Sacramento Bankruptcy Attorneys

Bankruptcy Terminology

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 of 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 court. A

nonexclusive list of adversary proceedings is set

forth in Fed. R. Bankr. P. 7001.

assume 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).

bankruptcy administrator 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 U.S. trustee.

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 federal

judicial 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 petition 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 school

districts).

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.

consumer debtor A debtor whose debts are

primarily consumer debts.

consumer debts Debts incurred for personal,

as opposed to business, needs.

contested matter Those matters, other than

objections to claims, that are disputed but are

not within the definition of adversary

proceeding contained in Rule 7001.

contingent claim 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.

credit counseling 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 counseling.

creditors’ meeting see 341 meeting

current monthly income 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 Bankruptcy Code.

debtor education see credit counseling

defendant An individual (or business)

against whom a lawsuit is filed.

discharge 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.)

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 a chapter 11 debtor or other plan

proponent 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 $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.

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 an 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 a 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

businesses or individuals can pool their

resources, hire the same professionals, etc.)

joint petition 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.

liquidated claim A creditor’s claim for a fixed

amount of money.

means test 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) $10,000, or (ii) 25%

of the debtor’s nonpriority unsecured debt, as

long as that amount is at least $6,000. 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.

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. 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.

objection to exemptions 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.

petition preparer A business not

authorized to practice law that prepares

bankruptcy petitions.

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 the 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.)

preference or 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 see means test

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.

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 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 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 (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.

secured creditor 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.

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.

Examples include home mortgages, auto

loans and tax liens.

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.)

small business case A 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

bankruptcy.

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.

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 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 called creditors’

meeting

transfer Any mode or means by which a debtor

disposes of or parts with the debtor’s 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 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.

U.S. 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.

Compare, bankruptcy administrator.

undersecured claim A debt secured by

property that is worth less than the full

amount of the debt.

unliquidated claim A claim for which a

specific value has not been determined.

unscheduled debt 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.)

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.

The information on this site is not, nor is it intended to be, legal advice. Please contact us to obtain legal advice pertaining to your situation.

The information on this site is designed to provide

basic information to debtors, creditors, court

personnel, the media, and the general public

on different aspects of the federal bankruptcy

laws. It is also provides individuals who may

be considering bankruptcy with a basic

explanation of the different chapters under

which a bankruptcy case may be filed and to

answer some of the most commonly asked

questions about the bankruptcy process.

Bankruptcy Basics provides general

information only. While every effort has been

made to ensure that the information contained

in it is accurate as of the date of publication, it

is not a full and authoritative statement of the

law on any particular topic. The information

presented in this publication should not be

cited or relied upon as legal authority and

should not be used as a substitute for

reference to the United States Bankruptcy

Code (title 11, United States Code) and the

Federal Rules of Bankruptcy Procedure.

Most importantly, Bankruptcy Basics should

not substitute for the advice of competent

legal counsel or a financial expert. Neither the

Bankruptcy Judges Division nor the

Administrative Office of the United States

Courts can provide legal or financial advice.

Such advice may be obtained from a

competent attorney, accountant, or financial

adviser.