Bankruptcy Glossary of Terms

Bankruptcy Glossary of Terms

341 meeting - (see first meeting of creditors)

363 sale - the sale of corporate assets under section 363 of the bankruptcy code. under section 363(f), a bankruptcy trustee or debtor-in-possession may sell the bankruptcy estate's assets "free and clear of any interest in such property."

absolute priority - the order of payment to the different classes of creditors mandated by the bankruptcy code. claimants with higher priority are paid in full before other claims receive anything. junior creditors and shareholders are paid after senior creditors. specifically, the usual order is: first, administrative claims; second, statutory priority claims such as tax claims, rent claims, consumer deposits, and unpaid wages and benefits from before the filing; third, secured creditors' claims; fourth, unsecured creditors' claims and fifth, equity claims.

adequate protection - the right of a party with an interest in the debtor's property (such as a secured creditor) to assurance that its interest will not be diminished during the bankruptcy proceedings.

administrative claim (or administrative expense claim) - debt incurred by the debtor, with court approval, after the bankruptcy filing including: necessary costs of preserving the estate, wages, salaries, court costs, lawyers' fees, accountants' fees, trustees' expenses, etc. (Continued Below)

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Bankruptcy Chapter 7: Discharges all debts completely, no monthly payments.
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Debt Negotiation: Repay about 50% of debts*, dramatic monthly savings.
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Bankruptcy Chapter 13: Repay about 85% of debts*, no monthly savings.
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Credit Counseling: Repay 100% of debts, some monthly savings.
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adversary proceeding - a lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the bankruptcy court.

allowed claim (or allowed interest) - a claim of a creditor (or an equity interest) that is approved by the court under the plan of reorganization.

arrangement - may refer to a variety of formal or informal agreements concerning the conditions under which a bankrupt company may operate; often, it refers to an extension of time in which debt can be paid off. this was the term used under the old chapter xi.

assume - an agreement to continue performing duties under a contract or lease.

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.

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 power of the court to invalidate certain obligations or transactions undertaken by a debtor prior to filing bankruptcy. it is generally intended to reverse transfers of property that favor one creditor over another.

ballot date - the date and time when all votes for accepting or rejecting the plan of reorganization must be received.

bankrupt - the entity that files a bankruptcy; the debtor; the insolvent entity. this is a non-technical term and is not used in the bankruptcy code.

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. on october 17, 2005 the bapcpa became effective.

bankruptcy act of 1898 - the basis of the federal bankruptcy statutes used until the bankruptcy reform act of 1978. it provided primarily for liquidation of companies; reorganization could be affected indirectly under the 1898 act through equity receiverships (these were used to keep creditors from seizing the assets of distressed companies).

bankruptcy act of 1933 - a statutory expansion of reorganization for companies (see section 77). the bankruptcy act of 1933 and the bankruptcy act of 1934 were superseded by the chandler act of 1938.

bankruptcy act of 1934 - a further statutory expansion of reorganization for companies; (see section 77b); the bankruptcy act of 1933 and the bankruptcy act of 1934 were superseded by the chandler act of 1938.

bankruptcy administrator - an officer of the judiciary serving the judicial districts of alabama and north carolina who, like a united states trustee, is responsible for supervising the administration of bankruptcy cases, estates and trustees; monitoring plans and disclosure statements, creditor committees and fee applications and performing other statutory duties.

bankruptcy amendments of 1984 - a set of amendments to the bankruptcy reform act of 1978. the amendments contain a number of provisions including: limiting the jurisdiction of the bankruptcy court, limiting the right of companies to invalidate labor contracts while in bankruptcy and providing for the prevention of "substantial abuse."

bankruptcy code - the name given to the statutory body of bankruptcy laws after the bankruptcy reform act of 1978.

