Law Offices of David P. Leibowitz LLC
Lakelaw is a registered assumed name for Law Offices of David P. Leibowitz LLC
Dear Readers – Our Bankruptcy Glossary is interactive project here at Lakeblawg. I will be adding bankruptcy terms every day. The terms I add will be based on questions my clients ask me about that day. You tell me what term you would like me to explain and I’ll do so the very next day. Let’s talk with each other! My definitions will not necessarily be word for word from the bankruptcy code but rather I want to take difficult bankruptcy concepts and make them easy for you to understand. These definitions may not be strictly speaking complete or precise transcriptions of the bankruptcy code. Rather, they are intended to give you, the reader, a general idea of what important bankruptcy terms mean to you.
Should you have a particular legal question, don’t rely on this glossary or any paraphrase. Look to the Bankruptcy Code itself, available here. You also should consult with a competent bankruptcy attorney to apply the law to your particular situation.
I will be adding more terms every day – so tell me what you would like to know and what is interesting to you. I’ll also be linking from this page to other pages on lakelaw.com and bankrutpcy.lakelaw.com
Adversary Proceeding: A lawsuit involving a plaintiff and a defendant filed in the Bankruptcy Court in connection with a bankruptcy case.
Allowance: The treatment of a claim entitled to payment from a bankruptcy estate.
Applicable commitment period: The period of time during which the debtor must pay his projected monthly income to the chapter 13 trustee pursuant to the chapter 13 plan. This period is 3 years for those whose current monthly income is below the median for families with households the size of debtors’. Otherwise, the applicable commitment period is 5 years.
Automatic Stay: Prohibition against continuing to collect most debts or claims against a person or entity who files a bankruptcy case. This automatic stay may be modified or terminated by the bankruptcy court under many circumstances.
Bankruptcy: Submission of a person’s or company’s assets to the jurisdiction of the court for administration, usually when the debtor is not able to pay debts when due.
Bankruptcy case: A proceeding for the administration of a bankruptcy estate in a Bankruptcy Court.
Bankruptcy Court: A specialized part of the federal district court designated to hear bankruptcy cases. The Bankruptcy Court also considers controversies arising in connection with a bankruptcy case or related to a bankruptcy case. Such matters may be adversary proceedings or contested matters.
Bankruptcy Estate: Those assets of the debtor which pass to the bankruptcy trustee upon filing of a bankruptcy case
Bankruptcy Judge: A judge appointed to the Bankruptcy Court by the Circuit Court of Appeals overseeing the district court. This judge serves for a period of 14 years.
Chapter 7: A bankruptcy case where the debtor’s non-exempt assets are sold and distributed to creditors according to their priorities. The debtor receives a discharge from most, if not all, of his or her debts. The debtor keeps all exempt assets.
Chapter 7 trustee: An individual selected by the United States Trustee to serve as a fiduciary in the administration of chapter 7 cases. The chapter 7 trustee examines debtors, investigates into their affairs, locates and liquidates assets, examines claims and makes distributions to creditors. The chapter 7 trustee also can bring complaints against others to pursue the rights of a debtor who filed a bankruptcy case against others. The trustee also can bring complaints against others to pursue and protect the rights of the bankruptcy estate.
Chapter 13: A bankruptcy case where the debtor pays all of his or her disposable income for a period of time (typically 5 years for higher income debtors or 3 years for lower income debtors) to the chapter 13 trustee. That chapter 13 trustee then pays the debtor’s creditors in accordance with their priorities.
Chapter 13 trustee: An individual selected by the United States Trustee of a region to serve as a standing trustee for some or all of the chapter 13 cases in a particular area. The Chapter 13 Trustee’s office and operations are scheduled to operated on a not-for-profit basis, and paid by a percentage charge or fee on all payments made by all debtors to the chapter 13 trustee. The chapter 13 trustee provices oversight on all chapter 13 cases and recommends that the court take action of confirming a chapter 13 plan or not based on the debtor’s performance. The court is free to accept or reject the trustee’s representations.
Claim: The right of a person to payment of money or performance of an obligation against a debtor in bankruptcy. This could be in a specific amount or an indefinite amount to be determined.
Claims bar date: The last day within which a creditor must file a proof of claim to be entitled to payment in a bankruptcy case. Claims filed after the claims bar date are considered to have been “tardily filed” and may be disallowed.
Claw-back: Popular term for the right of a bankruptcy trustee to recover certain types of transfers, such as a preferential transfer to a creditor before bankruptcy, a fraudulent transfer to anyone before bankruptcy, certain types of set-offs before bankruptcy. Also a term used to describe the right of a lender to recover gain from a borrower as a result of a chapter 13 mortgage modification if new legislation is enacted into law.
Co-debtor: A person who is obligated to pay the same debt as a debtor. Co-debtors who are not joint debtors in the bankruptcy case must be shown in bankruptcy schedules.
Contested matter: A motion in connection with a bankruptcy case where a party in interest objects or otherwise disputes the entitlement of the person making the motion to the relief requested.
Credit Counseling: An interactive interview with a credit counselor approved by the Office of the United States Trustee which every individual debtor must do prior to filing a bankruptcy case. There are very few excuses for not taking credit counseling. An individual who files a bankruptcy case without having taken credit counseling before filing the case (but not more than 180 days before) almost always will have their case dismissed. This is sometimes called the “ticket in” to bankruptcy.
Current Monthly Income: The average of the monthly income you received from all sources during the six months immediately prior to the month in which you file your bankruptcy case. This is used to determine whether you are eligible to file a chapter 7 case. A person who makes current monthly income in an amount more than the half of the people with household the size of debtor’s is presumed to be abusing bankruptcy by filing a chapter 7 unless he or she “overcomes the presumption” by passing the means test.
