GLOSSARY
Glossary of Terms
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A Rule 2004 Examination allows parties involved in a bankruptcy case to gather information from a Debtor or other parties. While similar to the discovery process in civil litigation, the scope of a Rule 2004 Exam is quite broad, allowing the examining party to inquire into the acts, conduct, property, liabilities, and financial condition of the Debtor, or any matter that may affect the administration of the Estate, or the Debtor’s right to a Discharge.
The 341 Meeting, also known as the “Meeting of the Creditors,” is a mandatory meeting in a bankruptcy case where the Debtor is required to appear and answer questions under oath. Other parties that are present include the Trustees, Creditors creditors and attorneys of the parties. The primary purpose is for the Trustee to verify the Debtor’s financial situation.
A 363 Sale is the sale of a Debtor’s Assets under Section 363 of the Bankruptcy Code which allows the Debtor to sell Assets free and clear of Liens, claims, and encumbrances. This type of sale is commonly used for the sale of business operations or significant Assets.
A
Adequate Protection is the measures taken to protect the interests of Secured Creditors
from the depreciation of their Collateral
during the bankruptcy process. It typically involves the Debtor providing payments or other forms of security to ensure that the Secured Claim’s position is not worsened while the case is ongoing. Types of Collateral that often require Adequate Protection includes vehicles, machinery equipment, furniture, and other Assets that tend to rapidly decrease in value.
Adversary Proceedings are a legal mechanism for dispute resolution within a larger bankruptcy proceeding. The process is similar to that of federal civil lawsuits outside the bankruptcy context and is initiated by filing a Complaint
in the bankruptcy court. The purpose of Adversary Proceedings is to ensure that complex legal issues related to the bankruptcy case are resolved fairly and thoroughly.
An Allowed Claim is a claim that has been reviewed and accepted by the bankruptcy court or Trustee
as valid and eligible for payment from the Debtor’s Estate.
Assets are any property or possessions a Debtor
owns or has the right to own, such as homes, bank accounts, land, cash, jewelry, artwork, investments, etc. Assets can also be intangible, such as the right to receive a tax refund, or a claim for damages against someone, whether or not a lawsuit has been filed.
Assume means a Debtor’s decision to continue to honor or perform a contract or lease that was entered into before the filing of bankruptcy.
The Automatic Stay is an injunction that takes effect the moment a Debtor
files for bankruptcy and stops Creditors from taking any steps to collect their debts. Its reach is broad and includes pausing all lawsuits, foreclosures, repossessions, wage garnishments, or any other effort to collect from the Debtor.
An Avoidance Action is a legal action taken by the Trustee, or Debtor in Possession, to undo certain transactions or Transfers that were made before the bankruptcy filing. They are most common when there was an alleged fraudulent or preferential Transfer.
B
Bankruptcy is the legal process that allows individuals or businesses that are unable to repay their outstanding debts to seek relief under the protection of the law.
The federal law governing bankruptcy cases arising from Title 11 of the United States Code.
The Bar Date is the deadline for a Creditor to file a Proof of Claim
against the Debtor
in order to participate in the bankruptcy case and be eligible to receive any Distribution from the Debtor’s Estate.
C
Chapter 7, also known as Liquidation, allows an individual or business to seek relief from their outstanding debts by selling all Non-Exempt Assets
and using that money to repay Creditors.
Chapter 7 Page
Chapter 11, also known as Reorganization
bankruptcy, is a type of bankruptcy which allows an individual or business to seek relief from outstanding debts by reorganizing their debts to become financially stable while staying in business resuming operations.
See Chapter 11 Page
Chapter 12 provides a financial Reorganization
process specifically designed for family farmers and fishermen, allowing them to propose a repayment plan to restructure their debts. It offers more flexibility and favorable terms compared to other bankruptcy chapters, with the goal of helping them retain their operations while repaying Creditors over time.
Chapter 13, also known as the wage earner’s plan, allows for individuals with a regular income and debts below a certain threshold to develop a plan to pay back all or a portion of their debts over a set period of time.
