Common Bankruptcy Terms

  • 341 Meeting - (see first meeting of creditors)
  • 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 - the suspension of actions, such as debt collection or foreclosure, against the company in bankruptcy. This occurs automatically when a bankruptcy petition is filed. This action protects the debtor from creditors seeking to seize its assets. It protects some creditors in that it prevents one creditor from obtaining an excessive share of the assets of the bankrupt company to the exclusion of the other creditors.
  • bankruptcy - (see also failure and insolvency) a legal procedure for dealing with debt problems of individuals and business. A non-technical term for a legal state of insolvency.
  • Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 - This legislation primarily affects consumer filings, making it more difficult for a person or estate to file for Chapter 7 bankruptcy. The BAPCPA impacts business filers as well-with the heaviest impact on smaller (those listing less than $2 million in debt) businesses.
  • Bankruptcy Court - the federal tribunal where cases under the Bankruptcy Code are litigated.
  • 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.
  • Chapter 7 - liquidation proceedings; generally assets are sold by a trustee and the company ceases operation. Individuals may file Chapter 7 also.
  • Chapter 7 Trustee - a person appointed in a Chapter 7 case to represent the interests of the bankruptcy estate and the unsecured creditors.
  • Chapter 9 - bankruptcies of municipalities; only a few of these are filed each year.
  • Chapter 11 - reorganization proceedings, generally for business entities. The debtor maintains control of the business in Chapter 11, unless the Court appoints a trustee.
  • Chapter 12 - family farmer bankruptcies. This was created by Congress in 1986 (Chapter 12 became effective on November 26, 1986). Only a family-owned farm business can qualify for Chapter 12 and it must have debt less than $1.5 million and have 50% of its income from farming operations.
  • Chapter 13 - bankruptcy proceedings for an individual with the intention of rescheduling the individual's debt (rather than liquidating the individual's assets and debt; an individual files under Chapter 7 to liquidate), Chapter 13 is referred to as wage earner bankruptcy, personal bankruptcy or consumer bankruptcy, Chapter 13 cannot be used by a partnership or a corporation; it can be used by a sole proprietorship. 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. It was formerly known as Section 304.
  • "Chapter 20″ - an unofficial term describing the filing of a Chapter 7 followed by a Chapter 13. The Chapter 7 filing eliminates unsecured debts while the Chapter 13 filing handles continuing liens.
  • 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 entity seeking protection from creditors under the bankruptcy laws.
  • discharge (of indebtedness) - the satisfaction or elimination of the debts of the debtor by the bankruptcy court.
  • dischargeable debt - a debt for which the bankruptcy code allows the debtor's personal liability to be eliminated.
  • ECF or Electronic Case Filing - ECF is a comprehensive case management system that allows courts to maintain electronic case files and offer electronic filing over the Internet. Courts make all case information immediately available electronically through the Internet.
  • equity - the value of the debtor's interest in property that remains after the liens and other creditor's interests are considered.
  • exemptions - this refers to assets or properties owned by the debtor that cannot be recovered by creditors.
  • filing fees - as of January 1, 2007, for Chapter 7 the fee is $299, for Chapter 11 it is $1,039, for Chapter 12 it is $239 and for Chapter 13 it is $274.
  • first meeting of creditors (341 meeting) - a mandatory meeting between creditors and the debtor. It is usually held within a month of the filing of bankruptcy but often occurs later when the debtor has filed its schedules of financial information.
  • involuntary bankruptcy - a bankruptcy initiated by at least three creditors holding unsecured claims aggregating at least $5,000 against the debtor. Data from the U.S. Administrative Office
  • lien - a charge upon a specific property designed to secure payment of a debt or performance of an obligation.
  • liquidating reorganization - an informal term for a Chapter 11 proceeding when the company is essentially liquidated through one or more asset sales.
  • liquidation - the dissolution of a company, or individual; usually operations cease and assets are sold by auction; Chapter 7 is usually employed for liquidations, businesses or individuals.
  • matrix - a mailing list of creditors of the debtor. Done as part of the forms filled out for a Chapter 11 case.
  • 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.
  • PACER (Public Access to Court Electronic Records) - a service provided by the court system that gives case filing information.
  • 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 - (or bankruptcy petition or petition for relief) - the document that commences a bankruptcy proceeding.
  • preference - a payment by a debtor made during a specified period (90 days or one year) prior to the filing that favors one creditor over others. Preference payments can usually be recovered and returned to the debtor's estate.
  • pro rata - proportionately.
  • proof of claim - form filed by a creditor setting out its claims against a bankruptcy debtor.
  • schedules - list submitted by the debtor along with the petition (or shortly thereafter) showing the debtor's assets, liabilities, and other financial information.
  • secured creditors - one of two general types of creditors of a company. Secured creditors have a lien on property of the company.
  • secured debt - debt backed by a mortgage, pledge of collateral or other lien. It is debt for which the creditor has the right to pursue specific pledged property upon default.
  • skeleton filing - term used in bankruptcy courts to describe a bankruptcy filing in which not all the necessary forms have been filed. Certain courts allow a case to commence if only certain important forms are filed so long as the balance of required forms are forthcoming within a certain period of time.
  • trustee - an agent of the court who manages the property of the debtor for the benefit of the creditors. The court appoints a trustee in most Chapter 7 cases and in Chapter 11 cases when it determines that the debtor's management should not remain in their control. This type of trustee should be distinguished from the U.S. Trustee, who plays an administrative role in all bankruptcy cases.
  • unsecured claim - a claim or debt for which a creditor holds no special assurance of payment; a debt for which credit was extended based solely upon the creditor's assessment of the debtor's future ability to pay.
  • unsecured creditor - a creditor who extended credit to a debtor without collateral security. If the debtor files for bankruptcy, the unsecured creditors are paid on a pro-rata basis only after the claims of all secured creditors are satisfied.

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