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Bankruptcy Glossary of Common Terms

341 Meeting A mandatory first meeting between a debtor who has filed for bankruptcy and his or her creditors. Often occurs soon after filing.

Absolute Priority The order in which claims must be satisfied in bankruptcy proceedings. Generally, the order is: administrative claims, statutory priority claims, secured creditors’ claims, unsecured creditors’ claims, and equity claims.

Administrative Claim Debt that is undertaken after one files for bankruptcy, with the approval of the bankruptcy court. Approved costs may include court costs, lawyers’ fees, wages, salaries, and similar necessary expenses.

Adversary Proceeding A lawsuit that arises within a bankruptcy proceeding through the filing of a complaint.

Automatic Stay Upon the filing of a bankruptcy petition, creditors must seize collections efforts against the filer. This protects not only the filer, but also creditors who do not have to worry about someone else gaining more than their fair share from a debtor.

Avoidance Power A power of bankruptcy courts to negate some financial obligations made by a debtor prior to filing bankruptcy.

Bankruptcy A legal declaration by an individual or business of inability to meet one’s financial obligations. The result may be a liquidation of one’s assets and discharge of debt, or a reorganization of assets in the context of a realistic payment plans. Bankruptcy either may be in voluntary or involuntary.

Bankruptcy Code Title 11 of the United States Code, the statutory body of bankruptcy laws.

Bankruptcy Estate All property owned by the debtor or with which the debtor has interest at the time of a bankruptcy filing.

Bankruptcy Petition The official declaration filed with a bankrtuptcy court to begin bankruptcy proceedings. It is filed by the debtor in a voluntary case, and by one’s creditors in an involuntary case.

Bar Date The last day on which a creditor can file a claim against someone who has filed bankruptcy.

Business Bankruptcy Bankruptcy filed by a company rather than an individual. It must be categorized by the courts as such.

Chapter A division within the bankruptcy code. Some chapters concern specific types of bankruptcy that have come to be known by their numbers. Examples include Chapter 7, Chapter 11, and Chapter 13 bankruptcies.

Chapter 7 Liquidation bankruptcy for both individuals and businesses. Very common.

Chapter 9 Reorganization bankruptcy for municipalitites including cities, counties, and school districts. Very rare.

Chapter 11 Reorganization bankruptcy for both individuals and businesses, but usually utilized by businesses.

Chapter 12 Reorganization bankruptcy for eligible family farmers or fisherman. Generally only a couple hundred such cases are filed every year.

Chapter 13 Reorganization bankruptcy for individuals. Very common.

Claims Creditors assert that they have a right to repayment or to the debtor’s property.

Contested Matter A dispute among the parties of a bankruptcy case that is filed with the court, but is not a claim or objection.

Conversion Switching from one type of bankruptcy to another.

Cramdown Court approval of a reorganization plan despite the disapproval of one of more creditors.

Credit Counseling Professional advice given to consumers about financial planning, budget management, and methods of debt repayment. It is required for individuals who wish to file Chapter 7 or Chapter 13 bankruptcies.

Creditors’ Committee A committee appointed by the U.S. Trustee that acts on behalf on an individuals’s creditors in a bankruptcy case.

Current Monthly Income A debtor’s average income for the six months prior to filing bankruptcy.

Discharge A borrower is relieved of liability for repayment of debt. This can be accomplished through liquidation bankruptcy.

Dismissal A bankruptcy case is cancelled by the court because it is determined that filing was unneccessary or that a plan cannot be formulated.

Distressed Companies, securities, or other items that are in jeopardy of being affected by bankruptcy.

Equity Usually defined as the difference between the market value of a piece of property and any debts against it, such as outstanding mortgages, claims, liens, rights or liabilities. Equity in a home rises as such debts decrease and/or as the value of the property increases.

Examiner An individual designated by the bankruptcy court to oversee proceedings or investigate aspects of the case.