See Chapter 13 Page
A Claim is a Creditor‘s legal right to seek repayment from the Debtor’s Estate. It represents the amount of money a Creditor believes they are owed by the Debtor.
The Claims Register is an official record maintained by the bankruptcy court or Trustee that lists all the Claims filed by Creditors against the Debtor’s Estate.
Collateral is property or Assets that a Debtor pledges to a Creditor
as security for a loan or obligation.
Collection refers to the efforts of Creditors to collect on debts that they are owed. Before a bankruptcy Petition
is filed, Creditors Collection efforts are only limited by specific federal or state laws. However, in most circumstances filing for bankruptcy imposes the Automatic Stay
which prevents Creditors from taking any Collection actions without court approval.
A Complaint in bankruptcy is a formal written document filed with the bankruptcy court asking the court to rule on a specific issue related to the bankruptcy proceeding. Filing a Complaint initiates an Adversary Proceeding.
A Confirmation Hearing is a court hearing where the bankruptcy judge reviews and approves, or denies, the Reorganization or repayment plan proposed by the Debtor
in a Chapter 11, Chapter 12, or Chapter 13 proceeding. At this hearing the judge will hear arguments and make rulings on Creditor’s objections to parts of the plan, if necessary.
A Confirmation Order is the court’s official approval of a Debtor’s Reorganization or repayment plan in bankruptcy. It allows the Debtor to proceed with their plan and gives it legal force, ensuring that Creditors and the Debtor follow the agreed terms for handling debt.
Consumer Debt is debt incurred by an individual primarily for daily living, personal or family needs. This includes things like credit card debts for household purchases, car loans for personal vehicles, and mortgages for primary residences. This type of debt contrasts with debts incurred for business or investment purposes (Non-Consumer Debt).
Conversion is when a bankruptcy case changes from one chapter to another after it has commenced, such as from Chapter 11 or Chapter 13 to Chapter 7. This can be done voluntarily by the Debtor
or ordered by the court. The Conversion does not start a new bankruptcy case but rather alters the Debtor’s path in handling their debts.
A Core Proceeding is a legal matter or action that is central to the bankruptcy case and on which the bankruptcy court has authority to enter a final order. These are proceedings that directly relate to the Debtor’s bankruptcy, and the bankruptcy court has exclusive authority to hear and decide them without the need to refer the matter to another court.
Current Monthly Income (CMI), in the context of the Means Test, refers to the average monthly income of a Debtor over the six-month period preceding the bankruptcy filing. The calculation has specific inclusions and exclusions outlined in the Bankruptcy Code. The purpose of calculating CMI is to conduct the Means Test to determine if the Debtor qualifies for Chapter 7.
Cram down is a court approved mechanism where a Debtor is able to impose a Reorganization plan on Creditors, even those Creditors that voted against the plan. In a Cram Down situation, the bankruptcy court can confirm the Debtor’s Reorganization plan over the objection of certain classes of Creditors, provided the plan meets specific legal requirements.
A Creditor is an entity that is owed money by a Debtor
arising before the filing of the bankruptcy Petition.
D
A Debtor is a person or legal entity (such as a corporation or an LLC) that has filed a Petition for bankruptcy relief or is the subject of an involuntary bankruptcy Petition.
The Debtor in Possession is a Chapter 11 Debtor undergoing Reorganization who continues to run the business themselves, instead of having a Trustee appointed. When a Debtor becomes a Debtor in Possession, they have legal duties to operate the business for the benefit of the Estate
and Creditors
rather than shareholders.
A DIP Lender is a Creditor
that provides financing to a company undergoing Chapter 11 Reorganization after the case is filed to help it continue operations during the Reorganization process. DIP Lenders are typically given priority over other Creditors, and their loans are often secured, providing the lender with added protection.
A Disallowed Claim is a Creditor’s Claim
that has been rejected by the bankruptcy court after an objection or review. A Disallowed Claim will not receive payment from the Estate. This may happen for a variety of reasons including improper filing, lack of documentation, or the Claim being based on incorrect or fraudulent information.
A Discharge is a court order that releases a Debtor from the obligation to pay certain debts. This allows the Debtor to get a fresh financial start, free from the legal responsibility for those discharged debts. Once a Discharge order has been given, Creditors are prohibited from taking any action to collect on discharged debts.
