Complete Bankruptcy Legal Glossary
Introduction
Understanding bankruptcy law and its procedures requires familiarity with a specialized vocabulary that can seem overwhelming at first glance. This comprehensive glossary serves as your guide through the complex terminology used in bankruptcy proceedings, whether you’re considering filing for bankruptcy, working as a professional in the field, or simply seeking to better understand the bankruptcy process.
Bankruptcy terminology combines elements from several different fields, including:
- Legal terms specific to bankruptcy proceedings
- General legal concepts as they apply in bankruptcy
- Financial and accounting terminology
- Administrative and procedural language
- Business reorganization concepts
- Consumer protection provisions
The terms in this glossary are carefully organized into functional categories to help you quickly locate relevant information. Each entry provides both a clear definition and practical context about how the term applies in real-world bankruptcy situations. Cross-references are included where concepts interconnect, helping you build a more complete understanding of how different aspects of bankruptcy law work together.
This glossary reflects current bankruptcy law and practice, including significant changes implemented by the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 and subsequent developments. However, it’s important to note that bankruptcy law continues to evolve through:
- New legislation at federal and state levels
- Court decisions interpreting bankruptcy laws
- Local rules and procedures
- Administrative changes in bankruptcy courts
- Evolving financial practices and technologies
While comprehensive, this glossary is designed to be educational rather than exhaustive. It serves as a foundation for understanding bankruptcy concepts and terminology, but should not be considered legal advice. The practical application of these terms may vary based on:
- Your jurisdiction
- The specific type of bankruptcy filed
- Local court rules and procedures
- The particular circumstances of each case
- Recent changes in law or practice
Core Legal Framework
Bankruptcy Code: The federal law contained in Title 11 of the United States Code that governs all bankruptcy proceedings in the United States.
Bankruptcy Court: A specialized federal court with exclusive jurisdiction over bankruptcy cases, operating as a unit of the U.S. District Courts.
Bankruptcy Judge: A federal judicial officer appointed to a 14-year term by the Court of Appeals, with authority to make final determinations in bankruptcy matters.
Bankruptcy Rule 2004 (2004 Exam): A broad discovery mechanism allowing the examination of any entity about the debtor’s financial affairs, often called the “fishing expedition” rule.
Filing and Procedural Terms
Adversary Proceeding: A separate lawsuit filed within a bankruptcy case, following federal rules of civil procedure, typically involving disputes over discharge, fraud, or property rights.
Automatic Stay: An immediate injunction that stops most collection actions against the debtor or their property upon filing bankruptcy.
Bar Date: The court-established deadline for filing proofs of claim or interest in a bankruptcy case.
Core Proceedings: Matters arising under the Bankruptcy Code that bankruptcy judges can hear and determine.
Discovery Procedures: The formal processes for gathering information in bankruptcy cases, including depositions, document requests, and examinations.
Involuntary Bankruptcy: A bankruptcy case initiated by creditors against a debtor, requiring specific statutory criteria to be met.
Types of Bankruptcy
Chapter 7: Liquidation bankruptcy where a trustee sells non-exempt assets to pay creditors.
Chapter 11: Reorganization bankruptcy typically used by businesses to restructure while continuing operations.
Chapter 13: A wage earner’s plan allowing individuals with regular income to develop a 3-5 year repayment plan.
Consumer Bankruptcy: Bankruptcy filed by individuals primarily for personal debts.
Business Bankruptcy: Bankruptcy filed by commercial entities or individuals with primarily business debts.
Parties and Participants
Debtor: The person or entity who files for bankruptcy protection.
Debtor in Possession: In Chapter 11, the debtor who maintains control of assets and operations.
Trustee: Court-appointed representative who administers the bankruptcy estate.
Creditors’ Committee: In Chapter 11 cases, a group representing unsecured creditors’ interests.
Secured Creditor: A creditor holding a lien or security interest in property.
Unsecured Creditor: A creditor without collateral securing their claim.
Priority Creditor: A creditor entitled to payment before general unsecured creditors.
Financial and Asset Concepts
Bankruptcy Estate: All legal and equitable interests in property owned by the debtor when filing.
Cash Collateral: Cash and cash equivalents subject to a security interest.
