Bankruptcy Terminology A-L

In a Chapter 11 Plan, the debtor-in-possession must completely satisfy the claims of a higher, dissenting class before the claims of classes lower in priority can participate in the reorganization. Thus, a corporate debtor's shareholders cannot receive distribution (or retain any interest) unless the Plan provides for the unsecured creditors to be paid in full if the class of unsecured creditors has rejected the plan.

Abstention
A Bankruptcy Court may abstain from hearing a particular civil proceeding on the finding that it is in the interest of justice or in the interest of comity (courtesy) with state courts or state law. A Bankruptcy Court must abstain from a hearing involving a non-core proceeding based on a cause created by state law, where such cause is actually pending and can be timely adjudicated in a forum of appropriate jurisdiction. The Bankruptcy Court may abstain from hearing an entire bankruptcy case on the finding that the interest of both creditors and the debtor will be served by dismissal of the petition.

When an existing lawsuit between the debtor and another party is being heard in another court and someone tries to bring that dispute to bankruptcy court, the bankruptcy judge may decide to "abstain" and allow it to continue in the other court

Accountant
Under 11 U.S.C. Section 101, the term:
(1) ''accountant'' means accountant authorized under applicable law to practice public accounting, and includes professional accounting association, corporation, or partnership, if so authorized;

Administrative Expense Claim
A priority claim including the cost and expenses of preserving the estate or operating the business after the petition, and all professional fees and charges that are allowed.

Adequate Protection (also see Relief from Stay)
Relief fashioned to protect the value of a secured creditor's lien so it does not diminish during the bankruptcy proceeding. This relief can take the form of periodic payments, interest payments, a replacement lien on other property, or any other form determined by the court to be "adequate."

Adversary proceeding
A lawsuit filed in the bankruptcy court which is related to the debtor's bankruptcy case. Examples are lawsuits filed to determine the dischargeability of a debt and complaints to determine the extent and validity of liens. (See discussion of Fraudulent Transactions).

Affiliate
Under 11 U.S.C. Section 101, the term:
(2) ''affiliate'' means -
(A) entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor, other than an entity that holds such securities -
(i) in a fiduciary or agency capacity without sole discretionary power to vote such securities; or
(ii) solely to secure a debt, if such entity has not in fact exercised such power to vote;
(B) corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by the debtor, or by an entity that directly or indirectly owns, controls, or holds with power to vote, 20 percent or more of the outstanding voting securities of the debtor, other than an entity that holds such securities-
(i) in a fiduciary or agency capacity without sole discretionary power to vote such securities; or
(ii) solely to secure a debt, if such entity has not in fact exercised such power to vote;
(C) person whose business is operated under a lease or operating agreement by a debtor, or person substantially all of whose property is operated under an operating agreement with the debtor; or
(D) entity that operates the business or substantially all of the property of the debtor under a lease or operating agreement;

Antecedent Debt
An antecedent debt is any obligation then in existence, including an obligation that is not yet matured or due, e.g., future support obligations or installment loan payments [In re Futoran, 76 F3d 265 (CA9 1996)].

Appeal
A request to the U.S. District Court (or the bankruptcy appellate panel if there is one in the circuit) to review a decision of the bankruptcy court. A request to the Circuit Court of Appeals to review a decision of the U.S. District Court (or the bankruptcy appellate panel). A request to the U.S. Supreme Court to review a decision of a Circuit Court of Appeals.

Assets
Assets are every form of property that the debtor owns. They include such intangible things as business goodwill; the right to sue someone; or stock options. The debtor must disclose all of his assets in the bankruptcy schedules; exemptions remove the exempt assets from property of the estate.

Asset Case
A case that consists of an estate with sufficient non-exempt, non-fully encumbered assets to potentially provide a distribution for unsecured creditors.

Assume
An agreement to continue performing duties under a contract or lease.

