Absolute Priority - the order of payment to the different classes of
creditors mandated by the Bankruptcy Code. In theory, claims with
higher priority are paid in full before other claims receive payment.
Junior creditors and shareholders are paid after senior creditors.
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.
Adversary Proceeding - litigation within a bankruptcy proceeding
instituted by the filing of a complaint.
Allowed Claim - a claim of a creditor (or an equity interest) that is
approved by the court for satisfaction under the plan of
reorganization.
Arrangement - may refer to a variety of formal or informal
agreements worked-out 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.
Asset - An economic resource or item owned by a business that is
expected to benefit its future operations.
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 a company in bankruptcy. The occurs
automatically when the bankruptcy petition is filed. This action
protects the debtor from creditors seeking to seize its assets. It also
protects some creditors in that it prevents one creditor from
obtaining an excessive share of the assets of the bankrupt to the
exclusion of the other creditors.
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 - concerning a bankruptcy reorganization, the date
and time, set by the bankruptcy court, by which 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 - a legal procedure for dealing with debt problems of
individuals and businesses; specifically, a case filed under one of
the Chapters of Title 11 of the United States Code (the Bankruptcy
Code). (See also failure and insolvency)
Bankruptcy Administrator - an officer of the judiciary serving in
the judicial districts of Alabama and North Carolina; who, like the US
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. (See also
Bankruptcy Trustee)
Bankruptcy Code - the name given to the statutory body of
bankruptcy laws; Title 11 of the United States Code (11 U.S.C. §§
101-1330), the federal bankruptcy law.
Bankruptcy Court - the federal tribunal where cases under the
Bankruptcy Code are litigated.
Bankruptcy Estate - generally, the property of the debtor that is
subject to the jurisdiction of the bankruptcy court at the time of the
bankruptcy filing.
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 Petition - the document filed with the court to initiate a
bankruptcy proceeding.
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.
Bar Date - the last date that creditors may file a claim against the
debtor.
Business Bankruptcy - a bankruptcy categorized by the US courts
as a business bankruptcy. (Data from the U.S. Administrative Office
of the Courts subdivides bankruptcies into business and
non-business.)
Business Failure - (see failure)
Cash Collateral - cash and cash equivalents held by the debtor in
Chapter 11 subject to liens of other parties.
Chapter - the Bankruptcy Code is organized into Chapters. Except
for Chapter 12, the Chapters of the present code are all
odd-numbered. Chapters 1, 3, and 5 cover matters of general
application. Chapters 7 is liquidation (business or non-business).
Chapter 9 is municipality bankruptcy. Chapter 11 is reorganization.
Chapter 12 is family farm debt adjustment. Chapter 13 is
wage-earner or personal (non-business) reorganization.
Chapter 7 - liquidation proceedings; generally assets are sold by a
trustee and the company ceases operation. (Individuals may file
Chapter 7 also.)
Chapter 9 - bankruptcies of municipalities; only a few of these are
filed each year; over the period 1980 through 1988 there averaged
about 4 Chapter 9 filings per year.
Chapter 11 - reorganization proceedings, generally for business
entities; the debtor maintains control of the business in Chapter 11
(unless the Court appoints a trustee).
Chapter 12 - family farmer bankruptcies; created by Congress in
1986 (Chapter 12 became effective on November 26, 1986 and is
now a permanent Chapter of the Bankruptcy Code); 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.
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 specific entries and see priority of claims.
Class - each of the different categories of claims against a debtor.
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.
Contingent Claim - A claim that may be owed by the debtor under
certain circumstances, such as when the debtor is a cosigner on
another person's loan and that person fails to pay.
Contested Matter - a dispute among the parties to a bankruptcy
proceeding, instituted by the filing of a motion of the court.
Convenience Claims - (see small claims)
Conversion - changing chapters in bankruptcy, such as converting
from Chapter 11 to Chapter 7.
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.
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 for
reorganization and other major actions. In large, complex cases,
there may be more than one such committee.
Debtor - the entity seeking protection from creditors under the
bankruptcy laws.
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 principal or interest.
Defendant - An individual or business against whom a lawsuit is
filed.
Discharge - the satisfaction or elimination of the debts of the
debtor by the bankruptcy court. A discharge releases a debtor from
personal liability for certain debts known as dischargeable debts
and prevents the creditors owed those debts from taking any action
against the debtor to collect the debts.
Disclosure Statement - a comprehensive disclosure document
sent to creditors when they are asked to vote on a plan of
reorganization in Chapter 11.
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 - 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.
Effective Date - the date on which a plan of reorganization is
implemented.
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 a debtor's interest in property that remains
after liens and other creditors' interests are considered.
Examiner - a professional appointed by the bankruptcy court to
investigate and oversee certain aspects of the debtor or the
proceedings. (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.
Exemptions (Exempt Property) - certain property owned by an
individual debtor that the Bankruptcy Code or applicable state law
permits the debtor to keep from unsecured 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. The availability and amount of property the debtor
may exempt depends on the state the debtor lives in.
