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Glossary of Bankruptcy Terms to help you understand the process

I put together this list of the more common terms that you might run across in your bankruptcy. Don’t hesitate to call me anytime. Don’t suffer in silence.

Abandonment – A disclaimer of any interest by the trustee or debtor in property that is burdensome or of inconsequential value.

Administrative Claim (Or Administrative Expense Claim) – A claim asserted against the bankruptcy estate for the actual, necessary costs and expenses of preserving the estate. This type of claim is entitled to be paid before payment to any other creditors of the bankruptcy estate except secured creditors. Often these claims are asserted by professional persons employed by the bankruptcy estate (e.g., attorneys and accountants) for fees and costs incurred in the estate administration.

Adversary Proceeding – A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankr. P. 7001. Examples are complaints to determine the dischargeability of a debt and complaints to determine the extent and validity of liens.

Allowed Claim (or Allowed Interest) – a claim of a creditor (or an equity interest) that is approved for satisfaction in the bankruptcy case.

Arrangement – 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.

Arrears The amount that is unpaid and overdue as of the date the bankruptcy case is filed. The word “arrears” is usually used when referring to back child support, back alimony owed, or the amount that is past due on mortgage payments (including interest and penalties).

Assets – every form of property that the debtor owns.  They include such intangible things as business goodwill; the right to sue someone; or stock options.  The debtor must disclose all of his assets in the bankruptcy schedules; exemptions emove the exempt assets from property of the estate.

Assume a Contract – The decision by a debtor, which must then be affirmed by the bankruptcy court, after notice and hearing, that the debtor-in-possession will be fully liable for the obligations under the lease. Typically requires the curing of most monetary defaults.

Attachment – A prejudgment remedy where a court orders seizure of a property by a sheriff who retains custody pending judgment.

Automatic Stay – A stay, that arises automatically upon the filing of the bankruptcy petition and that generally prohibits any action by creditors to enforce their pre-petition contracts or obligations against the debtor and any action to exercise control over property in which the debtor has an interest.   Among other things, it restrains creditors from terminating agreements with a debtor, collecting debts or other obligations that arose before bankruptcy and from continuing or commencing lawsuits against the debtor. If a creditor wants to pursue, for example, a lawsuit or collect a debt after a bankruptcy is commenced, it must seek and obtain an order from the bankruptcy court granting it relief from the automatic stay. Exceptions are contained at 11 U.S.C. 362(b).

Avoidance Powers – Rights given to the bankruptcy trustee (or the debtor in possession in a Chapter 11)  to recover certain transfers of property such as preferences  or fraudulent transfers or to void liens created before the commencement of a bankruptcy case.

Bankruptcy Court – The federal tribunal where cases under the Bankruptcy Code are litigated. The bankruptcy court is a unit of the district court in each jurisdiction.

Bankruptcy Estate – Generally, the property of the debtor that is subject to the jurisdiction of the bankruptcy court. More specifically, it includes 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 – The jurist that presides over issues in a bankruptcy case. Bankruptcy judges are appointed for 13 year terms by the district courts in which they are located. A bankruptcy judge’s authority is derivative of the district court’s authority and some actions taken by a bankruptcy court have to be reviewed and approved by the district court before they become binding.

Bankruptcy Petition – The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case. (There are official forms for bankruptcy petitions.).

Bankruptcy Rule 2004 (or “2004 Exam”) – A rule of bankruptcy procedure that allows one party in a bankruptcy proceeding to compel very broad discovery or other examination against another party.

Bar Date – The last date that creditors may file a timely claim against the bankruptcy estate.

Cash Collateral – Cash and cash equivalents held by the debtor in a bankruptcy case that is subject to liens of other parties.

Chapters – 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 11 – The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership, although also available to individuals. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. The debtor maintains control of the business in Chapter 11, unless the Court appoints a trustee.

Chapter 12 – The chapter of the Bankruptcy Code providing for adjustment of debts of a “family farmer,” or a “family fisherman” as those terms are defined in the Bankruptcy Code. A family owned farm business must have debt less than $1.5 million and have 50% of its income from farming operations.