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.

bankruptcy judge - a judicial officer of the united states district court with decision-making power over federal bankruptcy cases.

bankruptcy mill - a business not authorized to practice law that provides bankruptcy counseling and prepares bankruptcy petitions.

bankruptcy petition - the document filed with the court to initiate a bankruptcy proceeding.

bankruptcy reform act of 1994 - the most comprehensive piece of bankruptcy legislation since the bankruptcy reform act of 1978. it was signed into law on october 22, 1994 with most provisions effective immediately. included in the 1994 act are the following provisions to expedite bankruptcy proceedings, provisions to standardize fees, provisions to encourage individual debtors to use chapter 13 to reschedule their debts rather than use chapter 7 to liquidate, provisions to aid creditors in recovering claims against bankrupt estates, and creation of a national bankruptcy commission to investigate further changes in bankruptcy law; etc.

bankruptcy reform act of 1978 - the first substantive bankruptcy code revision since the chandler act of 1938. it took effect on october 1, 1979 and some of the major elements of this act were as follows: upgrading the jurisdiction of the u.s. bankruptcy courts to deal with cases handled by other courts (subsequently modified); allowing the filing of a single joint petition of bankruptcy by husband and wife; reorganizing the chapters of bankruptcy; in particular, concerning business reorganization, chapters x, xi and xii of the old code are replaced by chapter 11; expanding the number of people eligible and the type of relief available to people in a new chapter 13, wage-earner reorganization bankruptcy; altering the appellate procedure allowing direct appeal to the u.s. courts of appeal (subsequently modified); and generally, making federal exemption provisions and options for debtors more extensive.

bankruptcy rule 2004 - a provision of the bankruptcy code that allows one party in a bankruptcy proceeding to compel discovery or other examination against another party.

bankruptcy tax act of 1980 - the bankruptcy reform act of 1978 did not specify how certain tax matters concerning bankruptcies should be handled. the bankruptcy tax act of 1980 was passed to specify the tax treatment of bankruptcy tax issues. it specifies the tax treatment of, among other things, tax loss carry-forwards and exchanges of equity for debt.

bar date - the last date that creditors may file a claim against the debtor.

business bankruptcy - a bankruptcy case in which the debtor is a business or an individual with business related debt. data from the u.s. administrative office of the courts subdivides bankruptcies into business and non-business. (Continued Below)

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business failure - (see failure)

cash collateral - cash and cash equivalents held by the debtor in chapter 11 subject to liens of other parties.

chandler act of 1938 - legislation providing substantial modifications to the bankruptcy act of 1898.

chapter - the bankruptcy code is organized into chapters. except for chapter 12, the chapters of the present code are all odd-numbered and are enumerated with arabic numerals. (before the bankruptcy reform act of 1978, the chapters were numbered with roman numerals.) chapters 1, 3, and 5 cover matters of general application. chapters 7, 9, 11, 12, 13 and 15 concern, respectively: liquidation (business or non-business), municipality bankruptcy; business reorganization, family farm debt adjustment, wage-earner or personal (i.e. non-business) reorganization and multi-national bankruptcies.

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.

chapters x, xi and xii - before chapter 11 of the bankruptcy reform act of 1978, these three chapters of bankruptcy existed for company bankruptcies that involved reorganization. chapter x involved reorganization for larger companies that held public debt or equity. chapter xi was for readjustment of debts of smaller, non-publicly held companies, and chapter xii was for companies with extensive holdings of real property.

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 proceeding followed by a chapter 13. the chapter 7 filing eliminates unsecured debts while the chapter 13 filing handles continuing liens.

"chapter 22" - an unofficial term describing a company that has filed for chapter 11 twice.

"chapter 33" - an unofficial term describing a company that has filed for chapter 11 three times.

claims - rights to repayment made by creditors against a debtor; they may be liquidated, unliquidated, fixed, contingent, matured, unmatured, secured, unsecured, subordinated, legal or equitable. (see priority of claims.)

class - each of the different categories of claims against a debtor.

complaint - the initiatory document in a lawsuit that notifies the court and the defendant of the grounds claimed by the plaintiff for an award of money or other relief against the defendant.

confirmation - the final approval by the bankruptcy court of a debtor's plan of reorganization. confirmation takes place after the plan has been approved by creditors.

consumer debtor - a debtor whose debts are primarily consumer debts.

consumer debts - debts incurred for personal, as opposed to business, needs.

contested matter - a dispute among the parties to a bankruptcy proceeding, instituted by the filing of a motion of the court.

contingent claim - 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.

convenience claims - (see small claims)

conversion - changing chapters in bankruptcy (e.g., converting from chapter 11 to chapter 7 or vice-versa).

core proceedings - those proceedings that are inherent in and fundamental to the administration of a bankruptcy case. core proceedings are subject to the jurisdiction of the bankruptcy court. non-core proceedings may be conducted outside the jurisdiction of the bankruptcy court.

cramdown - confirmation of a plan of reorganization over the objections of one or more classes of creditors.

