Glossary of Bankruptcy Terms

absolute priority rule - the rule that a confirmable reorganization plan must provide for full payment to a class of dissenting unsecured creditors before a junior class of claimants will be allowed to receive or retain anything under the plan.

adequate protection - the protection afforded to a holder of a secured claim against the debtor, such as a periodic cash payment or an additional lien.

administrative expense - a cost incurred by the debtor, after filing a bankruptcy petition, that is necessary for the debtor to continue operating its business; administrative expenses are entitled to payment on a priority basis when the estate is distributed.

adversary proceeding - a lawsuit that is brought within a bankruptcy proceeding, governed by special procedural rules, and based on conflicting claims usually between the debtor (or the trustee) and a creditor or other interested party.

arrangement with creditors - a debtor's agreement with creditors for the settlement, satisfaction, or extension of time for payment of debts.

asset - all the property of a person available for paying debt.

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

automatic stay - a bar to all judicial and extrajudicial collection efforts against the debtor or the debtor's property; the policy behind the automatic stay, which is effective upon the filing of the bankruptcy petition, is that all actions against the debtor should be halted pending the determination of creditors' rights and the orderly administration of debtor's assets free from creditor interference.

bankrupt - a person who cannot meet current financial obligations; an insolvent person; a person who files a voluntary petition or against whom an involuntary petition is filed.

bankruptcy - the statutory procedure, usually triggered by insolvency, by which a person is relieved of most debts and undergoes a judicially supervised reorganization or liquidation for the benefit of that person's creditors.

Bankruptcy Administrator - An officer of the judiciary serving in the judicial districts of Alabama and North Carolina who, like the United States 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.

Bankruptcy Code - the Bankruptcy Reform Act of 1978 (as amended and codified) which governs bankruptcy cases filed on or after October 1, 1979.

Bankruptcy Court - a U.S. district court that is exclusively concerned with administering bankruptcy proceedings.

bankruptcy estate - a debtor's legal and equitable interests in property as of the commencement of a bankruptcy case.

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 plan - a detailed program of action formulated by a debtor or its creditors to govern the debtor's rehabilitation, continued operation or liquidation, and payment of debts; also termed plan of reorganization (for Chapter 11) or plan of rehabilitation (for Chapter 13).

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

bankruptcy trustee - the person appointed by the U.S. trustee and approved by the bankruptcy court to take charge of and administer the debtor's estate during bankruptcy proceedings.

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 involved in business and the debts are for business purposes.

cash collateral - property (i.e., consisting of cash, negotiable instruments, documents of title, securities, deposit accounts or other cash equivalents) that is pledged as security against a debt.

Chapter 7 - the chapter of the Bankruptcy Code allowing a trustee to collect and liquidate a debtor's property, either voluntarily or by court order, to satisfy creditors.

Chapter 7 trustee - a person appointed in a Chapter 7 case to represent the interests of the bankruptcy estate and the unsecured creditors. The trustee's responsibilities include reviewing the debtor's petition and schedules, liquidating the property of the estate, and making distributions to creditors. The trustee may also bring actions against creditors or the debtor to recover property of the bankruptcy estate.

Chapter 9 - the chapter of the Bankruptcy Code governing the adjustment of a municipality's debts.

Chapter 11 - the chapter of the Bankruptcy Code allowing an insolvent business, or one that is threatened with insolvency, to reorganize itself under court supervision while continuing its normal operations and restructuring its debt; although the Code does not expressly prohibit the use of Chapter 11 by an individual nonbusiness debtor, the vast majority of Chapter 11 cases involve business debtors.

Chapter 12 - the chapter of the Bankruptcy Code providing for a court-approved debt payment relief plan for family farmers with regular income.

Chapter 13 - the chapter of the Bankruptcy Code allowing a person's future earnings to be collected by a trustee and paid to unsecured creditors; a plan filed under Chapter 13 is sometimes called a wage-earner's plan, a wage-earner plan, or an income-based plan.

Chapter 13 trustee - a person appointed to administer a Chapter 13 case. A Chapter 13 trustee's responsibilities are similar to those of a Chapter 7 trustee; however, a Chapter 13 trustee has the additional responsibilities of overseeing the debtor's plan, receiving payments from debtors, and disbursing plan payments to creditors.