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 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 a bankrupt company is not always a failing
company.
Family Farmer (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.
Fee Examiner - appointed by the court to monitor fees paid to
professionals in bankruptcy cases.
Filing Fees - fees charged by the bankruptcy court to initially file
for bankruptcy.
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. (It is mandatory for
the debtor to be present, but not the creditor(s).)
Fraudulent Conveyance - the transfer of valuable assets from a
company which (1) occurs when the company is technically
insolvent, (2) renders the company insolvent, or (3) is made for less
than adequate consideration.
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 (whichever is the outcome).
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.
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. For
personal bankruptcy, an insider may be considered 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.
Insolvency - 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.
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.
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.
Lien - the right to take and hold or sell the property of a debtor as
security or payment for a debt or duty.
Liquidation - the dissolution of a company. Operations cease and
assets are sold by auction; Chapter 7 is usually employed for
liquidations, business or personal.
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.
Motion to Lift the Automatic Stay - a request by a creditor to
allow the creditor to take action against the debtor or the debtor's
property that would otherwise be prohibited by the automatic stay.
NOL (net operating loss) - (see tax loss carry-forward)
No-Asset Case - a Chapter 7 case where there are no assets
available to satisfy any portion of the creditors' unsecured claims.
Non-business bankruptcy - a bankruptcy categorized by the US
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. Examples include a home mortgage, debts for alimony
or child support, certain taxes, debts for most government funded or
guaranteed educational loans, debts arising from death or personal
injury caused by driving while intoxicated or under the influence of
drugs, and debts for restitution or a criminal fine included in a
sentence on the debtor's conviction of a crime. 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 - 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.
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 US Trustee or bankruptcy administrator, the case trustee and
creditors are parties in interest for most matters.
Period of Exclusivity - (see exclusivity)
Personal Bankruptcy - filed by an individual; also called a
household bankruptcy, consumer bankruptcy or wage-earner
bankruptcy. (see Chapter 13 and also Chapter 12).
Petition - the document that commences a bankruptcy proceeding.
(Also referred to as the bankruptcy petition or petition for relief.)
Petition Preparer - a business not authorized to practice law that
prepares bankruptcy petitions.
Plan of Reorganization - the document setting forth how a
bankrupt company plans to satisfy its creditors.
Plaintiff - a person or business that files a formal complaint with the
court.
Post-petition - occurring after the filing of a bankruptcy petition.
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.
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.
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 Claims - an unsecured claim that is entitled to be paid
ahead of other unsecured claims that are not entitled to priority
status. These usually include 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 stating its claims against a
bankrupt debtor.
Property of the Estate - all legal or equitable interests of the
debtor in property as of the commencement of the case.
Receiver - particularly in foreign proceedings, or state court
proceedings, a person appointed by the court to take custody of a
debtor's property.
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
(such as an auto) that would otherwise be subject to repossession.
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.
Restructuring - a general term applied to an out-of-court attempt
to reorganize and satisfy debts. Similar to a workout.
Retired Benefits Bankruptcy Protection Act - passed June 16,
1988. Allows the debtor to continue to pay insurance premiums for
employees during the course of a bankruptcy.
Rule 2004 - (see Bankruptcy Rule 2004)
Schedules - detailed lists filed by the debtor along with (or shortly
after filing) the petition showing the debtor's assets, liabilities, and
other financial information.
Section 304 - the section of the present U.S. Bankruptcy code that
handles multi-national bankruptcies; only a few of these are filed
each year.
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 that is 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. Examples include
home mortgages, auto loans and tax liens.
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 loaned 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 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 US 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 - under a plan of reorganization or liquidation, claims
that are small in (hundreds of dollars range) and numerous are
often grouped into a single class and settled for cash for
administrative convenience. (Also called convenience claims.)
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.
Substantial Abuse - a term that refers to the abusing of the
privilege to file a petition. It usually describes fraud.
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 (although
infrequently applied) 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.
Transfer - any mode or means by which a debtor disposes of or
parts with 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
control. This type of trustee should be distinguished from the US
Trustee, who plays an administrative role in all bankruptcy cases.
United States Trustee - an agent of the US Department of Justice
appointed to assist in bankruptcy cases. The US Trustee
administers many of the duties of the court including appointing
committees, appointing trustees and examiners, scrutinizing
bankruptcy documents, etc..
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 Claim - a claim or debt for which a creditor holds no
special assurance of payment, such as a mortgage or lien; a debt
for which credit was extended based solely upon the creditor's
assessment of the debtor's future ability to pay.
Unsecured Creditor - one of two general types of creditors of a
company. The unsecured creditors have no liens on the property
of the company.
Voluntary Bankruptcy - bankruptcy filed by the debtor itself; data
from the U.S. Administrative Office of the Courts subdivides
bankruptcies into voluntary and involuntary.
Voluntary Transfer - a transfer of a debtor's property with the
debtor's consent.
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 payment of the debtor's
obligations.