The term Dischargeable refers to those debts that are capable of being Discharged through bankruptcy. This is in contrast to nondishargeable debts which a Debtor
will remain personally liable for after the conclusion of the bankruptcy proceeding.
Dismissal is the termination of a bankruptcy case by the bankruptcy court, often due to the Debtor’s failure to comply with legal requirements or to make necessary payments. Upon Dismissal, the Debtor
does not receive a Discharge
of debts, and the case is closed without the typical relief of bankruptcy.
A Distribution is the payment made to Creditors from the Debtor’s Estate. It is typically a percentage of the Creditor’s Claim, based on the available Assets after Liquidation or as part of a Reorganization plan. The amount a Creditor receives as a Distribution depends on their priority status and the amount of Assets available.
A Domestic Support Obligation refers to a debt that is owed to a spouse, former spouse, or child for alimony, child support, or other forms of family maintenance. These debts usually are considered priority debts, meaning they are paid in full before other unsecured debts are Discharged, and they are not typically Dischargable through bankruptcy.
E
The Estate is a legal entity that is created when an individual or business files for bankruptcy under any chapter. It includes all of the Debtor’s legal and equitable interest in property at the time of filing, and in the case of Reorganization, it usually includes post-filing Assets. The concept of a bankruptcy estate is crucial as it determines what resources are available to pay Creditors.
An Executory Contract is a contract in which both parties have ongoing obligations that are yet to be fully performed. Common examples are Unexpired Lease, service agreements, and supply contracts. In certain contexts, Debtors can use parts of the bankruptcy code to either Assume or Proof of Claim these kinds of contracts.
Exemptions in bankruptcy refer to the Debtor’s ability to protect certain property or possessions, or a portion thereof, that are protected from seizure or Liquidation by the bankruptcy Trustee, allowing individuals to retain essential items needed to support themselves after filing and/or a portion of equity in certain Assets. These Exemptions vary by state but commonly include protections for a primary residence (Homestead Exemption), personal property like clothing and household goods, motor vehicles, retirement accounts, tools of the trade, public benefits, and certain types of personal injury awards.
F
First Day Motions are the collection of motions filed by a Chapter 11 Debtor
immediately after filing a bankruptcy Petition. Common motions include motions to pay payroll, use cash collateral, continue payment on contracts with critical vendors, and to approve DIP financing. These motions are necessary to endure the Debtor has authority to make certain payments in the ordinary course of business.
A Fraudulent Transfer occurs when a Debtor Transfers Assets or property to another party for less than reasonably equivalent value and/or with the intent to defraud, hinder, or delay Creditors from collecting debts. Fraudulent Transfers can be reversed by the bankruptcy court, and the Assets may be returned to the bankruptcy Estate.
G
A General Unsecured Claim is a debt that is not backed by collateral and is not given priority over any other Claims. These Claims are paid from any remaining Assets after priority debts have been satisfied, and they commonly receive only a portion of what they are owed. Common examples of General Unsecured Claims are credit card debt, medical bills, trade debt, utility bills, and personal loans.
A General Unsecured Creditor is a Creditor who holds a Claim that is not backed by collateral and so does not have priority over other Claims.
H
A Holder of a Claim refers to an individual or entity that has a legal right to receive payment or compensation from the Debtor and who has a Claim registered with the Claims Register.
The Homestead Exemption is a legal provision in most exemption statutes that protects the equity in a Debtor’s primary residence from being seized and sold to pay off Creditors in bankruptcy. The amount of protection varies by state.
I
An Impaired Claim is any Claim
that is not paid in full or that is modified in such a way that the Creditor
does not receive the same treatment as they would under the original terms of the debt. This could include a reduction in the amount owed, changes in the repayment terms, or a delay in payment.
An Involuntary Lien is a legal claim placed on property without the property owner’s consent—typically as a result of a legal action or judgment. Involuntary Liens are imposed by law to satisfy debts or obligations owed by the property owner, often in cases of non-payment or legal disputes.