Attorney
Under 11 U.S.C. Section 101, the term:
(4) ''attorney'' means attorney, professional law association, corporation, or partnership, authorized under applicable law to practice law;

Automatic stay
The injunction or federal restraining order issued automatically upon the filing of a bankruptcy case which prohibits collection actions against the debtor, the debtor's property or the property of the estate.

It is the automatic stay that stops a sheriff's sale of the debtor's property after a bankruptcy petition is filed.

Adversary Proceeding
A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court.

Avoidance
The Bankruptcy Code permits the debtor to eliminate (avoid) or reduce some kinds of liens that interfere with (or impair) an exemption claimed in the bankruptcy. Most judgment liens that have attached to the debtor's home can be eliminated if the total of the liens (mortgages, judgment liens and statutory liens) is greater than the value of the property in which the exemption is claimed. This is sometimes called "lien stripping."

Avoidable Liens
A judicial or nonpossessory, nonpurchase-money lien on certain property (household goods, furnishings, appliances, wearing apparel, tools of trade and health aids) may be eliminated or reduced if the lien impairs (interferes) an exemption otherwise available to the debtor [11 U.S.C. § 522(f)(2)].
(1) This provision applies to judgment or execution liens and consensual or contractual liens on property in the possession of the debtor where the lender did not lend money or extend credit so the debtor could acquire the property.
(2) This provision does not apply where the lender provided the money or credit that was used to purchase the property, e.g., a bank or credit union that lent the money that was used to buy an automobile or the purchase from a merchant (e.g., Sears or J.C. Penney) on a credit card issued by the merchant. (See Secured debt).

When a lien is avoided under this provision, the obligation is no longer secured and, as with any other unsecured claim, may be discharged.

The lien may be eliminated even if the debtor has no equity in the property over and above the interest of a senior, nonavoidable lien, nor is it limited to the amount of the equity, e.g., a judicial lien of $20,000 on an exempt residence having an equity of $10,000 in excess of a nonavoidable lien, is avoidable in its entirety; it is not limited to the $10,000 equity.

Example: The debtor owns a residence with a value of $110,000 and owes $100,000 on a first deed of trust. Creditor A has a judgment lien in the amount of $50,000. That judgment lien impairs the debtor's exemption and may be avoided in its entirety.

A lien senior to a nonavoidable mortgage may be avoided where the mortgages on the property exceed the value of the property.

Avoidance powers
Rights given to the bankruptcy trustee (or the debtor in possession in a Chapter 11) to recover certain transfers of property such as preferences or fraudulent transfers or to void liens created before the commencement of a bankruptcy case.

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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 Bankruptcy and Title 11A Bankruptcy (Appendix) of the United States Code (the Bankruptcy Code).

Bankruptcy Code
Title 11 of the United States Code governs bankruptcy proceedings. Bankruptcy is a matter of federal law and is, with the exception of exemptions, the same in every state. When federal bankruptcy law conflicts with state law, federal law controls.

Bankruptcy Court Clerk
The Clerk at the Bankruptcy Court receives all documents that are placed in the court record in a bankruptcy case. In addition, the Clerk's office schedules hearings for the court.

Bankruptcy Estate
The estate is all of the legal and equitable interests of the debtor as of the commencement of the case. From the estate, an individual debtor can claim certain property exempt; the balance of the estate is liquidated in a Chapter 7 to pay the administrative costs of the proceeding and the claims of creditors according to their priority. The estate is administered by a debtor, a debtor-in-possession or a trustee.

Bankruptcy Fact Sheets and Consumer Notices
Provides an Overview of Bankruptcy Code Chapters plus useful information that pertains to personal bankruptcy about The United States Trustee Program. Also posts consumer scam alerts and notices. You can find the information here Bankruptcy Fact Sheets and Consumer Notices.

The Official Bankruptcy Forms
These forms must be used to file and take action in bankruptcy cases. Procedural Forms also may be necessary for use during the course of some bankruptcy proceedings. Additional filing instructions, along with the forms, are available in the Bankruptcy Forms Manual you will find at this website link.

