Dictionary of Bankruptcy Terms

Learn to Talk the Talk

Most debtors who file a bankruptcy petition, and many of their creditors, know very little about the bankruptcy process. This Dictionary of Bankruptcy Terms explains, in everyday language, many of the legal terms that are used in cases filed under the Bankruptcy Code.

Adversary Proceeding: A lawsuit that is related to a bankruptcy case and is filed in Bankruptcy Court.

Automatic Stay: An injunction that automatically stops all lawsuits, foreclosures, garnishments, and all collection activity against the debtor starting from the very moment that a bankruptcy petition is filed in Bankruptcy court, even though creditors may not get notice of it until weeks later. Legally speaking, when a bankruptcy is filed, all debt collection efforts else come to an immediately halt.

Bankruptcy Estate: This is made up of all property interests of any kind that the debtor has at the time the bankruptcy is filed.

Bankruptcy Petition: The legal document filed in Bankruptcy Court which opens the bankruptcy case. There are official forms for bankruptcy petitions.

Chapter 7: The chapter of the Bankruptcy Code providing for "liquidation," (the sale of an individual debtor's nonexempt property and the distribution of the proceeds to creditors.)

Chapter 13: The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income by allowing a debtor to keep property and pay their debts over time, usually three to five years.

Chapter 11: The chapter of the Bankruptcy Code providing generally for a business reorganization, usually involving a business, corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.

Confirmation: The approval by the bankruptcy judge of a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13.

Contingent Claim: A creditor’s claim that the debtor may owe under certain circumstances.

Credit Counseling: This usually refers to two events in consumer 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 a chapter 7 and 13 that an individual debtor must complete before a bankruptcy discharge is granted. There are a few exceptions to both requirements in special cases.

Creditors' Meeting, or 341 meeting: The meeting of creditors required by section 341 of the Bankruptcy Code where the debtor appears and can be asked questions about his/her financial affairs.

Debtor: A person who has filed a petition for relief under the Bankruptcy Code.

Discharge: The release of a debtor from personal liability for their dischargeable debts. It is the legal document that says the consumer does not owe the creditors any more than what the Bankruptcy Court has said had to be paid, if anything. It also prohibits creditors from ever again communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.

Dischargeable Debt: The debt which the Bankruptcy Code wipes out.

Equity: The value of the debtor's interest in property that remains after liens and other creditors' interests are deducted. For example: if a house valued at $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.

Exemptions, Exempt Property: This is certain property that is owned by an individual debtor that the law lets the debtor keep. For example, in Ohio the debtor may be able to exempt up to $3,225 of the equity in the debtor's automobile. There are numerous other specific exemptions that you can read about on our “What Can I Keep?” web site page.

Fraudulent Transfer: A transfer of a debtor's property made with the intent to defraud creditors or for which the debtor receives less than the real value of the transferred property. The court can often cancel such a transfer.

Fresh Start: After the debtor’s debt is discharged, the debtor gets a fresh start debt-free.

Joint Petition: One bankruptcy petition which is filed by both a husband and wife together.

Lien: The right to take and hold or sell the property of a debtor as security or payment for a debt or duty. It usually exists on property such as motor vehicles and real estate but can exist on other types of property too.

Means Test: This is a complex test that is used to determine whether an individual debtor can file a chapter 7 case or must file a chapter 13 case. If a consumer files a chapter 7 bankruptcy case and later fails the Means Test then the law presumes that they are abusing the Bankruptcy law and the court can dismiss the case or convert it to a chapter 13 case. Attorneys normally will make the Means Test calculations and explain the results to you.

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. For example, such action could be filing a lawsuit or seizing secured property.

No-asset Case: A chapter 7 case where there are no assets available to satisfy any portion of the creditors' unsecured claims.

Nondischargeable Debt: A debt that cannot be wiped out by bankruptcy. Examples include a home mortgage, debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, 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 can be declared nondischargeable only if a creditor proves the claim is of that type, such as debts for money or property obtained by false pretenses and debts for fraud.

Objection to Dischargeability: A trustee's or creditor's objection to the debtor being released from certain dischargeable debts. For example, one reason may be  that the debt arose because of the debtor's fraud.

Objection to Exemptions: A trustee's or creditor's objection to the debtor's attempt to claim certain property as exempt so that the debtor can keep it after bankruptcy discharge.

Postpetition Transfer: A transfer of the debtor's property made after the bankruptcy case has been filed in court.

Preference or Preferential Debt Payment: A payment made to a creditor in the 90-day period before a debtor files bankruptcy (or within one year if the creditor was an “insider”) that gives the creditor more than the creditor would receive in the debtor's chapter 7 case.

Priority: The Bankruptcy Code's ranking of unsecured claims that determines the order in which unsecured claims will be paid if there is not enough money to pay all the claims in full.

Priority Claim: An unsecured claim that is entitled to be paid ahead of other unsecured claims that are not entitled to priority status. Priority refers to the order in which unsecured claims are to be paid if there is money available.

Proof of Claim: The official form that a creditor files to claim that money is owed to them by the debtor.

Reaffirmation Agreement: An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually so the debtor can keep collateral (i.e. the car) that would otherwise be subject to repossession during the bankruptcy.

Schedules: Detailed lists on official forms that are filed by the debtor showing the debtor's assets, liabilities, and other financial information.

Secured Creditor: A creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or all of the claim if they are not paid enough in the bankruptcy.

Secured Debt: Debt backed by a mortgage, pledge of collateral, or other lien on specific property. For example, a home mortgage, auto loan and tax liens.

Statement of Financial Affairs: The official form containing a series of questions the debtor answers concerning sources of income, transfers of property, lawsuits by creditors, etc.

Statement of Intention: A declaration made by a chapter 7 debtor on what he/she plans to do about secured property debts in the bankruptcy.

341 Meeting: The meeting of creditors required by section 341 of the Bankruptcy Code at which the debtor is questioned under oath by creditors, a trustee, examiner, or the U.S. trustee about his/her financial affairs.

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. 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.

Undersecured Claim: A debt that is 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, it may or may not be discharged.

Unsecured Claim: A claim or debt that is not secured by a mortgage or lien. A common example would be most credit card debt.