Collection
& Bankruptcy Definitions
Most
debtors who file bankruptcy, and many of their creditors,
know very little about the bankruptcy process. The Public
Information Series of the Bankruptcy Judges Division is designed
to provide debtors, creditors, judiciary employees, and the
general public with a basic explanation of bankruptcy and
how it works. The series features eight pamphlets that discuss
chapter 7 (liquidation), chapter 13 (adjustment of debts of
an individual with regular income), chapter 12 (adjustment
of debts of a family farmer), chapter 11 (reorganization),
chapter 9 (adjustment of debts of a municipality), SIPA (the
Securities Investor Protection Act), the bankruptcy discharge,
and bankruptcy terminology. This bankruptcy terminology explains,
in layman’s terms, many of the legal terms that are
used in cases filed under the Bankruptcy Code. |
| ADVERSARY
PROCEEDING |
A
lawsuit arising in or related to a bankruptcy case that is commenced
by filing a complaint with the bankruptcy court. |
| ASSUME |
An agreement
to continue performing duties under a contract or lease. |
| AUTOMATIC
STAY |
An injunction
that automatically stops lawsuits, foreclosure, 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.) |
| 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
MILL |
A business
not authorized to practice law that provides bankruptcy counseling
and prepares bankruptcy petitions. |
| BANKRUPTCY
PETITION |
A formal
request for the protection of the federal bankruptcy laws. (There
is an official form for bankruptcy petitions.) |
| 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. |
| 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. |
|
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. |
| CHAPTER
7 TRUSTEE |
A person
appointed in a chapter 7 case to represent the interests of
the bankruptcy estate and the unsecured 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 |
A reorganization
bankruptcy, 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
12 |
The chapter
of the Bankruptcy Code providing for adjustment of debts of
a “family farmer,” as that term is defined in the
Bankruptcy Code. |
| 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
debtors, and disbursing plan payments to creditors.) |
| CLAIM |
A creditor’s
assertion of a right to payment from a debtor or the debtor’s
property. |
| COMPLAINT |
The first
or initiatory document in a lawsuit that notifies the court
and the defendant of the grounds claimed by the plaintiff for
an award of money or other relief against the defendant. |
| CONFIRMATION |
Approval
of a plan of reorganization by a bankruptcy judge. |
| CONSUMER
BANKRUPTCY |
A bankruptcy
case filed to reduce or eliminate debts that are primarily consumer
debts. |
| CONSUMER
DEBTS |
Debts incurred
for personal, as opposed to business, needs. |
| CONTINGENT
CLAIM |
A claim
that may be owed by the debtor under certain circumstances,
for example, where the debtor is a cosigner on another person’s
loan and that person fails to pay. |
| CREDITOR |
A person
to whom or business to which the debtor owes money or that claims
to be owed money by the debtor. |
| DEBTOR |
A person
who has filed a petition for relief under the bankruptcy laws. |
| DEFENDANT |
An individual
(or business) against whom a lawsuit is filed. |
| DISCHARGE |
A release
of a debtor from personal liability for certain dischargeable
debts. (A discharge releases a debtor from personal liability
for certain debts known as dischargeable debts (defined below)
and prevents the creditors owed those debts from taking any
action against the debtor or the debtor’s property 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. |
| 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 $60,000 is subject to a $30,000 mortgage,
there is $30,000 of equity.) |
| 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 |
A description
of any property that a debtor may prevent creditors from recovering. |
| EXEMPTION |
Property
that the Bankruptcy Code or applicable state law permits a debtor
to keep from creditors. |
| EXEMPT
PROPERTY |
Property
or value in property that a debtor is allowed to retain, free
from the claims of creditors who do not have liens. |
| 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.) |
| FAMILY
FARMER |
An individual,
individual and spouse, corporation, or partnership engaged in
a farming operation who meet certain debt limits and other statutory
criteria for filing a petition under chapter 12. |
| 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 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
firms 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
upon specific property designed to secure payment of a debt
or performance of an obligation. |
| 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. |
| MOTION
TO LIFT THE AUTOMATIC STAY |
A request
by a creditor to allow the creditor to take an action against
a 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. |
| OBJECTION
TO DISCHARGE |
A trustee’s
or creditor’s objection to the debtor’s being released
from personal liability for certain dischargeable debts. |
| OBJECTION
TO EXEMPTIONS |
A trustee’s
or creditor’s objection to a debtor’s attempt to
claim certain property as exempt, i.e., not liable for any prepetition
debt of the debtor. |
| PARTY
IN INTEREST |
A party
who is actually and substantially interested in the subject
matter, as distinguished from one who has only a nominal on
technical interest in it. |
| 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 a 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.) |
| 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. |
| 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. |
| 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 describing the reason a debtor owes a 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
after the bankruptcy, usually for the purpose of keeping collateral
or mortgaged property that would otherwise be subject to repossession. |
| SECURED
CREDITOR |
An individual
or business 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
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. |
| SCHEDULES |
Lists submitted
by the debtor along with the petition (or shortly thereafter)
showing the debtor’s assets, liabilities, and other financial
information. (There are official forms a debtor must use.) |
| 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. |
| SUBSTANTIAL
ABUSE |
The characterization
of a bankruptcy case filed by an individual whose debts are
primarily consumer debts where the court finds that the granting
of relief would be an abuse of chapter 7 because, for example,
the debtor can pay its debts. |
| 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.) |
| 341
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. |
| 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 United
States trustee or Bankruptcy Administrator. |
| 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. |
| UNDERSECURED
CLAIM |
A debt
secured by property that is worth less than the amount of the
debt. |
| UNLAWFUL
DETAINER ACTION |
A lawsuit
brought by a landlord against a tenant to evict the tenant from
rental property—usually for non-payment of rent. |
| UNLIQUIDATED
CLAIM |
A claim
for which a specific value has not been determined. |
| UNSCHEDULED
DEBT |
A debt
that should have been listed by a 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. |
| VOLUNTARY
TRANSFER |
A transfer
of a debtor’s property with the debtor’s consent. |
SOURCES
Doran, Personal Bankruptcy and Debt Adjustment, 135–139
(1991)
Griffin, Personal Bankruptcy: What You Should Know, 145–149
(1994) |