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.

credit report - a report outlining an individuals credit history, public records and credit worthiness.

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

creditors' committee - a committee of representatives of a debtor's creditors appointed by the u.s. trustee. the committee acts on behalf of all creditors on negotiating a plan of reorganization and other major actions. in large, complex cases, there may be more than one such committee.

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 - the entity seeking protection from creditors under the bankruptcy laws.

debtor education see credit counseling

debtor in possession - the debtor which remains in control of operations, as opposed to having a trustee operate the company.

default - the failure by an entity to abide by the covenants in a debt obligation or other agreement to which it is a party. the most common default is non-payment of interest or principal.

defendant - an individual (or business) against whom a lawsuit is filed.

delinquency - failure to make payments when payments are due. for most mortgages, payments are due on the first day of the month. even though they may not charge a "late fee" for a number of days, the payment is still considered to be late and the loan delinquent. when a loan payment is more than 30 days late, most lenders report the late payment to one or more of the credit bureaus.

denial of discharge - penalty for debtor misconduct with respect to the bankruptcy case or creditors as a whole. the grounds on which the debtor's discharge may be denied are found in 11 u.s.c. 727. when the debtor's discharge is denied, the debts that could have been discharged in that case cannot be discharged in any subsequent bankruptcy. the administration of the case, the liquidation of assets and the recovery of avoidable transfers, continues for the benefit of creditors.

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.

disclosure statement - a comprehensive disclosure document sent to creditors when they are asked to vote on a plan of reorganization in chapter 11.

discovery procedures - used to obtain disclosure of evidence before trial.

dismissal - the termination of a bankruptcy proceeding. the bankruptcy court can dismiss a case if it deems that the debtor or three creditors should not have filed or that a plan can never be formulated.

distressed - used to describe securities, companies and related items in or near bankruptcy or insolvency. the term does not have a strict, technical or legal definition. for example, a distressed security might be a security where the issuer has defaulted or a security that is selling at a substantially discounted price where a default is expected in the future.

docket - the schedule on which the clerk of the court records all motions, pleadings, memoranda, orders and all other court filings.

effective date - the date on which a plan of reorganization is implemented. it usually occurs after all the conditions to a plan of reorganization have been satisfied.

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.

equitable subordination - the lowering of priority of a claim because the holder of the claim is found to be guilty of some kind of improper conduct.

equity - the value of the debtor’s interest in property that remains after the liens and other creditor’s interests are considered.

examiner - a professional appointed by the bankruptcy court to investigate and oversee certain aspects of the debtor or the proceedings. (by way of comparison, the role of the trustee is to operate the business of the debtor whereas the role of the examiner is to investigate and report to the court.)

exchange offer - an offer by an issuer of debt securities to exchange new securities with less onerous provisions for currently outstanding securities. companies often make exchange offers in an attempt to avoid bankruptcy.

exclusivity (period of) - a debtor in chapter 11 has the exclusive right to file a plan of reorganization for the first 120 days of its bankruptcy. thereafter, unless the period of exclusivity is extended by the court, other parties may file reorganization plans.

executory contract - a contract in which some or all of the obligations of each party have not yet been completed. the debtor-in-possession (or trustee) is allowed to reject unilaterally certain executory contracts.

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.

exemptions - this refers to assets or properties owned by the debtor that cannot be recovered by creditors.