Bankruptcy Judge
The role of the Bankruptcy Judge is to preside over the administration of a bankruptcy case, and to decide contested aspects of that case, which involve either the liquidation (Chapter 7) or reorganization (Chapter 13) of a debtor. A Bankruptcy Judge does not become actively involved in the daily administration of the bankruptcy case, as that task has been delegated to the debtor, U.S. Trustee, appointed trustees, examiners and creditors' committees.

Bankruptcy Petition
A formal request for the protection of the federal bankruptcy laws. (There is an official form for bankruptcy petitions.)

Bankruptcy Procedure
The Federal Rules of Bankruptcy Procedure and Official Bankruptcy Forms govern procedure in bankruptcy cases under title 11 of the United States Code. The rules are intended to secure the just, speedy, and inexpensive determination of every bankruptcy case and proceeding.

Bankruptcy Rules
Also known as the Federal Rules of Bankruptcy Procedure. These rules govern the procedures in bankruptcy and adversary cases. In addition to these rules, each court normally is governed by its own local rules that supplement the Bankruptcy Rules.

The Local Rules of Bankruptcy Courts vary because individual federal courts are authorized to prescribe rules for the conduct of their business. However, the local court rules must be consistent with federal law and the federal rules of practice and procedure. 28 U.S.C. §2071(a).

Bankruptcy Sale
A free and clear sale of debtor's realty or personalty conducted by the bankruptcy court through the trustee in order to obtain proceeds for distribution to creditors of the bankruptcy estate.

Bar Date
The date by which claims must be filed with the Bankruptcy Clerk.

Bankruptcy Trustee
Bankruptcy Trustee
A private individual or corporation appointed in all chapter 7, chapter 12, and chapter 13 cases to represent the interests of the bankruptcy estate and the debtor's creditors. Trustees are not necessarily lawyers, and they are not paid by the court. They are appointed by the United States Trustee, and can be referred to as "Private Trustee", "Case Trustee" or "Standing Trustee". The trustees report to the court, but their fees are paid from the bankruptcy filing fees or, if the estate has assets, from the assets of the estate.

The Trustees duties vary by Chapter of the Bankruptcy Code. Trustees serve at the discretion and instruction of the Bankruptcy Court, and may be removed at any time for cause. The trustee's principal duty is to collect and reduce to money the property of the estate for which he serves, and to close up the estate as expeditiously as is compatible with the best interests of parties in interest. He must be accountable for all property received, and must investigate the financial affairs of the debtor. If a purpose would be served (such as if there are assets that will be distributed), the trustee is required to examine proofs of claims and object to the allowance of any claim that is improper. If advisable, the trustee must oppose the discharge of the debtor, which is for the benefit of general unsecured creditors whom the trustee represents. Trustees can sue and be sued. Trustees must comply with all provisions of the United States Bankruptcy Code and Rules, and with the instructions of the Court. A Trustee must also ensure that the rights of the bankrupt, as defined by the Bankruptcy Code and Rules are not abused. It is important to know that you may also contact the United States Trustee's Office (below) if you are having a problem with an individual trustee, or if you have evidence of any fraudulent activity.

Business Bankruptcy
A bankruptcy case in which the debtor is a business or an individual involved in business and the debts are for business purposes.

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Cash Collateral
Section 363 defines "cash collateral" as cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents, whenever acquired, in which the estate and an entity other than the estate have an interest. It includes the proceeds, products, offspring, rents, or profits of property and the fees, charges, accounts or payments for the use or occupancy of rooms and other public facilities in hotels, motels, or other lodging properties subject to a creditor's security interest.

Chapter 7
The most common form of bankruptcy, a Chapter 7 case is a liquidation, (i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors) proceeding, available to individuals, married couples, partnerships and corporations.

Chapter 9
Chapter of the Code addressing the adjustments of debts of a municipality (city).