Chapter 13 – The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years. Chapter 13 is referred to as wage earner bankruptcy, personal bankruptcy or consumer bankruptcy and cannot be used by a partnership or a corporation. Individuals are not eligible for Chapter 13 if they have unsecured debts greater than $330,000 or secured debts greater than $1 million.

Chapter 15 – The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency.

Chapter 7 – The chapter of the Bankruptcy Code providing for “liquidation.” A case filed under chapter 7 of the Bankruptcy Code requires a debtor to relinquish ownership of its (his/her) assets, except certain exempt property, to a trustee who liquidates the assets and distributes monies to creditors according to the priority scheme set forth in the Bankruptcy Code. For an individual, the notion of a fresh start discharging him/her from pre-petition debts is at the heart of this type of bankruptcy.

Chapter 7 Trustee – A person appointed in a chapter 7 case to liquidate the debtor’s assets and to perform other duties, including to distribute the proceeds from the liquidation to creditors and to investigate the debtor’s pre-bankruptcy financial transactions to determine if any are subject to avoidance.

Chapter 9 – The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts). Only a few are filed each year.

Charged Off – This is an accounting term that means the creditor does not expect to collect on the debt. It relates to the creditor’s taxes. It starts time periods under the Fair Credit Reporting Act. It does not mean that the debt is no longer legally enforceable.

Claim – Any right to payment as well as any right to an equitable remedy for breach of performance if that breach also gives right to payment. It includes secured, priority and general unsecured claims. A right to payment may be liquidated, unliquidated, fixed, contingent, matured, unmatured, secured, unsecured, subordinated, legal or equitable.

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.”

Confirmation Order – An order entered by the Bankruptcy Court that approves and thus makes binding a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13. The terms of the confirmed plan replace the prepetition rights of the debtor and creditors.

Consumer Debtor – A debtor whose debts are primarily consumer debts.

Contested Matter – Those matters, other than objections to claims, that are disputed but are not within the definition of adversary proceeding contained in Rule 7001.

Contingent Claim – Used to describe debts that are not fixed in right at the time, but are dependent on some other event happening to fix the liability. For example, where the debtor is a guarantor on another person’s loan and that person has not defaulted yet.

Conversion – Conversion refers to transforming a case under chapter 11 (reorganization) to a case under chapter 7 (liquidation) of the Bankruptcy Code. A bankruptcy case may be converted from one chapter of the Bankruptcy Code to another upon a motion filed by a party in interest or upon the court’s own motion. For example, a debtor that had commenced a bankruptcy case under chapter 11 (reorganization) may subsequently conclude, or a judge–over a debtor’s objection–may order, that the debtor is unable to reorganize its financial affairs and that liquidation under chapter 7 is the appropriate way to proceed.

Core Proceedings – Those proceedings that are inherent in and fundamental to the administration of a bankruptcy case. Bankruptcy courts have jurisdiction to enter final orders in core proceedings. In non-core proceedings, the bankruptcy court enters proposed findings which must then be approved by the district court.

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.

Creditor – One to whom the debtor owes money or who claims to be owed money by the debtor.

Cure Claim – The amount that the debtor must pay in order to cure all defaults under an unexpired lease or executory contract that it wishes to assume.

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 – A person or entity who is liable for debts, and who is the subject of a bankruptcy case.

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.

Dischargable Debts – Debts that can be eliminated in bankruptcy. Certain debts are not dischargeable; that it, they may not be discharged through bankruptcy or may only be discharged through Chapter 13. Student loans, family support obligations and criminal restitution obligations are examples of debts that cannot be discharged at all. Debts incurred by fraud can only be discharged in Chapter 13.

Discharge –   The legal elimination of debt through a bankruptcy case. When a debt is discharged, it is no longer legally enforceable against the debtor. It forever releases the debtor from pre-petition debts and permanently enjoins pre-petition creditors from collecting or attempting to collect pre-petition obligations. A corporate debtor that does not intend to continue operating post-bankruptcy (e.g., the debtor files a chapter 7 case or liquidates through chapter 11) does not obtain a discharge of any debts.

Distressed – A term 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.

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.

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.

Equitable Subordination – A legal doctrine codified in • 510(c) of the Bankruptcy Code that allows the claims of certain creditors to be involuntarily subordinated to the claims of other creditors based upon misconduct.