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. (Continued Below)

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failure - (see also bankruptcy and insolvency) an economic assessment of the viability of a business, it means that a firm is either not earning what is expected (i.e. it has a below normal rate of return) or is not meeting its obligations. it is not synonymous with bankruptcy because bankruptcy is more of a formal and legal definition. a failing company is not necessarily a bankrupt company and vice-versa.

fair market value - the highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept. foreclosure: the legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. this usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

fee examiner - appointed by the court to monitor fees paid to professionals in bankruptcy cases.

fiduciary - one who is entrusted with duties on behalf of another. the law requires the highest level of good faith, loyalty and diligence of a fiduciary, higher than the common duty of care that we all owe one another. the debtor in possession in a chapter 11 is a fiduciary for the creditors, owing loyalty to the creditors and not the shareholders of the debtor.

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.

fraudulent conveyance - the transfer of valuable assets from a company which i) occurs when the company is technically insolvent, ii) renders the company insolvent, or iii) is made for less than adequate consideration. the spate of leveraged buyouts and other highly leveraged transactions in the 1980s has spurred a number of fraudulent conveyance allegations in recent years.

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.

fraudulent conveyance - the transfer of valuable assets from a company which i) occurs when the company is technically insolvent, ii) renders the company insolvent, or iii) is made for less than adequate consideration. the spate of leveraged buyouts and other highly leveraged transactions in the 1980s has spurred a number of fraudulent conveyance allegations in recent years.

fresh start - informal term for the new accounting rules applicable to bankrupt companies. for companies that either filed for chapter 11 after january 1991 or emerged from chapter 11 after june 1991, assets are valued at market value rather than at historical cost.

gap period - the period between the filing of an involuntary petition and the dismissal of the petition, the entry of an order for relief or the filing of a voluntary petition (whatever the outcome).

garnishment a court - ordered method of debt collection in which a portion of a person's salary is paid to a creditor. the process by which a judgment creditor seizes money, which is owed to his judgment debtor, from a third party known as a garnishee.

general, unsecured claim - creditor's claim without a priority for payment for which the creditor holds no security (or collateral). if the available funds in the estate extend to payment of unsecured claims, the claims are paid in proportion to the size of the claim relative to the total of claims in the class of unsecured claims.

going concern value - what a company is worth if sold as a continuing business, as opposed to its liquidation value.

impairment - when a plan of reorganization alters the contractual rights of a class of holders of claims, that class is deemed to be impaired. a class that is unimpaired is deemed to automatically accept a plan of reorganization.

insolvency - (see also bankruptcy and failure) another term used to describe a firm that is failing; generally it means that a firm's liabilities exceed its assets or that it is unable to satisfy its obligations as they come due.

insider (of corporate debtor) - a director, officer or person in control of the debtor or 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.

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.

interests - the equity interests of stockholders are often referred to in bankruptcy documents merely as "interests."

interim order - a temporary order of the court pending a hearing, trial, a final order or while awaiting an act by one of the parties.

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 of the courts subdivides bankruptcies into voluntary and involuntary.

joinder - joinder in civil law falls under two categories: joinder of claims, and joinder of parties. joinder of claims is addressed in u.s. law by the federal rules of civil procedure no. 18(a). that rule allows claimants to consolidate all claims that they have against an individual who is already a party to the case. claimants may bring new claims even if these new claims are not related to the claims already stated. note that joinder of claims is never compulsory (i.e., joinder is always permissive), and that joinder of claims requires that the court's subject matter jurisdiction requirements regarding the new claims be met for each new claim.

joint administration - the combining of two or more bankruptcy proceedings for administrative convenience. frequently, the cases of affiliated entities are jointly administered. joint administration does not necessarily result in substantive consolidation. (see substantive consolidation.)

joint petition - one bankruptcy petition filed by a husband and wife together.

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

liquidated claim - a creditor’s claim for a fixed amount of money,

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.

liquidation value - the aggregate value of a business if its assets are sold piecemeal.

matrix - a mailing list of creditors of the debtor. done as part of the forms filled out for a chapter 11 case.