Chapter 11
A reorganization proceeding in which the debtor may continue in business or in possession of its property as a fiduciary. A confirmed Chapter 11 plan provides for the manner in which the claims of creditors will be paid in whole or in part by the debtor.
(People in business or individuals can also seek relief in chapter 11.)

Chapter 12
A simplified reorganization plan for family farmers whose debts fall within certain limits. Chapter 12 was not renewed when it expired this session of Congress.

Chapter 13
A repayment plan for individuals with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income over 3 to 5 years. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.) (See discussion in The Power of 13).

Chapter 13 Trustee
A person appointed to administer a chapter 13 case. (A chapter 13 trustee's responsibilities are similar to those of a Chapter 7 Trustee; however, a chapter 13 trustee has the additional responsibilities of overseeing the debtor's plan, receiving payments from debtors, and disbursing plan payments to creditors.)

Civil Proceeding
Any action that occurs within a bankruptcy case and includes contested matters, adversary proceedings, as well as disputes related to administrative matters in a bankruptcy case.

Claim
Under 11 U.S.C. Section 101, the term:
(5) ''claim'' means -
(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or
(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured;

Claims Agent
In large cases, often a claims agent is appointed (instead of the clerk) to manage the filing and retention of proofs of claim.

Claims Register
Similar to the docket, this register lists of the proofs of claim that have been filed with the clerk.
Note, this will not include claims listed by the debtor on its schedules.

Co-Debtor Stay
In Chapter 13, there is an automatic stay which prevents actions against guarantors or co-signers of consumer obligations of the debtor.

If a mother co-signs a son's car loan and the son files a Chapter 13 petition, the co-debtor stay will prevent the loan company from collecting from the mother, during the case.

Collateral
The property that is subject to a lien. A creditor with rights in collateral is a secured creditor and has additional protections in the Bankruptcy Code for the claim secured by collateral. The measure of the secured claim is the value of the collateral available to secure the claim: it is possible to have a lien on property that is subject to a senior lien or liens such that the security available to pay the claim is really without value to the junior creditor. The general rule with respect to liens is "First in line, first in right."

When a borrower grants a lender a lien on the borrower's inventory (to secure repayment of the loan), the inventory is the collateral for the loan.

Collateral: Cash
Cash, negotiable instruments, documents of title, securities, deposit accounts or other cash equivalents in which the debtor's estate and an entity other than the estate have an interest. Cash collateral may not be used, sold or leased in the ordinary course of business unless the creditor with an interest in the collateral consents or the court, after notice and a hearing, authorizes the transaction.

Collective Bargaining Agreement
An employment agreement entered into by an employer with a group of employees.

A union contract is a collective bargaining agreement.

Committees

The code directs or allows committees to appear and act on behalf of various classes of creditors. Generally, there is a committee of unsecured creditors in a Chapter 11 case. There also may be committees of equity security holders (shareholders), or retirees or any other group that the court believes should have official representation.

Commodity Broker
Under 11 U.S.C. Section 101, the term:
(6) ''commodity broker'' means futures commission merchant, foreign futures commission merchant, clearing organization, leverage transaction merchant, or commodity options dealer, as defined in section 761 of this title, with respect to which there is a customer, as defined in section 761 of this title;

Community Claim
Under 11 U.S.C. Section 101, the term:
(7) ''community claim'' means claim that arose before the commencement of the case concerning the debtor for which property of the kind specified in section 541(a)(2) of this title is liable, whether or not there is any such property at the time of the commencement of the case;

Complaint
The first or initiatory document in a lawsuit that notifies
the court and the defendant of the grounds claimed by the plaintiff for
an award of money or other relief against the defendant.

Confirmation
The court order which makes the terms of the plan for repayment of debts in a Chapter 11, 12 or 13 binding.

Consumer Bankruptcy
A bankruptcy case filed to reduce or eliminate debts that are primarily consumer debts.

Consumer Debt
Under 11 U.S.C. Section 101, the term:
(8) ''consumer debt'' means debt incurred by an individual primarily for a personal, family, or household purpose;

Contingent Claim
The claim depends on some event that hasn’t happened or may never occur. For example, if you co-signed a secured loan, you won’t be liable unless the principal debtor defaults. Your liability is contingent upon the default.

