Most debtors who file a bankruptcy petition, and many of their
creditors, know very little about the bankruptcy process. Bankruptcy
Basics is designed to provide debtors, creditors, judiciary employees,
and the general public with a basic explanation of bankruptcy and how it
works. This glossary on bankruptcy terminology explains, in layman's
terms, many of the legal terms that are used in cases filed under the
A lawsuit arising in or related to a bankruptcy case that is commenced
by filing a complaint with the court. A nonexclusive list of adversary
proceedings is set forth in Fed. R. Bankr. P. 7001.
An agreement to continue performing duties under a contract or lease.
automatic stay An injunction that automatically stops lawsuits,
foreclosures, 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).
An officer of the judiciary serving in the judicial districts of Alabama
and North Carolina who, like the U.S. 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. Compare
The informal name for title 11 of the United States Code (11 U.S.C. §§
101-1330), the federal bankruptcy law.
The bankruptcy judges in regular active service in each district; a unit
of the district court.
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.)
A judicial officer of the United States district court who is the court
official with decision-making power over federal bankruptcy cases.
The document filed by the debtor (in a voluntary case) or by creditors
(in an involuntary case) by which opens the bankruptcy case. (There are
official forms for bankruptcy petitions.)
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 9 The chapter of the Bankruptcy Code providing for
reorganization of municipalities (which includes cities and towns, as
well as villages, counties, taxing districts, municipal utilities, and
chapter 11 The chapter of the Bankruptcy Code providing
(generally) for reorganization, 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," or a "family fisherman" as
those terms are 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 15 The chapter of the Bankruptcy Code dealing with
cases of cross-border insolvency.
claim A creditor's assertion of a right to payment from the
debtor or the debtor's property.
confirmation Bankruptcy judges's approval of a plan of
reorganization or liquidation in chapter 11, or payment plan in chapter
12 or 13.
A debtor whose debts are primarily consumer debts.
Debts incurred for personal, as opposed to business, needs.
Those matters, other than objections to claims, that are disputed but
are not within the definition of adversary proceeding contained in Rule
A claim that may be owed by the debtor under certain circumstances,
e.g., where the debtor is
a cosigner on another person's loan and that person fails to pay.
creditor One to whom the debtor owes money or who claims to
be owed money by the debtor.
Generally refers to two events in individual bankruptcy cases: (1) the
"individual or group briefing" from a nonprofit budget and credit
counseling agency that individual debtors must attend prior to filing
under any chapter of the Bankruptcy Code; and (2) the "instructional
course in personal financial management" in chapters 7 and 13 that an
individual debtor must complete before a discharge is entered. There are
exceptions to both requirements for certain categories of debtors,
exigent circumstances, or if the U.S. trustee or bankruptcy
administrator have determined that there are insufficient approved
credit counseling agencies available to provide the necessary
The average monthly income received by the debtor over the six calendar
months before commencement of the bankruptcy case, including regular
contributions to household expenses from nondebtors and income from the
debtor's spouse if the petition is a joint petition, but not including
social security income and certain other payments made because the
debtor is the victim of certain crimes. 11 U.S.C. § 101(10A).
debtor A person who has filed a petition for relief under the
defendant An individual (or business) against whom a lawsuit
A release of a debtor from personal liability for certain dischargeable
debts set forth in the Bankruptcy Code. (A discharge releases a debtor
from personal liability for certain debts known as dischargeable debts
and prevents the creditors owed those debts from taking any action
against the debtor to collect the debts. The discharge also prohibits
creditors from communicating with the debtor regarding the debt,
including telephone calls, letters, and personal contact.)
A debt for which the Bankruptcy Code allows the debtor's personal
liability to be eliminated.
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
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 $100,000 is subject to a $80,000 mortgage, there is
$20,000 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.)
exemptions, exempt property
Certain property owned by an individual debtor that the Bankruptcy Code
or applicable state law permits the debtor to keep from unsecured
creditors. For example, in some states the debtor may be able to exempt
all or a portion of the equity in the debtor's primary residence
(homestead exemption), or some or all "tools of the trade" used by the
debtor to make a living (i.e.,
auto tools for an auto mechanic or dental tools for a dentist). The
availability and amount of property the debtor may exempt depends on the
state the debtor lives in.
family farmer or family fisherman
An individual, individual and spouse, corporation, or partnership
engaged in a farming or fishing operation that meets certain debt limits
and other statutory criteria for filing a petition under chapter 12.
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.
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 a 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.
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 professionals, etc.)
One bankruptcy petition filed by a husband and wife together.
lien The right to take and hold or sell the property of a
debtor as security or payment for a debt or duty.
liquidation A sale of a debtor's property with the proceeds to
be used for the benefit of creditors.
A creditor's claim for a fixed amount of money.