An Involuntary Petition for bankruptcy is a legal action initiated by Creditors to force a Debtor into bankruptcy. This occurs when the Debtor has failed to pay their debts and a group of Creditors with qualifying Claims petition the court to have the Debtor’s Assets
liquidated or restructured. If the Petition is successful, the Debtor is subject to the bankruptcy process despite not voluntarily filing for it.
J
A Joint Petition is a single bankruptcy filing made by two individuals, typically a married couple, who seek to address their financial obligations together. By filing a Joint Petition, both spouses can consolidate their debts, Assets, and liabilities into one case, potentially simplifying the bankruptcy process and reducing costs. The petition allows them to proceed as co-debtors under the same bankruptcy plan.
The Homestead Exemption is a legal provision in most exemption statutes that protects the equity in a Debtor’s primary residence from being seized and sold to pay off Creditors in bankruptcy. The amount of protection varies by state.
K
L
A Lien is a legal right or interest that a Creditor has in a Debtor’s property, typically used as Collateral to secure a debt. If the Debtor fails to fulfill the obligation, the Creditor can take steps to sell or seize the property to satisfy the outstanding debt. Liens can be voluntary (agreed upon by the Debtor) or involuntary (placed by a court or government).
Liquidation is the process of selling off a Debtor’s Assets to pay Creditors in a bankruptcy case. In Liquidation, the Trustee
sells the Debtor’s non-exempt property and distributes the proceeds to Creditors in accordance with the priority of their Claims.
M
The Means Test is used to determine an individual borrower’s eligibility to seek relief under Chapter 7. Because Chapter 7 relief allows borrowers to wipe out virtually all of their unsecured debts, only borrowers who legitimately lack the means to repay their debts are eligible to file under Chapter 7.
Modification refers to the process of making changes or adjustments to a confirmed bankruptcy plan. These Modifications can be made to address changes in the Debtor’s financial situation, such as increased income or unexpected expenses, and may involve altering repayment terms, the amount owed, or the timeline for repayments. Plan Modifications must be approved by the court and may require Creditor
consent, depending on the circumstances.
N
Non-Consumer Debts are debts that arise from business-related activities or investments, such as loans for operating a business, commercial credit, or debts related to business operations. Non-Consumer Debts are treated differently than Consumer Debt, particularly in terms of eligibility for Chapter 7 and repayment plans.
A Non-Core Proceeding refers to a legal matter that is related to but does not directly involve the central issues of the bankruptcy case. These are Adversary Proceeding that can be referred to a non-bankruptcy district court for final resolution.
Nondischargeable refers to certain types of debts that cannot be eliminated or forgiven through the bankruptcy process. The Debtor remains responsible for these debts even after the case is completed. Common examples include student loans, child support, alimony, certain taxes, and debts resulting from fraud, breach of fiduciary duties, willful and malicious injuries, or criminal activity.
Non-Exempt Assets are property or possessions that are not protected by Exemption laws and can be seized or sold by the Trustee to repay Creditors. These typically include non-essential items such as second homes, extra vehicles, investments, and valuables like jewelry or art.
O
An Objection to Confirmation is a formal challenge made by a Creditor, Trustee, or other interested party to the proposed bankruptcy plan. The objection argues that the plan should not be confirmed by the court, usually due to issues such as inadequate repayment to Creditors, failure to comply with legal requirements, or unfair treatment of certain Creditors. The court will review the objection before deciding whether to approve or modify the plan.
An Objection to Declaration of Exemptions is a formal challenge made by a Creditor, Trustee, or other interested party against the Debtor’s claim to exempt certain Assets from the bankruptcy Estate. The objection argues that the Debtor’s Exemptions are improperly claimed or exceed the legal limits and seeks to prevent those Assets from being protected.
P
- Perfection refers to the legal process that a Secured Claim uses to establish and protect their priority interest in a Debtor’s Collateral. The goal of Perfection is to put the world on notice that there is a Claim against a specific piece of the Debtor’s property. The method of Perfection varies depending on the type of Collateral but may include filing a public notice or taking possession or control of the Collateral.