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 $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.)

Estate – All legal and equitable property of a debtor as of the commencement of bankruptcy.

Executory Contract – Under a widely accepted definition, the term refers to a contract in which there are material unperformed obligations on each side to the contract. An obligation is considered material if the failure to perform it would relieve the other party of its own performance obligations under applicable non-bankruptcy law. If a contract or lease is executory, a debtor may assume it or reject it and it may assign it.

Exempt Property – Property that is exempt is removed from the bankruptcy estate and is not available to pay the claims of creditors.  For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor’s primary residence (homestead exemption), or some or all “tools of the trade” used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). What property may be exempted is determined by state and federal statutes, and varies from state to state.

Feasibility – Before a bankruptcy court can confirm a chapter 11 plan of reorganization, the court must find, among other things, that the proposed plan is not likely to be followed by liquidation or the need for further financial restructuring. That finding is generally referred to as the plan’s feasibility.

Fraudulent Conveyance – A term that is used to describe a transfer of an interest of the debtor in property, or an obligation incurred by the debtor, with the actual intent to hinder, delay or defraud a creditor; or where the debtor received less than a reasonably equivalent value in exchange for such transfer and was insolvent or was rendered insolvent by the transfer. The trustee or a debtor-in-possession can bring suit in an effort to cause the recipient of a fraudulent transfer to return the property that was transferred fraudulently to the bankruptcy estate.

Free Fall – A term that has come to describe a bankruptcy case that is filed without a lot of preparation and planning and without a clearly-defined strategy for exiting bankruptcy.

Fresh Start – (a) The characterization of a debtor’s status after bankruptcy, i.e., free of most debts. (Giving debtors a fresh start is one purpose of the Bankruptcy Code.) (b) 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.

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.

Insider – A term used to describe an individual or entity that has a particularly close relationship with the debtor. Section 101 of the Bankruptcy Code specifies who may be considered an insider and includes, for example, a relative, director, officer, person in control, general partner affiliate or managing agent of the debtor. Bankruptcy Courts may give transactions with insiders greater scrutiny and the period during which a DIP or trustee can recover preferences is expanded to one year with respect to insiders.

Insolvency – 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.

Interests – The equity interests of stockholders are often referred to in bankruptcy documents merely as “interests.”

Involuntary Bankruptcy – A bankruptcy initiated by at least three creditors holding unsecured claims that are not subject to a bona fide dispute as to liability or amount and that aggregate more than approximately $15,000. If the debtor has less than 12 creditors in the aggregate, only one petitioning creditor is required.

Involuntary Case – A bankruptcy case initiated by creditor(s) against a debtor. In response to the filing of an involuntary case, the alleged debtor either can consent to the entry of an order for relief adjudicating it a debtor in bankruptcy or challenge the involuntary petition. If the alleged debtor resists the involuntary petition and is successful, the petitioning creditor(s) can be liable for damages caused by the filing, including, in some circumstances, punitive damages.

Jointly Administered Cases – 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.

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

Lien – An interest in real or personal property that secures a debt; the lien may be voluntary, such as a mortgage in real property, or involuntary, such as a judgment lien or tax lien. Having a lien generally provides the right to take and hold or sell the property of a debtor as security or payment for a debt or duty.

Liquidated Claim – A debt that is for a known number of dollars is liquidated.  An unliquidated debt is one where the debtor has liability, but the exact monetary measure of that liability is unknown.  Tort claims are usually unliquidated until a trial fixes the amount of the liability of the tort feasor.

Liquidation Value – The aggregate value of a business if its assets are sold piecemeal.

Marshaling – Where two or more creditors have secured claims against one debtor and the creditor with the senior claim can reach properties held by the debtor that the junior creditor cannot, the marshaling doctrine permits the junior creditor to force the senior creditor to seek satisfaction of its debt from the property that cannot be reached by the junior creditor.

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. 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.

Meeting of creditors (or 341 meeting) – The debtor must appear at a meeting with the trustee to be examined under oath by a representative of the Office of the United States Trustee about assets and liabilities.  Creditors are invited but seldom attend.  The meeting is sometimes called the 341 meeting, after the section of the Bankruptcy Code that requires it.