Conversion
Cases under the Code may be converted from one chapter to another chapter; for example, a Chapter 7 case may be converted to a case under Chapter 13 if the debtor is eligible for Chapter 13. Even though the chapter of the Code that governs it changes, it remains the same case as originally filed.

When a debtor in possession under Chapter 11 decides to allow the case to become a Chapter 7 liquidation case, the case is converted to a Chapter 7.

Core Matters
Proceedings arising under Title 11 (US Bankruptcy Code) or arising in a case under Title 11 in which the Bankruptcy Judge may conduct the entire proceeding and may enter the final order or judgment.

Corporation
Under 11 U.S.C. Section 101, the term:
(9) ''corporation'' -
(A) includes -
(i) association having a power or privilege that a private corporation, but not an individual or a partnership, possesses;
(ii) partnership association organized under a law that makes only the capital subscribed responsible for the debts of such association;
(iii) joint-stock company;
(iv) unincorporated company or association; or
(v) business trust; but
(B) does not include limited partnership;

Cramdown
The action by which the court may order a plan approved over the negative vote of a class of dissenting creditors.

Creditor's Petition (under Involuntary Case)

Creditor
Under 11 U.S.C. Section 101, the term:
(10) ''creditor'' means -
(A) entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor;
(B) entity that has a claim against the estate of a kind specified in section 348(d), 502(f), 502(g), 502(h) or 502(i) of this title; or
(C) entity that has a community claim;

Custodian
Under 11 U.S.C. Section 101, the term:
(11) ''custodian'' means -
(A) receiver or trustee of any of the property of the debtor,appointed in a case or proceeding not under this title;
(B) assignee under a general assignment for the benefit of the debtor's creditors; or
(C) trustee, receiver, or agent under applicable law, or under a contract, that is appointed or authorized to take charge of property of the debtor for the purpose of enforcing a lien against such property, or for the purpose of general administration of such property for the benefit of the debtor's creditors;

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Debt
Under 11 U.S.C. Section 101, the term:
(12) ''debt'' means liability on a claim;

Debts For Child Support
Under 11 U.S.C. Section 101, the term:
(12A) ''debt for child support'' means a debt of a kind specified in section 523(a)(5) of this title for maintenance or support of a child of the debtor;

Debtor
Under 11 U.S.C. Section 101, the term:
(13) ''debtor'' means person or municipality concerning which a case under this title has been commenced;

Debtor in Possession
In a Chapter 11 case, the debtor usually remains in possession of its assets and assumes the duties of a trustee. The debtor in possession is a fiduciary for the creditors of the estate, and owes them the highest duty of care and loyalty.

Defendant
An individual (or business) against whom a lawsuit is filed.

Denial of Discharge
Penalty for debtor misconduct with respect to the bankruptcy case or creditors as a whole. When the debtor's discharge is denied, the debts that could have been discharged in that case cannot be discharged in any subsequent bankruptcy. The administration of the case, the liquidation of assets and the recovery of avoidable transfers, continues for the benefit of creditors. (See discussion on Pre-Petition Payments and Transfers by the Debtor for more on Denial of Discharge).

Discharge
A release of a debtor from personal liability for certain dischargeable debts. (A discharge releases a debtor from personal liability for certain debts known as dischargeable debts (defined below) and prevents the creditors owed those debts from taking any action against the debtor or the debtor's property to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.).

Dischargeable Debt
Debts that can be eliminated in bankruptcy. Certain debts are not dischargeable; that is, they may not be discharged (eliminated) through bankruptcy or may only be discharged through Chapter 13. Family support and criminal restitution are examples of debts which cannot be discharged. Debts incurred by fraud can only be discharged in Chapter 13. (See discussion on Which Debts can be Discharged). (See discussion on Considerations in Contesting Discharge of a Debt).