- Perfection of a Security Interest is important because if there are multiple Claims secured by the same Collateral, the priority of Claims in a bankruptcy is usually determined by who properly perfected their Security Interest first.
A Petition is a formal legal document filed with the court by a Debtor (or Creditors, in the case of an Involuntary Petition) to initiate a bankruptcy case. It includes a summary of the Debtor’s financial situation, such as Assets, liabilities, income, and expenses. The Petition serves as the official request for the court to begin the bankruptcy process and provide relief from Creditors.
The Petition Date is the date on which the Petition
is filed, and the bankruptcy case commences.
Post-Petition refers to the period after the filing of a bankruptcy Petition
under any chapter.
Post-Petition Debt refers to any debt that is incurred by a Debtor after they have filed for bankruptcy. Unlike Pre-Petition Debt, Post-Petition Debt is considered separate and is generally not Dischargable through the bankruptcy process.
Pre-Petition refers to the period before the filing of a bankruptcy Petition under any chapter.
Pre-Petition Debt refers to any debt that was incurred by the Debtor before filing for bankruptcy. These debts are included in the bankruptcy case and may be Discharged or reorganized depending on the type of bankruptcy filed.
A Proof of Claim is a formal document filed by a Creditor in a bankruptcy case to assert the amount and nature of the debt owed by Debtor. It serves as evidence of the Creditor’s Claim against the Debtor’s Estate. The Proof of Claim typically includes details such as the amount of the debt, the type of Claim, and any supporting documentation. Proofs of Claims are used to verify and prioritize Claims.
The general rule is that Property of the Estate includes all legal or equitable interest the Debtor has in property when they file for bankruptcy and certain property acquired afterwards. While some property may not be included, the exceptions are very narrow and varies by jurisdiction.
Plan Confirmation is the process in bankruptcy, particularly in Chapter 11, 12, and 13 cases, where the court approves the Debtor’s proposed repayment or Reorganization plan. The plan must meet certain legal requirements. Upon confirmation, the plan becomes binding on the Debtor and Creditors.
A Plan of Reorganization is a detailed proposal under Chapter 11 that outlines how a Debtor will restructure their debts and operations to regain financial stability. Once confirmed by the court, the plan allows the Debtor to continue operating while gradually repaying Creditors.
A Priority Claim in bankruptcy refers to a debt that is given special status and must be paid before other types of Claims. These claims include attorney’s fees and costs related to the bankruptcy case, certain taxes, child support, and alimony.
Q
R
To Reaffirm in bankruptcy means that a Debtor
agrees to remain personally liable for a debt, even though bankruptcy typically Discharges such obligations.
To Redeem in bankruptcy means to pay off the full value of the Secured Debt on a property in a lump sum, typically at its current market value, rather than the amount owed on the loan.
In bankruptcy, Reject refers to the Debtor’s decision to not honor or continue certain contracts or leases. For example, under Chapter 11, 12, or 13, a Debtor may Reject Executory Contracts or Unexpired Leases, meaning they are no longer bound by the terms of the agreement. Rejection typically frees the Debtor from further responsibility under the contract, but it may result in Claims for damages by the other party, which are usually treated as General Unsecured Claim.
Reorganization is the process under Chapter 11 by which a financially distressed Debtor restructures their debts and business operations to regain solvency.
S
Schedules are a set of detailed documents that Debtors are required to fill out and file within 14 days of filing for bankruptcy. Schedules are the primary way in which the Debtor’s financial condition is communicated to interested parties in a bankruptcy case. They include lists of all the Debtor’s Assets, income, monthly expenses, exempt property, Creditors, Executory Contracts
and Unexpired Leases, and any co-debtors, as they existed on the Petition Date, and commonly include the Statement of Financial Affairs.
A Secured Claim refers to a debt that is backed by Collateral, such as a mortgage on a home or a car loan or one where the Creditor has obtained a Lien. If the Debtor fails to repay the debt, the Creditor has the legal right to seize the property to satisfy the debt. Secured Claims are given priority over unsecured claims in bankruptcy, meaning they are paid before many other types of Claims.
