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341 Meeting - (see first meeting of creditors) 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. |
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