Motion To Lift Automatic Stay – A request that a creditor files with the Bankruptcy Court to obtain an order allowing 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 unsecured claims.

Non-dischargeable – A debt that cannot be eliminated in bankruptcy.  Non dischargeable debts remain legally enforceable despite the bankruptcy discharge.  The Code’s list of non dischargeable debts is found at •523. The scope of the discharge in Chapter 13 differs from the discharge in Chapter 7. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action.

Objection To Dischargeability – The filing of a complaint to have the bankruptcy court declare that a particular debt is non-dischargeable.

Objection To Exemptions – A trustee’s or creditor’s objection to the debtor’s attempt to claim certain property as exempt from creditors’ claims.

Order for Relief – The order entered by the bankruptcy court adjudicating a person or entity a debtor and, therefore, under the protection of the bankruptcy court.

PACER (Public Access to Court Electronic Records) – A service provided by the court system that gives case filing information.

Party In Interest – An entity 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 proper entity under applicable law;  a lien in personal property is perfected by filing a financing statement with the applicable 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 is subject to avoidance in bankruptcy by the trustee or DIP.

Personal Bankruptcy – A bankruptcy case filed by an individual; also called a household bankruptcy, consumer bankruptcy or wage-earner bankruptcy. Individuals can file for bankruptcy under chapters 7, 11 and 13.

Personal Property – Assets, such as cars, stock, furniture, etc., that is not real estate or affixed to real property,

Petition – The document that is filed with the clerk of the bankruptcy court to commence a voluntary or involuntary bankruptcy case. The filing of the petition constitutes an order for relief and institutes the automatic stay. Events are frequently described as “prepetition”, happening before the bankruptcy petition was filed, and “post petition”, after the bankruptcy was initiated.

Petition Preparer – A business not authorized to practice law that prepares bankruptcy petitions.

Plan of Reorganization – The document that sets forth how the debtor proposes to restructure its financial affairs and to pay its creditors. The plan of reorganization is the cornerstone of a successful Chapter 11 bankruptcy.

Post-Petition – The time period following the commencement of a bankruptcy proceeding.

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.

Preference – A pre-petition transfer of an interest of the debtor in property: to or for the benefit of a creditor; for or on account of a debt existing prior to the transfer; made while the debtor was insolvent (the Bankruptcy Code provides a presumption of insolvency within the 90-day period immediately preceding the filing); that enables the creditor to receive more than it would receive if the case were a chapter 7 case (liquidation). The trustee, or a debtor-in-possession, can cause the recipient to return to the bankruptcy estate property, or its value, that is a preference. The preference period extends back 90 days from the date of commencement of the case or one year when the recipient is an “insider.”

Pre-Petition – The time period prior to commencement of a bankruptcy proceeding.

Priority – The Bankruptcy Code establishes the order in which claims are paid from the bankruptcy estate.  All claims in a higher priority must be paid in full before claims with a lower priority receive anything.  All claims with the same priority share pro rata.  Claims are paid in this order:  1) costs of administration  2) priority claims and 3) general unsecured claims.  Secured claims are paid from the proceeds of liquidating the collateral which secured the claim.

Priority Claim – An unsecured claim asserted against the bankruptcy estate that, according to Section 507 of the Bankruptcy Code, is entitled to be paid after secured creditors but before other unsecured creditors (e.g., administrative claims, wage claims or tax claims).

Professional Person – A professional such as an attorney, accountant or appraiser who is employed to render services on behalf of the debtor’s estate.

Proof Of Claim – A written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. (There is an official form for this purpose.)

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 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.

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.

Recharacterization of Debt – An equitable doctrine pursuant to which a creditor’s claim can be recharacterized from debt to equity. This situation usually emerges where an insider makes a “loan” to a debtor and engages in other conduct that is found to be inequitable. Under certain circumstances, courts can consider such “loans” as capital contributions, invested in the hope of returns, which should not be allowed to be paid before or on par with the claims of general creditors who have not bargained for the risks and rewards associated with equity interests.