A Secured Creditor is a lender or Creditor who holds a legal Claim on specific Collateral
pledged by the Debtor
or an Involuntary Lien on certain property. In the event of bankruptcy, Secured Claims have priority over unsecured creditors when it comes to the Distribution of the Debtor’s Assets.
Secured Debts are loans or credit arrangements that are backed by Collateral or Assets. It may arise from either a contractual security agreement, or an Involuntary Lien. The mechanism enforcing the lender’s rights to that Collateral is called a Security Interest. If the borrower fails to make payments as agreed, the Lien gives a lender the right to take possession of the Collateral as a means to recover the debt. Common examples of Secured Debts include mortgage loans (where the home serves as Collateral and is subject to foreclosure upon default) and auto loans (where the vehicle serves as Collateral and is subject to repossession upon default).
A Security Interest is a legal Claim placed on property that the property owner willingly accepts and agrees to in order to secure a debt or obtain financing. It is created through a voluntary agreement or contract between the property owner and a Creditor, most commonly a written or oral contract.
Setoff is the legal right of a Debtor and Creditor to offset mutual debts owed to each other. It allows a Creditor to reduce the amount they are owed by the amount they owe to the Debtor, effectively canceling out the debts to the extent of the Setoff amount.
A Statement of Financial Affairs is a document filed in bankruptcy proceedings that provides a detailed overview of a Debtor‘s financial history and transactions. It includes information about income, Assets, liabilities, recent financial activity, and any Transfers or payments made prior to filing for bankruptcy, helping the court and Creditors understand the Debtor’s financial situation.
Subchapter V is a subsection of Chapter 11 that is designed to streamline the bankruptcy process for small businesses. It allows small businesses with debts under a certain threshold to reorganize more efficiently by reducing costs, simplifying the process, and providing the business owners with more control over the Reorganization plan.
A Subordinated claim is a debt that ranks lower in priority for repayment compared to other Claims. Subordinated creditors only receive payment if there are remaining Assets after higher-priority Creditors have been fully paid.
T
Transfer refers to the act of moving Assets or property from the Debtor to another party. Transfers can include selling, gifting, or otherwise conveying ownership of property. Certain Transfers made before the bankruptcy filing may be scrutinized by the court and potentially reversed to ensure a fair Distribution of Assets among Creditors.
A Trustee is a person appointed by the court to oversee the bankruptcy process. The Trustee’s role varies depending on the type of bankruptcy and they may be responsible for either reviewing and liquidating Assets or overseeing the Reorganization process.
U
An Unexpired Lease is a type of Executory Contract which is a lease agreement that is still in effect and has not yet expired at the time of the bankruptcy filing.
Unimpaired is a description of a Creditor or class of Creditors whose Claims are not altered or negatively affected by the bankruptcy process. In other words, their Claims remain unchanged, and they will be paid in full according to the original terms of the agreement.
The United States Trustee is a government official who operates under the U.S. Department of Justice and is responsible for overseeing the administration of bankruptcy cases, ensuring compliance with bankruptcy laws, and monitoring the performance of bankruptcy Trustees. Unlike a Chapter 7, Chapter 11
, or Chapter 13
Trustee, who is a private individual appointed to administer the Debtor’s case, the United States Trustee supervises all Trustees and plays a regulatory and oversight role rather than directly handling individual bankruptcy cases.
V
A Voluntary Petition is when the Debtor initiates the bankruptcy process by filing a Petition with the court. Voluntary cases generally give the Debtor more control over the proceedings.
W
A Waiver of Discharge is an agreement by the Debtor to forgo or give up the right to have certain debts Discharged through the bankruptcy process. It prevents the Debtor from being relieved of the obligation to repay the debt under the bankruptcy court’s discharge order. These waivers are typically used to settle a debt dispute and may be part of a negotiated Reorganization plan or settlement agreement.
Wildcard Exemptions are a type of Exemption that allows Debtors to protect certain Assets not specifically covered by other Exemptions. These Exemptions provide flexibility by allowing the Debtor to apply the Exemption to any property they choose, up to a specified dollar amount, rather than being restricted to a specific category. The rules and limits for Wildcard Exemptions vary by jurisdiction.