Disclosure Statement
An explanatory document which accompanies the plan and the solicitation of votes in a Chapter 11 case. No one is allowed to solicit votes for a plan without there being an approved disclosure statement. After notice to all parties, the court holds a hearing to determine if the disclosure statement contains adequate information to allow a typical creditor to make an informed decision about the plan.

Disinterested Person
Under 11 U.S.C. Section 101, the term:
(14) ''disinterested person'' means person that -
(A) is not a creditor, an equity security holder, or an insider;
(B) is not and was not an investment banker for any outstanding security of the debtor;
(C) has not been, within three years before the date of the filing of the petition, an investment banker for a security of the debtor, or an attorney for such an investment banker in connection with the offer, sale, or issuance of a security of the debtor;
(D) is not and was not, within two years before the date of the filing of the petition, a director, officer, or employee of the debtor or of an investment banker specified in subparagraph (B) or (C) of this paragraph; and
(E) does not have an interest materially adverse to the interest of the estate or of any class of creditors or equity security holders, by reason of any direct or indirect relationship to, connection with, or interest in, the debtor or an investment banker specified in subparagraph (B) or (C) of this paragraph, or for any other reason;

Dismissal
The termination of the case without either the entry of a discharge or a denial of discharge; after a case is dismissed, the debtor and the creditors have the same rights as they had before the bankruptcy case was commenced.

Where a debtor in possession fails to cooperate with the court, the court may dismiss the case and terminate the proceedings leaving creditors free to resume collection efforts.

Dismissal Without Prejudice
Case dismissed with no rights or privileges to be considered as waived or lost, such as the ability to file again.

Dismissal With Prejudice
Case dismissed and barring the right to bring or maintain an action on the same claim.

Distribution
Payments in a bankruptcy case, generally made after confirmation of a plan in a Chapter 11 filing or approval of the trustee's accounting in a Chapter 7 filing.

Docket
The list of documents and actions within a bankruptcy case or adversary proceeding that is kept by clerk of the Bankruptcy Court. The docket also generally lists the time by which responses to pleadings are required by the Court, as well as the time and place for hearings.

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EBN - Electronic Bankruptcy Noticing
The United States Bankruptcy Courts, and the Bankruptcy Noticing Center in conjunction with the Administrative Office of the U.S. Courts, are now offering a new way for the bankruptcy community to receive notices from the bankruptcy courts electronically. Electronic Bankruptcy Noticing, or EBN, is a free service that transmits bankruptcy notice information electronically to those who request it. In lieu of paper notices, EBN allows you to choose to receive bankruptcy notice data in one of three formats: E-Mail, FAX and EDI. To learn more about Electronic Bankruptcy Noticing and to find out how to receive this service visit the Bankruptcy Noticing Center's website at EBN us courts.

EOUST
Executive Office for U.S. Trustees (EOUST). See United States Trustee's Office below.

Election Of Trustee
In a Chapter 7 case, the creditors have the option to elect a trustee, at the meeting of creditors, to replace the interim trustee. For such an election to occur, creditors representing at least 20% of the claims must request a vote and a majority of the creditors voting must approve the candidate. In a Chapter 11 case, if a trustee appointment has been ordered by the court, any party in interest may, within 30 days of the order, request an election to replace the trustee.

Entireties Property
Typically husband and wife, a form of indivisible co-ownership of realty or personalty estate that upon death of one, survivor takes title to the whole estate.

Entity
Under 11 U.S.C. Section 101, the term:
(15) ''entity'' includes person, estate, trust, governmental unit, and United States trustee;

Equity
The value of a debtor's interest in property that remains after liens and other creditors' interests are considered. (Example: If a house valued at $60,000 is subject to a $30,000 mortgage, there is $30,000 of equity.)

