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Law, in general, has its own specific terms and conditions. Bankruptcy is no exception. Common words used in the context of a bankruptcy, mean very specific things. (These are sometimes referred to as " terms of art.") Here are some brief definitions of commonly used terms by bankruptcy attorneys, the bankruptcy code and the United States Bankruptcy Court.
Adequate Protection: normally in the context of a chapter 13, where a secured creditor's collateral is not being protected by the bankruptcy system, and where said creditor can ask for additional funds to be paid pre-confirmation especially when a depreciating asset is involved or when 11 USC §362 Automatic stay be lifted by the Bankruptcy Court Judge.
Adversary Proceeding: a lawsuit within in the bankruptcy, usually in a Chapter 7 proceeding and very rarely in a Chapter 13 proceeding. (The most common example is an adversary proceeding brought by a creditor to determine the dischargeability of a debt pursuant to §523 or 727 of the Bankruptcy Code.
Asset Case: is a chapter 7 case where the trustee can sell property of the bankrupt for the benefit of creditors.
Automatic Stay: a federal court injunction, which is granted in every bankruptcy case upon the filing of the case with the court in obtaining a Bankruptcy Court Number. Said injunction prohibits collection efforts against the debtor and the debtor's property or the property of the bankruptcy estate by all creditors - the only normal exception being most family type support issues.
Avoidance: this is when the court modifies or sets aside "liens" against the assets of the bankruptcy estate.
Avoidance Power: these are rights and authority given to the bankruptcy trustee to recover pre-petition transfers of property that the bankruptcy code or state laws deem as "preferences or fraudulent transfers".
Bankruptcy: An individual or entity that has had a bankruptcy filed on their behalf.
Bankruptcy Code: Title 11 of the United States Code sets forth the Bankruptcy Code. The power to establish the Bankruptcy is found in the United States Constitution. The Bankruptcy Code is a federal law and contains federal exemptions; however, each state can "opt-out" of the federal exemptions and require that their own state exemptions are used. On any other issue, however, federal bankruptcy law, when it conflicts with state laws, "controls" pursuant to the "Supremacy Clause" of the United States Constitution.
Bankruptcy Estate : is the debtor's estate, which includes all legal and equitable interest upon the filing of the case with the bankruptcy court. The bankruptcy court trustees are most interested in the equity within the debtor's estate to which bankruptcy attorneys cannot apply the applicable exemptions. If there is un-exempt equity in a Chapter 7, for example, that will be liquidated by the Chapter 7 Trustee to pay creditors' claims, pro rata , and to pay administrative cost of the proceeding.
Chapter 7 : this form of bankruptcy is sometimes referred to as "straight bankruptcy". It is the most common form of bankruptcy and is where the Chapter 7 Trustee will liquidate any assets that are not protected. This form of bankruptcy is available to individuals, married couples, sole proprietors, partnerships, and corporations.
Chapter 9 : this is the form of bankruptcy used for a Municipality.
Chapter 11 : a reorganization (usually by a corporation) in which the debtor continues as a "debtor is possession" and proposes a plan which must be accepted by the debtor's 20 largest creditors.
Chapter 12: a reorganization for a family farmer. Chapter 12 must be renewed by Congress each times it expires. Therefore, it is not always available.
Chapter 13: a re-organization for individuals who have debts that are below the statutory levels in which they propose a plan that pays back creditors in varying amounts depending on the type of debt and income over three to five years.
Chapter 20: a combination of filing of filing a Chapter 7 and Chapter 13, in this order, or the reverse order. The most common form, however, is filing a Chapter 7 to discharge a very high amount of unsecured debt followed by a Chapter 13 to save real property in which there are mortgage and/ or tax arrears. A Chapter 20 can also help assist placing an estate within the acceptable statutory levels of debt.
Collateral: property in which the debtor has granted the creditor a legal interest (a/k/a lien). A creditor that has a legal interest in the property is called a secured creditor. Generally, a Chapter 7 does not alter the security interest of the creditor; however, it is possible to alter the secured interest of a creditor using a Chapter 13 with the exception of a first mortgage on a house.
Complaint: is a legal document drawn by an attorney to serve on the defendant with a summons to initiate a lawsuit. (The most common example is a complaint to determine the dischargeability of a debt; this is also sometime called an adversary proceeding.)
Confirmation: this is a court order entered by the United States Bankruptcy Court Judge which contains the terms of repayment for bankruptcies filed under Chapters 9, 11, 12, or 13.
Conversion: this is where the court, pursuant to a motion, converts a case from one Chapter to another.
Creditor: a person or organization to whom the debtor owes money or owed some type of legal obligation.
Debtor: an individual or entity who is legally responsible for debts and has filed a petition with the United States Bankruptcy Court.