Chapter 15 - a new chapter added to the Bankruptcy Code by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  It is the U.S. domestic adoption of the Model Law on Cross-Border Insolvency promulgated by the United Nations Commission on International Trade Law ("UNCITRAL").  The purpose of Chapter 15, and the Model Law on which it is based, is to provide effective mechanisms for dealing with insolvency cases involving debtors, assets, claimants and other parties in interest involving more than one country.  Generally, a Chapter 15 case is ancillary to a primary proceeding brought in another country, typically the debtor's home country.  In addition, under Chapter 15 a U.S. court may authorize a trustee or other entity (including an examiner) to act in a foreign country on behalf of a U.S. bankruptcy estate. 

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

complaint - the first or 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 act of giving final approval to a debtor's plan or reorganization.

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.

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

core proceedings - a proceeding involving claims that substantially affect the debtor-creditor relationship, such as an action to recover a preferential transfer.

cramdown - court confirmation of a Chapter 11 bankruptcy plan despite the opposition of certain creditors; under the Bankruptcy Code a court may confirm a plan, even if it has not been accepted by all classes of creditors, if the plan (1) has been accepted by at least one impaired class, (2) does not discriminate unfairly, and (3) is fair and equitable.

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

creditor's claim - a claim that a creditor has against a debtor.

creditors' committee - a committee comprising representatives of the creditors in a Chapter 11 proceeding, formed to negotiate the debtor's plan of reorganization; generally, a committee has no fewer than 3 and no more than 11 members and serves as an advisory body.

debtor - a person who files a voluntary petition or against whom an involuntary petition is filed; also termed bankrupt.

debtor-in-possession - a Chapter 11 or 12 debtor that continues to operate its business as a fiduciary to the bankruptcy estate.

default - the omission or failure to perform a legal or contractual duty; especially, the failure to pay a debt when due.

discharge in bankruptcy - the release of a debtor from personal liability for pre-bankruptcy debts; a bankruptcy court's decree releasing a debtor from that liability.

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

dismissal - termination of an action or claim without further hearing, especially before the trial of the issues involved.

docket - a formal record in which a judge or court clerk briefly notes all the proceedings and filings in a court case.

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

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 $60,000 is subject to a $30,000 mortgage, there is $30,000 of equity.)

executory contract - a contract under which debtor and non-debtor each have underperfomed obligations and the debtor, if it ceased further performance, would have no right to the other party's continued performance.

exempt - a description of any property that a debtor may prevent creditors from recovering.

exemption - property that the Bankruptcy Code or applicable state law permits a debtor to keep from creditors.

exempt property - property or value in property that a debtor is allowed to retain, free from the claims of creditors who do not have liens.

face sheet filing - a bankruptcy case filed either without schedules or with incomplete schedules listing few creditors and debts. (Face sheet filings are often made for the purpose of delaying an eviction or foreclosure.)

failure to meet obligations - the fact of being financially unable to pay one's debts and meet one's obligations; also termed insolvency.

filing fees - a sum of money required to be paid to the court clerk before a proceeding can start.

first meeting of creditors (341 meeting) - a mandatory meeting between creditors and the debtor.

fraudulent conveyance - a prebankruptcy transfer or obligation made or incurred by a debtor for little or no consideration or with the actual intent to hinder, delay or defraud a creditor.

fresh start - the favorable financial status obtained by a debtor who receives a release from personal liability on prepetition debts or who reorganizes debt obligations through the confirmation and completion of a bankruptcy plan.

gap period - the duration of time between the filing of an involuntary bankruptcy petition and the entry of the order for relief.

going concern value - the value of a commercial enterprise's assets or the enterprise itself as an active business with future earning power, as opposed to the liquidation value of the business or its assets.

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.

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.

insolvency - the inability to pay debts as they mature; also termed failure to meet obligations and bankruptcy.

involuntary bankruptcy - a bankruptcy proceeding initiated by creditors (usually three or more) to force the debtor to declare bankruptcy or be legally declared bankrupt.

joint administration - the management of two or more bankruptcy estates, usually involving related debtors, under one docket for purposes of handling various administrative matters, including notices to creditors, to conclude the cases more efficiently.