Secured Debt: Debt backed by collateral, such as mortgages or vehicle loans.
Unsecured Debt: Debt not secured by collateral, like credit card debt or medical bills.
Priority Claim: Claims given special payment priority under the Bankruptcy Code.
Undersecured Claim: A claim where the collateral value is less than the debt amount.
Break-up Fee: Compensation paid to a potential purchaser if a proposed sale falls through.
Liquidation Value: The estimated value of assets if sold quickly in bankruptcy.
Legal Procedures and Requirements
341 Meeting: Mandatory meeting where the debtor answers questions under oath about their finances.
Means Test: Analysis required for Chapter 7 qualification, comparing income to state median.
Proof of Claim: Document filed by creditors asserting their right to payment.
Creditor Matrix: Required list of all creditors and their addresses.
Fixed Claim: A claim whose amount has been determined and is no longer disputed.
Asset Protection and Recovery
Exemptions: Property the debtor can keep through bankruptcy, varying by state law.
Lien: A creditor’s right to payment from specific property.
Avoidance Powers: Trustee’s ability to undo certain pre-bankruptcy transactions.
Preference: A payment to a creditor shortly before bankruptcy that may be recovered.
Fraudulent Transfer: Property transfers made to hinder creditors or for less than fair value.
Plans and Agreements
Plan of Reorganization: Document detailing how a Chapter 11 debtor will restructure and pay creditors.
Chapter 13 Plan: Proposal for repaying creditors over 3-5 years in Chapter 13.
Disclosure Statement: Detailed information about a reorganization plan provided to creditors.
Reaffirmation Agreement: Agreement to continue paying a debt that could be discharged.
Executory Contract: Contract where both parties still have significant obligations to perform.
Cramdown: Court power to approve a plan despite creditor objections.
Post-Bankruptcy Concepts
Discharge: The release of debtor from personal liability for certain debts.
Discharge Injunction: Permanent prohibition against collecting discharged debts.
Fresh Start: Principle allowing honest debtors to begin anew financially.
Post-petition Debt: Debt incurred after filing bankruptcy.
Important Legislation
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA): 2005 law adding means testing and other requirements.
Bankruptcy Tax Act of 1980: Law clarifying tax consequences of bankruptcy proceedings.
Conclusion
The language of bankruptcy law reflects its role as a complex but essential part of our legal and financial system. Understanding these terms is crucial for anyone involved in bankruptcy proceedings, whether as a debtor, creditor, professional advisor, or interested party. This glossary provides a foundation for that understanding while recognizing that bankruptcy law is constantly evolving.
Key takeaways for using this glossary effectively:
- Context Matters
- Terms may have different implications depending on the type of bankruptcy
- Local rules and procedures can affect how concepts are applied
- Specific circumstances of each case may influence interpretation
- State laws can modify how certain terms apply
- Staying Current
- Bankruptcy law continues to evolve through legislation and court decisions
- Local rules and procedures may change
- New financial products and practices may affect bankruptcy proceedings
- Professional guidance may be needed for recent developments
- Practical Application
- Use this glossary alongside professional legal advice
- Consider how terms interact with each other in practice
- Remember that real-world situations may be more complex than definitions suggest
- Be aware that exceptions and special cases exist for many rules
- Building Knowledge
- Start with basic concepts before moving to more complex terms
- Pay attention to cross-references between related terms
- Consider how different aspects of bankruptcy law work together
- Use this glossary as a reference throughout the bankruptcy process
- Seeking Professional Guidance
- Consult qualified legal professionals for specific advice
- Stay informed about changes in bankruptcy law
- Consider local rules and procedures
- Verify current requirements for your jurisdiction
Remember that while understanding bankruptcy terminology is important, it’s just one part of navigating the bankruptcy process. This glossary should be used as part of a broader approach to understanding and working with bankruptcy law, which includes:
- Professional legal counsel
- Court resources and guidance
- Educational materials and workshops
- Financial planning and advice
- Support services and counseling
Whether you’re a professional working in bankruptcy law, someone considering or going through bankruptcy, or simply interested in understanding the process better, we hope this glossary serves as a valuable reference tool. Keep it handy throughout your involvement with bankruptcy proceedings, using it to better understand your rights, obligations, and options under bankruptcy law.