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) $10,950, 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 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.

national bankruptcy review commission - an independent commission established pursuant to the bankruptcy reform act of 1994 to investigate and study issues relating to the bankruptcy code. the commission completed a final report and ceased to exist as of november 19, 1997.

no-asset case - a chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.

nol (net operating loss) - (see tax loss carry-forward)

non-business bankruptcy - a bankruptcy categorized by the u.s. courts as a non-business bankruptcy. the debtor in a non-business bankruptcy is usually either an individual or a family farm. data from the u.s. administrative office of the courts subdivides bankruptcies into business and non-business.

nondischargeable debt - a debt that cannot be eliminated in bankruptcy.

nunc pro tunc - latin for "now for then" this refers to changing back to an earlier date of an order, judgment or filing of a document. such a retroactive re-dating requires a court order which can be obtained by a showing that the earlier date would have been legal, and there was error, accidental omission or neglect which had caused a problem or inconvenience which can be cured.

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.

omnibus hearing - an omnibus hearing is a court hearing at which the court may hear a variety of different matters relating to one particular case.

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.

perfection - when a secured creditor has taken the required steps to perfect his lien, the lien is senior to any liens that arise after perfection. a mortgage is perfected by recording it with the county recorder; a lien in personal property is perfected by filing a financing statement with the secretary of state. an unperfected lien is valid between the debtor and the secured creditor, but may be behind liens created later in time, but perfected earlier than the lien in question. an unperfected lien can be avoided by the trustee.

period of exclusivity - (see exclusivity)

personal bankruptcy - filed by an individual and also called a household bankruptcy, consumer bankruptcy or wage-earner bankruptcy. (see chapter 13 and also chapter 12).

petition - (or bankruptcy petition or petition for relief) - the document that comm-ences a bankruptcy proceeding.

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.

plan of reorganization - the document setting forth how a bankrupt company plans to satisfy its creditors. the plan of reorganization is the cornerstone of a successful chapter 11 bankruptcy.

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

post-petition - occurs after the filing of a petition.

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 - 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.

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.

prepackaged bankruptcy - a situation where a company and its creditors agree to a plan of reorganization before the company files a bankruptcy petition. in a true prepackaged bankruptcy, a plan of reorganization is circulated and approved by creditors before the petition is filed. the court then confirms the plan and the company emerges from bankruptcy quickly.

pre-petition - occurring before the filing of a bankruptcy petition.

presumption of abuse - see means test

priority claims - administrative expenses and salaries, wages, employee benefits, customer deposits and taxes which occurred pre-petition.

pro rata - proportionately.

proof of claim - form filed by a creditor setting out its claims against a bankruptcy debtor.

property of the estate - all legal or equitable interests of the debtor in property as of the commencement of the case.

reaffirm - the debtor can chose to reaffirm debts that would otherwise be discharged by the bankruptcy. generally, when a debt is reaffirmed, 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. (Continued Below)

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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.

receiver - particularly in foreign proceedings, or state court proceedings, a person appointed by the court to take custody of a debtor's property.

relief from stay - a creditor can ask the judge to lift the automatic stay and permit some action against the debtor or the property of the estate. if the motion is granted, the moving party (but no one else) is free to take whatever action the court permits. relief can be absolute, for example, permitting the creditor to foreclose on property, or limited, as for example, allowing the recordation of a notice of default.

reorganization - the resolving of a chapter 11 bankruptcy by the emergence of the debtor as a viable business. generally, the company agrees with creditors on a plan for payment of their claims (plan of reorganization) and emerges from chapter 11 after the plan is confirmed by the court.

repossession - once in default, as defined by the creditor in the security agreement, occurs, the creditor can: repossess the collateral by self-help (depending on state law) or with the aid of a court order, dispose of the collateral by public or private foreclosure sale, retain the collateral in satisfaction of the debt, terminate the debtor's right of redemption, add the costs of repossession and foreclosure to the unpaid balance of the debt, and pursue the debtor for any remaining unpaid balance or deficiency.

restructuring - a general term applied to an out-of-court attempt to reorganize and satisfy debts. also, see workout.

retired benefits bankruptcy protection act - passed june 16, 1988. this allows the debtor to continue to pay insurance premiums for employees during the course of a bankruptcy.