Debtor in Possession: in a Chapter 11 case, where the debtor retains control and possession and assumes the duties, which are normally that of a case trustee. The debtor in possession is a fiduciary position for the creditors of the estate and owes them the typical fiduciary duties of care and loyalty.
Denial Discharge: an order normally after a hearing or trial, denying the debtors discharge pursuant to 11 USC 727 on the basis of debtor misconduct. The denial cannot be discharged in any subsequent bankruptcy.
Discharge: The legal forgiveness of debts after all conditions are met at the end of a bankruptcy case.
Dischargeable: Debts that can be eliminated pursuant to a bankruptcy filing and the completion of the case.
Dismissal: the termination of a case prior to the order of discharge; therefore, all debts are reinstated as if the case was never filed.
Exempt: property of the debtor that can be protected from the case trustee and the creditors of the case.
Exemptions: Laws that are used by attorneys to exempt and protect the debtor's property.
Fiduciary: an individual who is entrusted with the duties and responsibilities of another. The law requires the highest level of good faith, loyalty and diligence.
Lien: an interest in property which secures a debt; a lien may be voluntary or involuntary.
Liquidate: the process of selling asset to obtain cash.
Unliquidated: a known debt which does not have a known amount owed.
Non-Dischargeable: a debt that cannot be eliminated by filing a bankruptcy and completing the case and obtaining a discharge. (In other words, the debt "survives" the bankruptcy. A student loan is an example of non-dischargeable debt.)
Non-Exempt Property: property of the debtors that cannot be protected by law, which the case Trustee will liquidate to pay the claims of the creditors.
Non-Perfected Lien: when a creditor does not take all steps required to perfect its lien (the lien is not legally sufficient).
Partial Bankruptcy: does not exist in the law. However, this is a term clients use to indicate that they want to keep their assets (ie: home and car) and receive them of their debt.
Perfection: the act by which a secured creditor has taken all required and appropriate legal steps to perfect its lien (The lien is legally sufficient).
Personal Property: all property other then real estate.
Petition: a legal document drawn by an attorney for a court of equity such as the bankruptcy court.
Preference: a transfer to a creditor (related or unrelated to the debtor)for the payment of an existing debt within the statutory time period prior to the commencement of a bankruptcy case. Preferences may be recovered by the Trustee for the benefit of all creditors; the most common preferences are payments to relative or friends made within 60 days to 1 year prior to the filing of the bankruptcy petition.
Pre-Petition: facts or circumstances arising prior to the filing of the bankruptcy petition with the United States Bankruptcy Court. Generally speaking only pre-petition debts will be discharged in bankruptcy.
Priority: claims that are unsecured but non-dischargeable. These claims are not normally paid by the Trustee in an asset Chapter 7 case, and must be paid at 100% in a Chapter 13 case.
Priority Claims: certain debts, such as unpaid wages, spousal or child support, and taxes that are elevated in the payment of hierarchy of the bankruptcy code.
Proof Of Claim: a form normally found on the backside of the 11 USC §341 Meeting of Creditors Notice which must be filled out and filed with the court in an asset case to receive payment from the case trustee.
Reaffirm: the process by which the debtor enters into an agreement with a creditor(s) reestablishing a debt that the bankruptcy has severed.
Reaffirmation Agreement: an agreement, which is signed by both the debtor and creditor reestablishing a debt, which was severed by the bankruptcy proceeding.
Relief From Automatic Stay: this is where a creditor brings a motion on the basis of lack adequate protection or lack of payment asking the bankruptcy court judge to lift the automatic stay of protection pursuant to 11 USC §362 so that the creditor can repossess or foreclose against the secured asset. If the judge agrees, he will sign an order to that effect.
Schedules: theses are documents prepared by a bankruptcy attorney which lists all of the assets, liabilities, exemptions, income, expenses, debtor's intentions, and other miscellaneous information which are required by the bankruptcy code to proceed with the case and obtain a discharge.
Secured Debt: a claim secured by a lien in the debtors property.
Student Loan: a loan which was granted to the debtor and guaranteed by the federal government which must be listed in the bankruptcy schedules and is deemed a non-priority unsecured debt; however, it "survives" the bankruptcy discharge unless an adversary proceeding is brought and the order is granted after trial.
Trustee: an individual appointed by the court to supervise and review the debtor's case and administer the assets if necessary.
United States Trustee: a federal agency given the responsibility to supervise and police the case trustees and administrative process.
Unsecured Non-Priority Claim: a claim that is not associated with collateral and does not survive a complete bankruptcy. (One noted exception, however, is a federally guaranteed student loan.)
Unsecured Priority: a claim or debt that is not secured to any collateral; however, said debt would survive a Chapter 7 and must be paid 100% in Chapter 13.
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