

Collateral: Property subject to liens. Creditors with rights in collateral are defined as “secured creditors” and have additional protections under the Bankruptcy Code.

Confirmation: Approval by the court of a bankruptcy plan of reorganization.

Consumer Debtor: A debtor whose debts are primarily consumer debts, as opposed to debts incurred as a result of the operation of a business.

Contingent Claim: A claim that may be owed by the debtor under certain (or uncertain) circumstances.

Conversion: The process of changing chapters in bankruptcy, or “converting” a case from Chapter 7 to Chapter 13, or vice versa. Conversion is usually allowed, absent bad faith, at the request of the debtor.

Creditor: An individual, company or other entity to whom the debtor owes (or may owe) money.

Credit Counseling: A generally useless “briefing” from a nonprofit credit counseling agency that individual debtors must attend (online or over the phone) prior to filing under any chapter of the Bankruptcy Code.

Current Monthly Income: The average monthly income of the debtor over the six months prior to the filing of the bankruptcy petition.

Bankruptcy terms: D – F

Debtor: An individual or corporation who has filed for relief under the Bankruptcy Code.

Debtor Education: Equally useless as credit counseling, a very similar course to credit counseling that the debtor must complete to receive a discharge.

Debtor-in-Possession: In a Chapter 11 case, a debtor who remains in possession of the estate’s assets and who assumes the duties of a trustee. The debtor-in-possession is, in theory, a fiduciary for the creditors of the estate, and owes them the highest duty of care and loyalty.

Discharge: Complete financial relief from liability for a debtor from all dischargeable debts. A discharge prevents creditors from taking any action against the debtor to collect on debts. Moreover, creditors must report the debts as satisfied or discharged to credit bureaus. The “Discharge Order” prohibits all collection efforts of discharged debts.

Disclosure Statement: “Adequate information” provided to Chapter 11 creditors to enable them to evaluate the plan of reorganization.

Dismissal: Termination of a bankruptcy case without either discharge or denial of discharge, usually for fraud or technical deficiency.

Estate: All legal and equitable interests and property of the debtor at the moment of the bankruptcy filing.

Equity: The market value of a debtor’s interest in property less any liens and/or judgment interests.

Executory Contracts: In a Chapter 7 case, unexpired contracts or leases which the debtor may assume or reject.

Exempt Property: Property owned by the debtor that is protected by federal or state law from unsecured creditors. Many exemptions are available to debtors in Washington, D.C. and Virginia.

Fraudulent Conveyance: Transfer of an asset prior to and in anticipation of the commencement of a bankruptcy case, usually for less than adequate consideration.

Bankruptcy terms: I – R

Insider: A relative or agent of the debtor of an individual debtor, or an officer of a corporation.

Joint Petition: A single bankruptcy petition filed by husband and wife.

Lien: A perfected right to sell property to satisfy a debt.

Liquidation: The sale of a debtor’s property to benefit creditors.

Means Test: Calculations used to determine whether an individual debtor’s Chapter 7 filing is presumed to be an abuse of the Bankruptcy Code. “Abuse” is presumed if the debtor’s monthly income, over 5 years, is more than $10,950, or 25% of the debtor’s nonpriority unsecured debt, as long as that amount is at least $6,575.

Meeting of Creditors: Required by Section 341(a) of the Bankruptcy Code, the meeting at which the debtor is questioned under oath by a bankruptcy trustee. Creditors may also question the debtor about his or her finances.

Motion to Lift the Automatic Stay: The legal method by which a creditor requests authority to act legally against the debtor, usually to foreclose against or repossess property.

No-Asset Case: A Chapter 7 case where there are no assets available to satisfy unsecured creditors’ claims.

Nondischargeable Debt: Debt that cannot be eliminated in bankruptcy. Mortgages, alimony, child support, taxes, student loans, and benefit overpayments are generally nondischargeable.

Petition: The document, containing basic information about the debtor’s assets and debts, and that commences a bankruptcy case.

Plan: A detailed prospectus of how the debtor proposes to pay creditor claims over a fixed period of time.

Preference: Payment, over $600 in the aggregate, made on a debt by the debtor within the 90-day period prior to the filing of the bankruptcy petition.

Priority Claim: An unsecured claim entitled to payment before other unsecured claims.

Proof of Claim: Documentation required of a creditor to verify a creditor’s claim against assets of the bankruptcy estate.

Pro Rata: The distributional allocation amongst multiple creditors based on the numerical proportion of their claims.

Reaffirmation Agreement: A court-approved contract by a Chapter 7 debtor that provides for continued payments on a collateralized debt.

Bankruptcy terms: S – U

Schedules: Detailed lists (labeled A-J) filed by the debtor with the petition. The debtor’s schedules catalog all of the debtor’s assets and liabilities, as well as other relevant financial information.

Secured Creditor: A creditor with a security interest in collateral possessed by the debtor. Mortgage companies are secured creditors because they hold an interest in real property until the mortgage contract is satisfied. Auto finance companies are secured creditors because they hold a security interest in a vehicle until that vehicle is paid for. Best Buy holds a security interest in a financed flat-screen TV until the financing contract is satisfied. Secured creditors have the right to repossess and sell any property in which they hold an interest to satisfy all or some of the claim.

Secured Debt: Debt backed by a security interest, such as a mortgage, collateral contract, or lien.

Statement of Financial Affairs: Affectionately referred to by bankruptcy lawyers as the SOFA, a statement containing information about the debtor’s income, transfers of property, lawsuits by creditors, business interests, losses, gains, accounting, and much more.

Statement of Intention: A declaration made by a Chapter 7 debtor concerning plans for dealing with consumer debts secured by property of the estate. Read my article What is the Statement of Intention?

Trustee: A private individual, usually an experienced bankruptcy lawyer, 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. The trustee reviews the debtor’s petition and schedules and conducts the Meeting of Creditors. In Chapter 7 cases, where necessary, the trustee liquidates portions of the debtor’s estate and makes distributions of the proceeds to creditors. In Chapter 13 cases, the trustee oversees the debtor’s plan, receives payments from the debtor, and disburses payments to creditors in accordance with a confirmed plan.

U.S. Trustee: An officer of the Department of Justice who ensures the proper administration of a bankruptcy case.

Undersecured Claim: An “under-water” collateralized interest, or a debt secured by property worth less than the full amount of the claim.

Unsecured Claim: In contrast with secured claims, unsecured claims are those in which creditors have no interest in collateral and in which credit was extended based solely upon an assessment of the debtor’s future ability to pay. Unsecured claims are treated very differently in bankruptcy than secured claims.

About Brian V. Lee 394 Articles
Brian V. Lee provides bankruptcy, foreclosure defense, business turnaround, and litigation services to clients in the District of Columbia, Virginia, and Maryland. Brian was the Washington, D.C. state chair of the National Association of Consumer Bankruptcy Attorneys from 2016 to 2018.