Debt: Something owed in a bankruptcy case on account of a claim.
Debtor: A person or entity who either has filed a bankruptcy case voluntarily or against whom a bankruptcy case has been filed involuntarily.
Disallowed: The status of a claim which has been determined by the Bankruptcy Court to not be entitled to payment from a bankruptcy estate.
Discharge: An order of the Bankruptcy Court declaring that the Debtor is no longer obligated to pay most, if not all, of the debts which the Debtor had as of the date of the filing of his or her bankruptcy case.
Discharge injunction: A part of the Discharge order which prohibits anyone who held a discharged claim or debt against the debtor to take any action against the Debtor in order to collect or enforce that claim or debt.
Domestic Support Obligation: Debt owed by a debtor for support or maintenance arising from a divorce. May be under a court order or settlement. Could be also owed to a state agency collecting for the debtor. Could be owed to a former spouse or child of the debtor.
Executory Contract: A contract which has started but not yet finished, particularly where performance under the contract is due from both parties to the contract. Examples of an executory contract include a lease, an employment contract, a license agreement, a franchise agreement where the agreements are on-going and in effect.
Exemption: Certain property of a debtor may not be taken by the trustee to satisfy the claims of creditors. Exemptions are determined by the law of the state where the debtor lives or has most recently lived. Sometimes, exemptions are determined by federal law. Sometimes, the debtor has a choice. Debtors should always consult with their attorney about the proper use and claims of exemptions.
Fraudulent Transfer: A transfer by a debtor to any person within 2 years or such longer time as provided by state law, intended to hinder, delay or defraud creditors, or leaving the person who makes the transfer insolvent or unable to pay debts as they become due, even absent any intent to hinder, delay or defraud creditors.
Insolvent: A person’s or company’s assets are worth less than that person’s liabilities. Another definition is where a person or entity can’t pay debts when due.
Means test: A test applied to people whose current monthly income is above the median for households the size of debtors’ to determine if they are abusing the bankruptcy system by filing a case under chapter 7. This test is based on a bankruptcy form called form B22A.
Motion: A request by a party in interest for the bankruptcy court to take an action or to order another party to take an action or refrain from taking some action in connection with a bankruptcy case.
Party in interest: A person with some actual economic interest in the outcome in a bankruptcy case. The United States Trustee is always considered to be a party in interest. A party in interest has the right to be heard by the bankruptcy court on any issue coming before the bankruptcy court.
Personal Financial Management Instructional Course: A short, typically on-line or telephonic training session which must be taken by every individual who is a debtor in a bankruptcy case. If the debtor fails to take the personal financial management instruction course prior to the closure of the bankruptcy case, the case is closed and the debtor does not receive a discharge. This means that the creditors are free to continue to pursue collection efforts against the debtor even though the debtor filed a bankruptcy case and otherwise was eligible for discharge. This is sometimes called the “ticket out” of bankruptcy.
Preference: A transfer or payment made by a debtor to any creditor within 90 days before a bankruptcy case or to an insider, like a family member or an affiliate, within a year before a bankruptcy case, while insolvent, allowing the person to whom the transfer is made to recover more than other creditors do in the bankruptcy case.
Priority: The right to have a claim or debt paid ahead of another creditor’s claim or debt in a bankruptcy case. For example, a person who holds a “Domestic Support Obligation” has the right to be paid out of proceeds of a bankruptcy case before a “general unsecured creditor” like a credit card company.
Projected Monthly Income: An important term under the Bankruptcy Code which is at present undefined. A person in a chapter 13 is required to pay 100% of his disposable income to the chapter 13 trustee during the applicable commitment period or in the alternative to pay 100% of his unsecured debts under the plan. Projected monthly income in some courts is calculated based on the form B22C means test form. In some courts, projected monthly income is based on what debtor is making and spending at the time of filing of the case. And in some courts, projected monthly income is based on what debtor is expected to make and expected to earn in the future. This issue is very much up in the air.
Proof of Claim: A document filed in the Bankruptcy Court by a creditor setting out the amount that a debtor owes the creditor along with the basis for the claim. The proof of claim must be filed by the claims bar date.
Schedules: Bankruptcy schedules must be filed in each bankruptcy case. Bankruptcy schedules are official forms provided by the court for the disclosure of all assets of the debtors as well as all debts of the debtors. Assets are categorized either as real estate or personal property. Debts are categorized as either secured, priority or unsecured. Schedules must also indicate what exemptions debtors claim. Individual debtors must also indicate their budgeted income and expenses. Debtors must list any executory contracts and co-debtors.
Secured Creditor: A creditor of a debtor in a bankruptcy case who holds collateral or security for their claim. A creditor is a secured creditor to the extent of the value of the security or collateral. For example, an auto loan company holds a claim for $30,000 on a car worth $20,000. It has a $20,000 secured claim and a $10,000 unsecured claim.
Unsecured Credit0r: A creditor of a debtor in a bankruptcy case who does not hold collateral or security for their claim. For example, most credit card companies are unsecured creditors.
Trustee: A person designated to oversee a debtor’s bankruptcy case. The trustee in a chapter 7 case sells debtor’s non-exempt property. The trustee in a chapter 13 case collects monthly payments from the debtor. In either case, the trustee distributes money to the creditors in accordance with the priorities set up in the Bankruptcy Code.
United States Trustee: An officer appointed by the Attorney General for a particular region of the United States for the purpose of general oversight of the administration of bankruptcy cases. The United States Trustee program is a division of the United States Department of Justice.