Glossary of bankruptcy terms

Abandonment: Process by which the debtor’s estate would not benefit by the sale of certain property so the trustee will turn it back over to the debtor.Abandonment of Property: Trustee’s declaration that the trustee has no interest in certain property because of lack of value, debtor’s exemption, or because it is burdensome to the administration of the estate.Absolute Priority Rule: Requirement that a certain class of creditors be satisfied before payment to another class of creditors.Abstention: Process of the district court deciding not to hear a matter that would be more appropriately heard in another court.Acceleration Clause: A clause in a promissory note allowing the creditor to declare the entire balance due upon default.Adequate Protection: The standard of protection of the interest of a creditor that must be provided by the trustee or debtor in possession before the creditor’s interest can be used without an unconstitutional taking of the creditor’s interest.Administrative Claim: Claim for reasonable and necessary expenses and fees incurred in the administration of an estate.Adversary Proceeding: A lawsuit in the U.S. Bankruptcy Court that is related to a bankruptcy case.Affiliate: (1) Entity with voting power that directly or indirectly owns 20% of debtor’s voting securities; (2) corporation in which the debtor owns 20% of voting securities; (3) person whose business is operated under debtor’s lease or operating agreement; or (4) entity that operates the business or property of the debtor under a lease or operating agreement.Affirmation: A declaration, oath or promise made by a person.Agent: A person who is authorized to represent another person, corporation or entity.Amortize: To satisfy a debt in installments or recovery of an investment over a period of time.Antecedent Debt: An obligation that has not yet matured or become due, such as an installment loan payment.Appeal: A review of a decision of the Bankruptcy Court.Arrangement: Creditors agree to compromise or defer their claims in a reorganization plan.Assets: Things owned by a person, corporation or business.Assume: An agreement to continue performing duties under a contract or lease.Automatic Stay: An injunction or court order that takes effect when a bankruptcy petition is filed, prohibiting a broad range of activities against the debtor, property of the debtor and property of the bankruptcy estate.Avoidance Powers: The powers used by a trustee to undo transfers of the debtor’s property.Balance Sheet: A statement of financial condition as of a specific date.Ballot: The method by which a creditor may vote to accept or reject the debtor’s plan for reorganization.Bankruptcy: A legal procedure by which an individual or corporation is able to reduce or cancel debts, or reorganize, under the direction of the bankruptcy court.Bankruptcy Code: The information 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.Bankruptcy Mill: A business not authorized to practice law that provides bankruptcy counseling and prepares bankruptcy petitions.Bar Date: Date set by the court for filing pleadings; usually refers to last day to file a proof of claim.Book Value: The value of property as shown by the records or books of the owner (usually a corporation).Bootstrap Plan: A plan that uses only those assets existing at the time debtor filed the petition.Bulk Transfer: A sale of most of the inventory of a business not in the ordinary course of business.Cash Collateral: Cash or equivalent that is subject to a security interest.Certified Financial Statement: A financial statement that is certified by the accountant of the debtor to be accurate and correct.Change of Venue: Moving the case from the jurisdiction of one bankruptcy court to another.Chattel Mortgage: Transfer of ownership of personal property to ensure payment of a debt.Claim: Creditor’s right to payment.Claims Bar Date: Last day to file proof of claim, usually 90 days after the §341(a) meeting of creditors.Class of Creditors: A group of creditors entitled to similar treatment.Co-Debtor Stay: The stay of an action against guarantors and co-obligors provided in Chapters 12 and 13 that applies to individuals jointly liable on consumer debts.Cognovit Note: Debtor’s confession of judgment.Collateral: Property of a debtor on which a creditor has a lien securing the debt.Collateral Recovery: The method of a secured creditor in recovering its collateral for a secured debt.Composition: An agreement between debtor and creditor whereby the creditor agrees to take less than the original claim.Complaint: A pleading that is filed to initiate a lawsuit or adversary proceeding.Community Claim: Claims against community property of debtors.Confirmation: The court’s approval of the debtor’s plan before it goes into effect.Consensual Lien: A lien created by the consent of the parties, such as a mortgage or a security interest.Constructive Fraud: The identification of fraud when a debtor transfers property for less than its value while the debtor was insolvent.Consumer Debt: Debt incurred by an individual primarily for a personal, family or household purpose.Contingent Claim: A claim conditioned upon a future event that may never happen.Conversion: Process by which the debtor may change the chapter under which he or she filed.Core Proceedings: Core proceedings are directly related to the bankruptcy case which arises under the Bankruptcy Code. Core proceedings include estate administration, claim allowance or disallowance, use and sale of property, preference litigation, automatic stay litigation, fraudulent conveyance litigation, plan confirmation and