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.
assets: Anything, in any form, that a debtor owns. This includes tangible assets such as real estate, cars, and jewelry, as well as intangible assets, such as business goodwill, the right to sue someone, stock options, or future interests in a will.
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 Abuse Prevention and Consumer Protection Act: The name (mis-name) given by Congress to the new Bankruptcy law legislation passed and signed into law by President George W. Bush, effective October 17, 2005, which was designed to dramatically changed the way eligibility for filing Bankruptcy is determined. It was neither designed to protect consumers nor to address actual Bankruptcy abuse. See more.
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 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 petition: The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) that opens the Bankruptcy case. (There are official forms for Bankruptcy petitions.)
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 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.)
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.
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 non-debtors 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-in-possession: This refers to the debtor in a Chapter 11 case because the debtor usually remains in possession and control of his/her/its assets. A debtor-in-possession has all the duties and rights of a trustee and is a fiduciary for the creditors of the estate and, therefore, owes them the highest duty of care and loyalty. If a debtor-in-possession fails in its duties, a separate trustee can be appointed in a Chapter 11 case and take over possession of the debtor’s assets and interests.
debt relief agency:A debt relief agency is a made-up designation that our Congress created as part of the 2005 Bankruptcy Reform Act and is defined in 11 U.S.C. 101(12A). It includes “any person who provides any Bankruptcy assistance to an ‘assisted person’ in return for the payment of money or other valuable consideration, or who is a Bankruptcy petition preparer…”. Debt Relief Agencies are required to give certain additional disclosures and incur more costs by virtue of this designation which is neither honorary nor punitive. See More
denial of discharge: a creditor, trustee, U.S. Trustee or other party in interest may, pursuant to 11 USC 727, file a complaint to deny the discharge of any debtor if certain things can be proved (such as material misstatements in the Bankruptcy schedules, like omission of assets, etc.). If successful at trial, this results in the entire discharge being denied, not just the discharge of a particular individual debt. See more.
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.)
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.
dismissal: the termination of a case without either entry of a discharge or a denial of discharge. After dismissal, the debtor and creditors have the same rights and remedies as they had prior to the case being commenced–as if the case had never been filed (almost).
disposable income: In general, this is any income left over each month after you pay all your necessary monthly expenses. However, for Chapter 13 Bankruptcy purposes, Congress has re-defined this to mean your current monthly income (as that term is defined, above) less allowed expenses according to IRS standards. See more.
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 an $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 (or if multiple states have been lived in in the past 2 years, there is a formula for deciding which state’s law applies).
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.
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.
Involuntary petition: A Bankruptcy case may be commenced by a specific number of creditors against a debtor without the debtor’s consent. There are specific requirements for the amount of claims the creditors must hold and number of valid creditors who may commence the case. 11 U.S.C. 303 sets forth the requirements. (please note that the information contained on that link may not be up to date)
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.)
lien stripping: Refers to the mechanism that a lien (deed of trust, mortgage, etc.) against property is removed when the value of the property is less than the amount owed to any liens senior (above) the one(s) being stripped.
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 (for relief from) 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.
net income: this is basically “take-home” pay. The amount you receive after necessary tax withholding deductions have been taken, union dues, insurance, etc. If you are self-employed, this is the amount left after paying your ordinary business expenses.
nondischargeable debt: A debt that cannot be eliminated in Bankruptcy. Examples include 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.
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.
plan: A debtor’s detailed description of how the debtor proposes to pay creditors’ claims over a fixed period of time. Plans are required in Chapter 13 and Chapter 11 cases (also in Chapter 9 and 12).
Pre-Bankruptcy planning: The arrangement (or rearrangement) of a debtor’s property to allow the debtor to take maximum advantage of exemptions. (Pre-Bankruptcy 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.
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 pre-petition 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.
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. In order to be valid, the reaffirmation agreement must be signed and filed with the court prior to the discharge being entered.
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.)
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.
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.)
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.)
341a 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.
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.
undue hardship: A Congressionally-created and undefined term used to describe the level required to discharge a student loan in Bankruptcy. To see how this term is defined and analyzed in the ninth circuit, see more on lien; a debt for which credit was extended based solely upon the creditor’s assessment of the debtor’s future ability to pay.
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