reverse leveraged buyout - when a company that was a leveraged buyout restructures its (usually unmanageable) debt by issuing new equity (usually in exchange for some or all of the outstanding debt incurred during the original leveraged buyout).

rule 2004 - (see bankruptcy rule 2004)

schedules - list submitted by the debtor along with the petition (or shortly thereafter) showing the debtor’s assets, liabilities, and other financial information.

section 77 (of 1933 act) - provided for reorganization of railroads. (during the 1930's a large number of railroads experienced extreme financial difficulty.) (see also section 77b).

section 77b - followed section 77 and provided for reorganization of companies other than railroads.

section 304 - the former section of the u.s. bankruptcy code that handled multi-national bankruptcies only a few of which were filed each year. this section no longer exists; it has been replaced by chapter 15.

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.

set-off - the ability to discharge or reduce a debt by applying a counter claim between the same parties. for example, a bank which has lent money to a debtor may attempt to satisfy some or all of the loan by seizing the debtor's deposits at the bank.

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.

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.

small claims (also sometimes called convenience claims) - under a plan of reorganization or liquidation, claims that are small (e.g. in the hundreds or thousands of dollars range) and numerous are often grouped into a single class and settled for cash for administrative convenience.

stalking horse - this is the name given to the party submitting the first bid to purchase assets. the stalking horse bid can be used to solicit interest from other bidders and also acts as an indicator for what will be realized on the auction floor.

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.

straight bankruptcy - an informal term for a chapter 7 bankruptcy or liquidation; used more commonly to describe liquidation before the bankruptcy reform act of 1978.

substantial abuse - a term that refers to the abuse of the privilege to file a petition. it usually describes fraud in cases of personal bankruptcy.

substantive consolidation - the combination of the estate of one debtor with the estate of one or more other debtors and the application of the combined estate to satisfy their combined liabilities. substantive consolidation is often considered in the case of parent/subsidiary debtors and other affiliated entities.

super-priority claim - an administrative claim that will be paid ahead of other administrative and priority claims.

tax loss carry-forward - losses, for tax purposes, that can be carried forward and applied to reduce taxable income in future years. the tax reform act of 1986 imposed stringent restrictions on the use of tax loss carry-forwards.

tranches - a piece, portion or slice of a deal or structured financing. this portion is one of several related securities that are offered at the same time but have different risks, rewards and/or maturities. "tranche" is the french word for "slice."

transfer - any mode or means by which a debtor disposes of or parts with his/her property.

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.

united states trustee or u.s. trustee - an agent of the u.s. department of justice appointed to assist in bankruptcy cases. the u.s. trustee administers many of the duties of the court including appointing committees, appointing trustees and examiners, scrutinizing bankruptcy documents, etc. the united states trustee program began in 1979. presently, it covers all federal judicial districts except for north carolina and alabama, which were originally scheduled to be included in october of 2002, but whose inclusion congress has extended indefinitely.

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; 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 or is levied upon, the unsecured creditors are paid on a pro-rata basis only after the claims of all secured creditors are satisfied.

unsecured debt - a claim or debt is unsecured if there is no collateral that is security for the debt. most consumer debts are unsecured.

unliquidated claim - a claim for which a specific value has not been determined

vcis (voice case information system) - a touchtone telephone service provided by the court system that gives case filing information.

voluntary bankruptcy - bankruptcy filed by the debtor itself; data from the u.s. administrative office of the courts subdivides bankruptcies into voluntary and involuntary.

vulture funds - (also referred to as vulture capitalists or vulture investors) - investment groups that actively participate in the restructuring of financially distressed and bankrupt companies usually by the buying or selling of large pieces of the distressed company's debt and/or equity.

wage-earner bankruptcy - (see chapter 13 and personal bankruptcy)

workout - an arrangement, outside of bankruptcy, by a debtor and its creditors for payment or re-scheduling of payments of the debtor's obligations. usually applies to an informal agreement between a business and its creditors, although it can be a formal agreement and it can also apply to consumer debtors.

Bankruptcy Glossary of important terms used in the BK process...