Section 707(b)(2) of the Bankruptcy Code applies a "means test" to
determine whether an individual debtor's chapter 7 filing is presumed to
be an abuse of the Bankruptcy Code requiring dismissal or conversion of
the case (generally to chapter 13). Abuse is presumed if the debtor's
aggregate current monthly income (see definition above) over 5 years,
net of certain statutorily allowed expenses is more than (i) $10,950, or
(ii) 25% of the debtor's nonpriority unsecured debt, as long as that
amount is at least $6,575. The debtor may rebut a presumption of abuse
only by a showing of special circumstances that justify additional
expenses or adjustments of current monthly income.
motion to lift the
automatic stay A request by a creditor to allow the creditor to take
action against the debtor or the debtor's property that would otherwise
be prohibited by the automatic stay.
A chapter 7 case where there are no assets available to satisfy any
portion of the creditors' unsecured claims.
A debt that cannot be eliminated in bankruptcy. Examples include a home
mortgage, debts for alimony or child support, certain taxes, debts for
most government funded or guaranteed educational loans or benefit
overpayments, debts arising from death or personal injury caused by
driving while intoxicated or under the influence of drugs, and debts for
restitution or a criminal fine included in a sentence on the debtor's
conviction of a crime. Some debts, such as debts for money or property
obtained by false pretenses and debts for fraud or defalcation while
acting in a fiduciary capacity may be declared nondischargeable only if
a creditor timely files and prevails in a nondischargeability action.
objection to dischargeability
A trustee's or creditor's objection to the debtor being released from
personal liability for certain dischargeable debts. Common reasons
include allegations that the debt to be discharged was incurred by false
pretenses or that debt arose because of the debtor's fraud while acting
as a fiduciary.
A trustee's or creditor's objection to the debtor's attempt to claim
certain property as exempt from liquidation by the trustee to creditors.
party in interest
A party who has standing to be heard by the court in a matter to be
decided in the bankruptcy case. The debtor, the U.S. trustee or
bankruptcy administrator, the case trustee and creditors are parties in
interest for most matters.
A business not authorized to practice law that prepares bankruptcy
A debtor's detailed description of how the debtor proposes to pay
creditors' claims over a fixed period of time.
A person or business that files a formal complaint with the court.
A transfer of the debtor's property made after the commencement of the
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.
presumption of abuse
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. For example, under the Bankruptcy Code's priority scheme, money
owed to the case trustee or for prepetition alimony and/or child support
must be paid in full before any general unsecured debt (i.e.
trade debt or credit card debt) is paid.
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 and verifying documentation filed by a creditor that
describes the reason the debtor owes the creditor money. (There is an
official form for this purpose.)
property of the
All legal or
equitable interests of the debtor in property as of the commencement of
An agreement by a chapter 7 debtor to continue paying a dischargeable
debt (such as an auto loan) after the bankruptcy, usually for the
purpose of keeping collateral (i.e.
the car) that would otherwise be subject to repossession.
schedules Detailed lists filed by the debtor along with (or
shortly after filing) the petition showing the debtor's assets,
liabilities, and other financial information. (There are official forms
a debtor must use.)
A creditor holding a claim against the debtor who has the right to take
and hold or sell certain property of the debtor in satisfaction of some
or all of the claim.
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. Examples include home mortgages, auto loans and tax liens.
small business caseA
special type of chapter 11 case in which there is no creditors'
committee (or the creditors' committee is deemed inactive by the court)
and in which the debtor is subject to more oversight by the U.S. trustee
than other chapter 11 debtors. The Bankruptcy Code contains certain
provisions designed to reduce the time a small business debtor is in
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.
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.)
The meeting of creditors required by section 341 of the Bankruptcy Code
at which the debtor is questioned under oath by creditors, a trustee,
examiner, or the U.S. trustee about his/her financial affairs. Also
Any mode or means by which a debtor disposes of or parts with his/her
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
U.S. trustee or bankruptcy administrator. The trustee is a private
individual or corporation appointed in all chapter 7, chapter 12, and
chapter 13 cases and some chapter 11 cases. The trustee's
responsibilities include reviewing the debtor's petition and schedules
and bringing actions against creditors or the debtor to recover property
of the bankruptcy estate. In chapter 7, the trustee liquidates property
of the estate, and makes distributions to creditors. Trustees in chapter
12 and 13 have similar duties to a chapter 7 trustee and the additional
responsibilities of overseeing the debtor's plan, receiving payments
from debtors, and disbursing plan payments to creditors.
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.
A debt secured by property that is worth less than the full amount of
A claim for which a specific value has not been determined.
A debt that should have been listed by the debtor in the schedules filed
with the court but was not. (Depending on the circumstances, an
unscheduled debt may or may not be discharged.)
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.
A transfer of a debtor's property with the debtor's consent.