Recoupment – The common law doctrine of recoupment, which allows a reduction or satisfaction of a claim, applies where a creditor’s claim against a debtor arises from the same transaction as a debtor’s claim against the creditor. Recoupment is distinguished from setoff, which is addressed specifically by Section 553 of the Bankruptcy Code.

Rejection – Bankruptcy Code 365 gives a debtor a right to reject executory contracts and unexpired leases of nonresidential real property. This rejection is deemed a breach of the contract or lease as of the petition date. The creditor is entitled to a claim for damages for the breach of the lease or contract, which is considered a general unsecured claim.

Rejection Deadline – The last day by which the debtor must decide whether to assume or reject unexpired leases and executory contracts.

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.

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.

Roll-up – A term used to describe DIP Financing in which a part of the loan is used to pay down pre-petition indebtedness in a lump sum. The pre-petition indebtedness is rolled up into the post-petition loan. See Creeping Roll-up.

Sale Guidelines – The terms proposed by the DIP or Trustee that for the sale of the debtor’s assets.

Schedules – The debtor must file schedules of its assets and liabilities with the bankruptcy court within 15 days after commencing a bankruptcy case unless granted an extension of time. The schedules detailed lists filed by the debtor showing the debtor’s assets, liabilities, and other financial information. (There are official forms a debtor must use.)

Section 524(g) Plan ­– A plan that establishes a mechanism for dealing with a debtor’s asbestos liabilities by channeling them to a trust and enjoining claimants for pursuing the debtor post-petition.

Secured Creditor – Creditors who have a lien, mortgage or other property interest on property of the debtor and, hence, in property of the estate.

Secured Debt – A claim secured by a lien in the debtor’s property by reason of  the debtor’s agreement  or an involuntary lien such as a judgment or tax lien. The creditor’s claim may be divided into a secured claim, to the extent of the value of the collateral, and an unsecured claim equal to the remainder of the total debt. Generally a secured claim must be perfected under applicable state law to be treated as a secured claim in the bankruptcy.

Setoff – At times, a party is both a creditor and a debtor of another party. Setoff is the cancellation of cross-demands between two parties. A creditor only may exercise its setoff rights in a bankruptcy case after obtaining relief from the automatic stay and provided that the creditor is seeking to offset pre-petition debts. Section 553 of the Bankruptcy Code expressly preserves the right of setoff, although relief from the stay is needed to effectuate a post-petition setoff.

Skeleton Filing – A term used at 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.

Statement of Financial Affairs – The debtor must file a statement of financial affairs, setting forth various matters regarding the status of the debtor’s legal and financial affairs, within 15 days after commencing a bankruptcy case, unless granted an extension of time.

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 – A term that refers to the abuse of the privilege to file a petition. It usually describes fraud in cases of personal bankruptcy.

Super-Priority Claim – An administrative claim that will be paid ahead of other administrative and priority claims.

Transfer – Any mode or means by which a debtor disposes of or parts with his/her property.

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 court and the direct supervision of the U.S. trustee or bankruptcy administrator. The trustee is a private individual or corporation appointed in all chapter 7, chapter 12, and chapter 13 cases and some chapter 11 cases. The trustee’s responsibilities include reviewing the debtor’s petition and schedules and bringing actions against creditors or the debtor to recover property of the bankruptcy estate. In chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in chapter 12 and 13 have similar duties to a chapter 7 trustee and the additional responsibilities of overseeing the debtor’s plan, receiving payments from debtors, and disbursing plan payments to creditors. The term “trustee” in a chapter 11 case is generally used interchangeably with “debtor-in-possession,” and describes the rights and duties of the person/entity that operates the debtor-in-possession. There can also be a chapter 11 trustee appointed by the court for cause.

U.S. Trustee – An officer of the Justice Department 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.

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

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

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 – A claim or debt is unsecured if there is no collateral that is security for the debt.  Most consumer debts are unsecured.

Unsecured Creditor – Those creditors who have pre-petition claims against the debtor and who do not have any form of lien, mortgage or other entitlement to priority. In a bankruptcy case, unsecured creditors are paid on a pro rata basis only after all secured creditors and creditors holding priority claims have been paid in full.

Voluntary Bankruptcy – A bankruptcy case filed by the debtor itself, as compared to an involuntary bankruptcy case filed against the debtor.

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.