Exemption As related to bankruptcy, property that a filer legally may keep from creditors, such as a primary residence or property that is necessary for one’s income. Laws vary by state.

Fraudulent Transfer Property is transferred from the debtor to another individual so that it is unavailable to creditors.

Gap Period The time between the filing of an involuntary bankruptcy petition and one of the following: the dismissal of the petition, the filing of a voluntary petition, or the filing of an order for relief.

Interests Stockholders’ equity interests that are complicated in bankruptcy procedures.

Involuntary Bankruptcy Bankruptcy that is filed by at least three of an individual’s creditors to whom at least $5000 in unsecured debt is owed.

Joint Administration Two or more bankruptcy cases are combined for convenience, often those that are affiliated in some way.

Lien A legal claim that attaches to one’s property as security for repayment of a debt. It can make property transfer very difficult.

Liquidation One of two main types of bankruptcy (the other is Reorganization). An individual’s or business’s assets are liquidated and sold to pay off as many debts as possible. Those debts that remain unpaid generally are discharged, and the filer no longer is responsible for their repayment.

Liquidation Value The estimated value of all assets that may be sold after having been liquidated through bankruptcy.

No-asset Case An individual or business files Chapter 7 bankruptcy, but has no assets that can be liquidated.

Nondischargable Debt Debt that cannot be eliminated through bankruptcy. Such debts include student loans, alimony, child support, taxes, and other debts that are considered obligatory.

Personal Bankruptcy Bankruptcy filed by an individual rather than a business. It must be categorized by the courts as such.

Plan of Reorganization Essential element of Chapter 11 bankruptcy in which a documented plan is Bankruptcy filed by a company rather than an individual. It must be categorized by the courts as such.

Preference A payment made by a debtor to one creditor before filing bankruptcy rather than to others. Often, such payments are cancelled by the bankruptcy court.

Prepackaged Bankruptcy A bankruptcy plan is formulated and approved by the relevant parties prior to official filing of a bankruptcy petition in court. It can be approved and implemently quickly.

Priority Claims Outstanding expenses that were incurred prior to filing bankruptcy for which the debtor (often a business) has an obligation of payment. Such claims include wages, salaries, and taxes.

Proof of Claim An official document filed by a creditor that outlines claims against the debtor in bankruptcy proceedings.

Reaffirmation Agreement After debts have been discharged in bankruptcy, the filer agrees to repay a debt anyway, possibly in order to protect one’s secured property or to “make things right”.

Reorganization One of two main types of bankruptcy (the other is Liquidation). The debtor follows a realistic repayment plan for debts under the discretion of the bankruptcy court. Any debts above and beyond those included generally are discharged, and the filer no longer is held reponsible for their payment.

Restructuring An attempt to rearrange finances and settle debts out of court.

Secured Debt

Set-off Reconciling a debt through some counter-measure by the opposing party involved.

Skeleton Filing A bankruptcy case in which not all paperwork has been filed, but that may be allowed to continue if certain forms have been filed and others will be returned in the future.

Substantial Abuse A debtor takes advantage of the privilege of filing bankruptcy, usually in cases of fraud.

Substantive Consolidation Combining the assets of two or more debtors to settle combined liabilities.

Tax Loss Carry-Forward Losses that may be applied to income in the future to lower the taxable amount available.

Trustee A court-appointed third party in a bankruptcy case who holds and manages the assets of the debtor for hir or her creditors. Not to be confused with a United States Trustee.

United States Trustee A professional appointed by the Department of Justice to assist in a number of different duties in a bankruptcy case. Not to be confused with a “trustee”.

Undersecured Claim A secured debt in which the attached property is of insufficient value to cover the cost of the debt.

Unsecured Debt

Voluntary Bankruptcy Bankruptcy that is filed by the debtor(s).

Voluntary Transfer Transfer of a debtor’s property with his or her consent to a creditor for payment.

Vulture Fund An organization invests in restructuring bankrupt businesses.

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