the like. A bankruptcy judge may render final orders in core proceedings.Cram-Down: The confirmation of a plan to reorganize, overriding the objection of a creditor or class of creditors, by the vote of other creditors.Creditor: Entity that has a claim against debtor that arose at the time of, or before, the order for relief.Creditor’s Bill: Judgment creditor’s attempt to attach property that could not be attached by execution at law.Cure Amount: The amount of arrearages of a secured debt needed to bring the arrearages current.Custodian: Trustee, receiver or agent appointed by the court to take charge of debtor’s property for the purpose of enforcing a lien against the property, or for general administration of the property for the benefit of debtor’s creditors.Deacceleration: A debt that became due before term could be extended and a new payment schedule proposed.Debenture: A promissory note of a corporation for money received which is not secured by assets.Debt: Liability for a claim.Debtor: Person, partnership, corporation or municipality that is the subject of bankruptcy proceedings, whether voluntarily or involuntarily.Debtor in Possession: Entity retaining possession of the assets of the bankruptcy estate in a Chapter 11 reorganization.Default: Failure to perform when due, such as failure to file an answer when due.Discharge: The termination of the bankruptcy proceedings when all payments under the plan have been paid or debtor has been “forgiven” his or her debts.Dischargeable Debt: A debt for which the Bankruptcy Code allows the debtor’s personal liability to be eliminated.Disclosure Statement: A document prepared by the debtor to creditors that discloses information that the debtor deems important concerning his or her plan of reorganization. Usually accompanied by the plan.Disinterested Person: Person who is not a creditor, equity security holder, or insider.Dismissal: Process by which a court will terminate a case.Disputed Claim: A claim that is disputed as to amount or validity.Distribution: Process under a plan of reorganization wherein proceeds of an estate are paid to various classes of claimants.Dividend: Payment a creditor receives from a debtor’s estate.Entity: Person, estate, trust, governmental unit, or U.S. trustee.Equitable Subordination: The action by which a court postpones payment to one creditor until others are paid.Equity: The value of an asset after encumbrances are deducted from the market value.Equity Cushion: Form of adequate protection wherein value of property is compared to claimant’s lien interest.Equity Lien: A lien established to secure payment of debts.Equity Security: Share or stock in a corporation or limited partnership.Examiner: An officer of the court sometimes appointed in a Chapter 11 reorganization to investigate the financial affairs of the debtor in possession.Execution: The signing of a document, with the result that the document is officially completed.Executory Contract: A contract that requires performance by both parties (e.g., a lease or employment contract).Exempt Property: Property of a debtor that the law protects from the action of creditors.Exemptions: Debtor’s property that is free from claims of creditors.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.Fair Consideration: The amount paid for an item that is not disproportionately small. The price paid is adequate for the value of the asset.Family Farmer: Individual and family engaged in farming operation.Family Fisherman: Individual and family engaged in fishing operation.Federalism: The theory under which the powers of government are divided between the states and the central government.Fiduciary: A person acting on behalf of another person in a situation that requires a high degree of trust (e.g., executors, directors of a corporation, or guardians).Final Decree: Order of the court that the case has been fully administered and is closed.Foreclosure: A judicial debt-collection procedure whereby property of the debtor is sold on the courthouse steps to satisfy debt(s).Foreign Proceeding: Judicial or administrative proceeding in a foreign country in which a debtor’s residence, business or assets are located.Forward Contract: A contract for purchase, sale or transfer of a commodity or product with a maturity date more than two days after the date the contract was executed.Fraudulent Transfer: A transfer of a debtor’s property to conceal the property from the jurisdiction of the court in order to secure the property from creditors.Fully Secured Creditor: A creditor that has security in the full amount of the debt.Gap Period: The period of time between filing an involuntary petition and obtaining an Order for Relief.Garnishment: A judicial debt-collection procedure whereby, at the suit of a creditor, the court orders a third person to hold, subject to the court’s direction, money or property of the debtor in his or her possession.Health Care Business: Any public or private entity, for profit or not for profit, that offers general public health care facilities or services.Holding Company: A corporation that owns controlling interest in other corporations. It may control the policies of subordinate corporations without conducting business operations of its own.Homestead: Primary family residence for which part (or all) of the debtor’s equity may be exempt.Impaired Class: A class of creditors whose legal or contractual rights are altered under the plan of reorganization.Indenture: Mortgage or deed of trust under which there is a security outstanding constituting a claim against debtor, or claim secured by a lien on debtor’s property.Indenture Trustee: A