Glossary

Abandonment - A disclaimer of any interest by the trustee or debtor in burdensome or inconsequential property.  Once property has been "abandoned," it is no longer property of the estate.

Administrative Claim - A priority claim,  including the cost and expenses of preserving the estate or operating the business after the petition,  and all professional fees and charges that are allowed.

Adversary Proceeding - A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the bankruptcy court.

Automatic Stay - An injunction that automatically stops lawsuits, foreclosure, garnishment, and all collection activity against the debtor the moment a bankruptcy petition is filed. The purpose of the stay is to give the debtor or trustee "breathing time" for rehabilitation or the administration of the estate assets.

Avoidance - The Bankruptcy Code permits the debtor to eliminate (avoid) some kinds of liens that interfere with (or impair) an exemption claimed in the bankruptcy. Most judgment liens that have attached to the debtor's home can be avoided if the total of the liens (mortgages, judgment liens and statutory liens) is greater than the value of the property in which the exemption is claimed. This is sometimes called "lien stripping."

Avoidance Power - The Bankruptcy Code grants the trustee the power to avoid certain transactions or transfers occurring before the commencement of the case, including preferences and fraudulent conveyances.

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 Code - The informal name of 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 Court Clerk - The Clerk at the Bankruptcy Court receives all documents that are placed in the court record in a bankruptcy case. In addition, the Clerk's office schedules hearings for the bankruptcy judges, usually upon written request by an attorney.

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. The role of the Bankruptcy Judge is to preside over the administration of a bankruptcy case, and to decide contested aspects of that case, which involve either the liquidation or reorganization of a debtor.

Bankruptcy Petition - A formal request for the protection of the federal bankruptcy laws.

Bankruptcy Trustee - The court-appointed representative of the estate who actually administers the estate.

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 13 - A repayment plan for individuals with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income over 3 to 5 years.

Claim - A creditor's assertion of a right to payment from a debtor or the debtor's property.

Collateral - The property which is subject to a lien. A creditor with rights in collateral is a secured creditor and has additional protections in the Bankruptcy Code for the claim secured by collateral. The measure of the secured claim is the value of the collateral available to secure the claim: it is possible to have a lien on property that is subject to a senior lien or liens such that the security available to pay the claim is really without value to the junior creditor. The general rule with respect to liens is "First in time, first in right."

Contingent Claims - A claim that may be owed by the debtor under certain circumstances, for example, where the debtor is a cosigner on another person's loan and that person fails to pay.

Conversion - Cases under the Code may be converted from one chapter to another chapter; for example, a Chapter 7 case may be converted to a case under Chapter 13 if the debtor is eligible for Chapter 13. Even though the chapter of the Code which governs it changes, it remains the same case as originally filed.

Consumer Debt - Debts incurred by an individual for personal, family or household purposes. Taxes are not consumer debts; neither are business loans. The means test only applies to those with primarily consumer debt.

Creditor - A person to whom or business to which the debtor owes money or that claims to be owed money by the debtor.

Debtor - The person or entity that seeks voluntary relief under the Bankruptcy Code, or has been forced involuntarily into a Chapter 7 or 11 bankruptcy case by petitioning creditors.

Defendant - An individual (or business) against whom a lawsuit is filed.

Equity - The value of a debtor's interest in property that remains after liens and other creditors' interests are considered.

Executory Contract or Lease - Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. The Code grants the trustee the ability to assume, assign or reject executory contracts and unexpired leases for the benefit of estate, subject to bankruptcy court approval.

Exempt - Property that is exempt is removed from the bankruptcy estate and is not available to pay the claims of creditors. The debtor selects the property to be exempted from the statutory lists of exemptions available under the law of his state. The debtor gets to keep exempt property for use in making a fresh start after bankruptcy.

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.

Joint Administration - A court-approved mechanism under which two or more cases can be administered together.

Joint Petition - One bankruptcy petition filed by a husband and wife together

Lien - A charge upon specific property designed to secure payment of a debt or performance of an obligation.

Lien stripping - "Lien stripping" refers to the process of reducing a secured claim to the value of the underlying collateral. It uses the combined effect of 11 U.S.C.A. § 506(a) and 11 U.S.C.A. § 506(d) to bifurcate the lien into secured and unsecured. The secured lien is allowed in the amount up to the fair market value of the property at the time of the stripping. The balance of the lien, which exceeds the fair market value of the property, is now deemed unsecured.

Liquidated Claim - A creditor's claim for a fixed amount of money.

Liquidation - A sale of a debtor's property with the proceeds to be used for the benefit of creditors.

Means Test - Added to the Code in 2005, the means test is intended to screen out those filing Chapter 7 who are supposedly able to repay some part of their debts. The test is found in Official Form B22a. Debtors who fail the means test may convert their case to another chapter of bankruptcy. More about how the means test works.

Motion to Lift Automatic Stay - A request by a creditor to allow the creditor to take an action against a debtor or the debtor's property that would otherwise be prohibited by the automatic stay.

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.

Plaintiff - A person or business that files a formal complaint with the court.

Plan - A debtor's detailed description on how the debtor proposes to pay creditors' claims over a fixed period of time.

Post-petition Transfer - A transfer of a debtor's property made after the commencement of the case.

Preference - A transfer of the debtor's property to or for the benefit of a creditor, for or on account of an antecedent debt, made while the debtor was insolvent, within 90 days before bankruptcy (or within one year before the petition was filed in an "insider" situation), and the effect of which was to give the creditor more than he would have otherwise received in a Chapter 7 distribution.

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.

Priority Claim - An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status.

Proof of Claim - A written statement describing the reason a debtor owes a creditor money.

Property of the Estate - All legal or equitable interests of the debtor in property as of the commencement of the case.

Schedules - Lists submitted by the debtor along with the petition (or shortly thereafter) showing the debtor's assets, liabilities, and other financial information.

Secured Creditor - An individual or business holding a claim against the debtor that is secured by a lien on property of the estate or that is subject to a right of setoff.

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.

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.

Substantive Consolidation - Putting the assets and liabilities of two or more related debtors into a single pool to pay creditors.

341 Meeting - A meeting of creditors at which the debtor is questioned under oath by creditors, a trustee, examiner, or the United States Trustee about his/her property.

Reaffirm - The debtor can chose to waive the discharge as to a debt that is reaffirmed. Generally, the parties to the reaffirmed debt have the same rights and liabilities that each had prior to the bankruptcy filing: the debtor is obligated to pay and the creditor can sue or repossess if the debtor doesn't pay.

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 United States Trustee or Bankruptcy Administrator.

Undersecured Claim - A debt secured by property that is worth less than the amount of the debt.

United States Trustee - Responsible for matters of administration of a bankruptcy case. Employed by the U.S. Department of Justice, the U.S. Trustee's responsibilities include (1) appointing from the private sector the members of a panel of Trustee who administer bankruptcy cases; and (2) supervising the actions of the private Trustee and the administration of all bankruptcy cases.

Unliquidated Claim - A claim for which a specific value has not been determined.

Unscheduled Debt - A debt that should have been listed by a debtor in the schedules filed with the court but was not.

Unsecured Claim - A claim or debt for which a creditor hold 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.