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.

liquidated claim - a creditor's claim for a fixed amount of money.

liquidation - the process under Chapter 7 of collecting a debtor's nonexempt property, converting that property to cash, and distributing the cash to the various creditors; upon liquidation, the debtor hopes to obtain a discharge, which releases the debtor from any further personal liability for prebankruptcy debts.

liquidation value - the value of a business or of an asset when it is sold in liquidation, as opposed to being sold in the ordinary course of business.

matrix - a list of the parties to a lawsuit, including the addresses at which pleadings and notices can be served; a matrix is commonly used to list the names and addresses of creditors and other parties in a bankruptcy case.

motion to lift the 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.

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.

objection to discharge - a trustee's or creditor's objection to the debtor's being released from personal liability for certain dischargeable debts.

objection to exemptions - a trustee's or creditor's objection to a debtor's attempt to claim certain property as exempt (i.e., not liable for any pre-petition debt of the debtor).

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 is actually and substantially interested in the subject matter, as distinguished from one who has only a nominal on technical interest in it.

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

plan of reorganization - see bankruptcy plan.

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

post-petition transfer - a transfer of a 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 - priority of payment given to one or more creditors by a debtor; a transfer of property by a bankruptcy debtor to an insider more than 90 days before but within one year after the filing of the bankruptcy petition.

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.

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

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, under bankruptcy law, must be paid before other unsecured claims.

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

pro rata - proportionately.

proof of claim - a creditor's written statement that is submitted to show the basis and amount of the creditor's claim.

reaffirmation agreement - an agreement by a chapter 7 debtor to continue paying a dischargeable debt after the bankruptcy, usually for the purpose of keeping collateral or mortgaged property that would otherwise be subject to repossession.

receiver - a disinterested person appointed by a court for the protection or collection of property that is subject to a bankruptcy.

reorganization - a financial restructuring of a corporation, especially in the repayment of debts, under a plan created by a trustee and approved by a court; a business reorganization conducted under Chapter 11.

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

secured claim - a claim held be a creditor who has a lien or a right of set-off against the debtor's property.

secured creditor - a creditor who has the right, on the debtor's default, to proceed against collateral and apply it to the payment of the debt.

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.

set-off - a debtor's right to reduce the amount of a debt by any sum the creditor owes the debtor.

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.

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.

substantial abuse - the characterization of a bankruptcy case filed by an individual whose debts are primarily consumer debts where the court finds that the granting of relief would be an abuse of chapter 7 because, for example, the debtor can pay its debts.

substantive consolidation - the merger of two or more bankruptcy cases, usually pending against the same debtor or related debtors, into one estate for purposes of distributing the assets, usually resulting in the two estates sharing assets and liabilities, and in the extinguishments of duplicate claims and claims between the debtors.

super-priority claim - the special priority status granted by the court to a creditor for extending credit to a debtor or trustee that cannot obtain unsecured credit form a willing lender.

tax-loss carryforward - an income-tax deduction (especially for a net operating loss) that cannot be taken entirely in a given period but may be taken in a later period

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 financial affairs.

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

trustee - an officer of the court who is elected by creditors or appointed by a judge to act as the representative of a bankruptcy estate.

United States trustee - a federal official who is appointed by the Attorney General to perform administrative tasks in the bankruptcy process, such as appointing bankruptcy trustees in Chapter 7 and Chapter 11 cases.

unlawful detainer action - a lawsuit brought by a landlord against a tenant to evict the tenant from rental property--usually for nonpayment of rent.

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. (Depending on the circumstances, an unscheduled debt may or may not be discharged.)

unsecured claim - a claim by a creditor who does not have a lien or a right of set-off against the debtor's property.

unsecured creditor - a creditor who, upon giving credit, takes no rights against specific property of the debtor.

VCIS (Voice Case Information System) - a touchtone telephone service provided by the court system that gives case filing information.

voluntary petition - a petition filed with a bankruptcy court by a debtor seeking protection from creditors.

voluntary bankruptcy - a bankruptcy proceeding initiated by the debtor.

voluntary transfer - a transfer of a debtor's property with the debtor's consent.

workout - a debtor's agreement, usually negotiated with a creditor or creditors out of court, to reduce or discharge the debt.

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Tuesday, February 20, 2024