person who is trustee under a mortgage, deed of trust or security.In Forma Pauperis: Proceeding of indigent person; because of lack of funds, certain fees may be waived.In Pro Per: Debtor representing himself or herself without representation of an attorney.Insider: A person who is a debtor’s relative or among the debtor’s close working associates. If the debtor is a corporation, an insider would be a director, officer, manager, or relative of a director, officer or manager. If the debtor is a partnership, an insider would be a partner or relative of a general partner or affiliate.Insolvency Presumption: A debtor is presumed to be insolvent during the 90-day period preceding the date the petition is filed.Insolvent: Financial condition in which the sum of a person’s debts exceeds the sum of that person’s assets.Interim Trustee: Trustee appointed upon entry of the order of relief to administer the estate until the permanent trustee can be appointed at the §341(a) meeting of creditors.Ipso Facto Clause: A clause in a promissory note or lease allowing the creditor or landlord to declare a default if the debtor or tenant files bankruptcy or becomes insolvent.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 professions, etc.Joint Petition: When two or more persons are listed on the same bankruptcy petition (e.g., husband and wife).Judicial Lien: A lien created by order of a court, such as the lien of a judgment.Jurisdiction: The power and authority of the court to administer justice by hearing controversies.Levy and Execution: A judicial debt-collection procedure whereby the court orders the sheriff to seize all of the debtor’s nonexempt property that can be found in the county to sell in satisfaction of the debtor’s debt(s).Liabilities: Debts of the debtor and encumbrances on the debtor’s property.Lien: An interest in property securing the repayment of a debt.Liquid assets: Assets that are easily convertible to cash.Liquidation: Sale of debtor’s assets in a Chapter 7 case.Margin payment: Payment on a forward contract.Market Value: The price property would sell for if sold in the ordinary course of business.Matrix: List of creditors’ names and addresses, filed with the petition.Means Test: A method of determining if a debtor has the ability to pay some debts thereby requiring the debtor to file a Chapter 13 proceeding rather than a Chapter 7 proceeding.Modification: Changes made in the plan of reorganization or other bankruptcy documents.Motion: A request for the court to act, which is filed within a lawsuit, adversary proceeding or bankruptcy case.Municipality: Political subdivision of a state.Net Income: Debtor’s income after expenses are deducted.Net Worth: The remainder after deducting liabilities from assets.No-Asset Case: A Chapter 7 case where there are no assets available to satisfy any portion of the creditors’ unsecured claims.Noncore Proceedings: Those proceedings that are related to the bankruptcy case but do not arise directly from the Bankruptcy Code. Bankruptcy judges may not render a final order in noncore matters without the explicit written authorization of all parties involved. When written authorization is not obtained, the bankruptcy judge will submit findings of fact and conclusions of law to the district judge, who will render a final decision. An example of a noncore proceeding is a personal injury or wrongful death claim of the debtor.Nondischargeable Debt: A debt that is excluded from discharge.Nonexempt Property: Property that the debtor may not keep.Nonpossessory Security Interest: A security interest or lien in property in the possession of the debtor.Nonpurchase-Money Security Interest: A security interest given to secure a loan not used to purchase the collateral.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.Option: A written instrument that gives a person the right to purchase an asset at a stated price within a specified time period stated in the instrument.Party in Interest: A party who is actually and substantially interested in the subject matter, as distinguished from one who has only a nominal or technical interest in it.Par Value: The value of corporate stock, which is determined by the incorporator of the corporation when the corporation is formed.Perfect: The action to make a security interest legally enforceable. Taking possession of collateral may be necessary to perfect a security interest.Personal Jurisdiction: The power and authority of a court to issue an order that is binding upon a particular individual, entity or piece of property.Personally Identifiable Information: Specific information about individuals provided in connection with obtaining a product or services for personal, family or household purposes, including social security numbers, e-mail addresses, telephone numbers, and credit card numbers.Personalty: Moveable property, property not permanently attached to land.Petition for Relief: The pleading that is filed to initiate a bankruptcy case.Plan: Statement of debtor’s modus operandi to repay debts and satisfy creditors, which is approved by the court.Possessory Security: A security interest or lien in property in the possession of the creditor, such as a pawn or pledge.Postpetition Transfer: Transfer of property after petition is filed.Prebankruptcy Planning: The arrangement, or rearrangement, of a debtor’s property to allow the debtor to take maximum advantage of exemptions. It typically includes converting nonexempt assets into exempt assets.Preemption: Preemption occurs when Congress enacts a federal law or statutory scheme that is intended to preclude enforcement of state laws on the same subject.Preferential Transfer: A transfer of property of the debtor to a creditor, on account of a prior debt made immediately prior to the debtor’s bankruptcy, while the debtor was insolvent, enabling the creditor to receive more than he or she would have received from the bankruptcy if the transfer had not been made.Prepackaged Plan: A plan for which acceptances were solicited prior to the commencement of the bankruptcy case, thus making the meeting of creditors unnecessary.Priority: Classification of claims whereby the claims in one class must be paid in full before the next class receives any payment.Priority Creditor: A person whose debt is entitled to priority (e.g., wages, employee benefits, or taxes).Pro se: A nonlawyer who represents himself or herself in a court proceeding.Proprietorship: A business that is owned and managed by one person.Purchase Money Security Interest: A security interest given to secure the loan used to purchase the collateral.Reaffirmation Agreement: An agreement between debtor and creditor to pay a debt regardless of dischargeability.Realty: Immovable property, such as land and buildings attached to land.Receiver: A person appointed by the court to hold property in trust until the court can rule on its disposition.Recoupment: The right of a creditor to assert a demand arising from the same transaction as the debtor’s claim for the purpose of reducing the claim.Redemption: The right of a debtor in bankruptcy to purchase certain types of collateral from secured creditors by paying the value of the collateral rather than the total secured debt.Remainder: The part of a debtor’s estate that is left after the debts have been paid.Removal: Moving litigation from a state court to the Bankruptcy court or District Court.Replacement Value: The price a willing buyer in the debtor’s trade, business or situation would pay to obtain like property from a willing seller.Replevin: Recovery of property or goods after legal action.Repossess: The act of a creditor to recover from a debtor property that was not paid for.Repo Participant: An entity that has an outstanding repurchase agreement with debtor within 90 days before the date the petition in bankruptcy is filed.Reversion: Return of property to a creditor when debtor is unable to pay for it.Ride-Through: Instead of reaffirming a debt, the debtor simply continues paying a debt during bankruptcy proceedings.Rule of 78: The method generally used to determine the payout balance of an installment loan.Turnover Action: Adversary proceeding brought by a Chapter 7 trustee for return of debtor’s property held in the possession of a third party.Secured Creditor: A creditor whose debt is secured by a lien on debtor’s property.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.Securities Self-Regulatory Organization: Securities association registered with the SEC.Security: Stocks, notes, treasury stock, bonds, certificates of deposit, and debentures.Security Agreement: An agreement that creates a security interest in property.Setoff: Crediting one claim against another without an actual exchange of money.Single-Asset Real Estate Case: A business whose noncontingent liquidated debts amount to no more than four million dollars. It consists of a single property or project (other than residential property with less than four units) that generates all of its income.Small Business: A person engaged in business activities whose aggregate liquidated secured and unsecured debts do not exceed $2,190,000. For the purposes of the Bankruptcy Code, a small business does not include a business whose primary activity is owning and operating real property.Standing Trustee: A trustee with a permanent appointment to serve in Chapter 12 or 13 cases.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.Statutory Lien: A lien created by operation of law without either the consent of the parties or a court order, such as a mechanic’s lien or a material man’s lien.Straight Bankruptcy: Proceedings under Chapter 7.Strong Arm Powers: The right of a Trustee to avoid or reverse certain transactions.Sua Sponte: On the court’s own motion.Subordination: To place in lower order or rank.Subrogation: The substitution of one party into another party’s position.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.Substantial 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.Substantial Consummation: The transfer of all, or substantially all, of the property proposed by a reorganization plan.Surety: One who agrees to be responsible for another’s debts if the other person does not perform as agreed.Transfer: Voluntary or involuntary disposing of, or parting with, property or an interest in property, including creation of a lien, the retention of title as a security interest, and foreclosure of the debtor’s equity of redemption.Trustee: An officer of the court appointed to take custody of the assets of a bankruptcy estate.Turnover Action: An adversary proceeding brought against a third party demanding return of debtor’s property.Unlawful Detainer Action: A lawsuit brought by a landlord against a tenant to evict the tenant from rental property; usually for nonpayment of rent.Unliquidated Claim: A debt in dispute.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 Creditor: A creditor without security for the debt.Venue: Geographical location of debtor to determine proper court jurisdiction.Voidable Preference: Transfer of property that is voidable by the trustee.Waiver: The intentional relinquishment of a right, usually in writing.Workout: Arrangement between debtor and creditor to satisfy a debt.

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