Equity Security
Under 11 U.S.C. Section 101, the term:
(16) ''equity security'' means -
(A) share in a corporation, whether or not transferable or denominated ''stock'', or similar security;
(B) interest of a limited partner in a limited partnership; or
(C) warrant or right, other than a right to convert, to purchase, sell, or subscribe to a share, security, or interestof a kind specified in subparagraph (A) or (B) of this paragraph;

Equity Security Holder
Under 11 U.S.C. Section 101, the term:
17) ''equity security holder'' means holder of an equity security of the debtor;

Equitable Subordination
The action by which a court postpones payment to one creditor until others are paid. This is usually based upon the inequitable or wrongful conduct of the postponed creditor.

If the sole shareholder of a debtor corporation improperly dealt with the assets of the company, the repayment of that shareholder's actual loans to the company may be equitably subordinated to all other creditors.

Estate
The intangible entity containing all of the non-exempt assets and liabilities of the debtor.

Examiner
An examiner is an officer appointed by the bankruptcy court to review certain aspects of the operation of a Chapter 11 debtor. Aside from the investigative function, examiners have been used as mediators to assist the court in resolving disputes between and among various factions in a bankruptcy court.

Exclusivity Period
In Chapter 11, for 120 days after the filing of the petition, the debtor has the exclusive right to file a plan of reorganization. The time may be extended or shortened by the court. During this period, parties who wish to file competing plans must convince the court to terminate the debtor's exclusivity period. If a trustee is appointed, the exclusivity period is terminated.

Executory Contract
A contract under which the obligations of both the debtor and the other party are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other. The Code grants the trustee the ability to assume, assign or reject executory contracts and unexpired leases for the benefit of the estate, subject to Bankruptcy Court approval. (See discussion on Executory Contracts and Unexpired Leases).

Exempt
Property that is exempt is removed from the bankruptcy estate and is not available to pay the claims of creditors. The debtor selects the property to be exempted from the statutory lists of exemptions available under the law of his state. The debtor gets to keep exempt property for use in making a fresh start after bankruptcy.

Exemptions
Exemptions are the lists of the kinds and values of property that is legally beyond the reach of creditors or the bankruptcy trustee. What property may be exempted is determined by state and federal statutes, and varies from state to state.

Examples of exemptions include: up to $17,425 in equity in a personal residence; up to $2,775 equity in an automobile; and certain personal property where the value of each item does not exceed $450 and the cumulative value does not exceed $9,300.

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Face Sheet Filing
A bankruptcy case filed either without schedules or with incomplete schedules listing few creditors and debts. (Face sheet filings are often made for the purpose of delaying an eviction or foreclosure.)

Farmer
Under 11 U.S.C. Section 101, the term:
(20) ''farmer'' means (except when such term appears in the term ''family farmer'') person that received more than 80 percent of such person's gross income during the taxable year of such person immediately preceding the taxable year of such person during which the case under this title concerning such person was commenced from a farming operation owned or operated by such person;

Family Farmer
Under 11 U.S.C. Section 101, the term:
18) ''family farmer'' means -
(A) individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $1,500,000 and not less than 80 percent of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse unless such debt arises out of a farming operation), on the date the case is filed, arise out of a farming operation owned or operated by such individual or such individual and spouse, and such individual or such individual and spouse receive from such farming operation more than 50 percent of such individual's or such individual and spouse's gross income for the taxable year preceding the taxable year in which the case concerning such individual or such individual and spouse was filed; or

(B) corporation or partnership in which more than 50 percent of the outstanding stock or equity is held by one family, or by one family and the relatives of the members of such family, and such family or such relatives conduct the farming operation, and
(i) more than 80 percent of the value of its assets consists of assets related to the farming operation;
(ii) its aggregate debts do not exceed $1,500,000 and not less than 80 percent of its aggregate noncontingent, liquidated debts (excluding a debt for one dwelling which is owned by such corporation or partnership and which a shareholder or partner maintains as a principal residence, unless such debt arises out of a farming operation), on the date the case is filed, arise out of the farming operation owned or operated by such corporation or such partnership; and
(iii) if such corporation issues stock, such stock is not publicly traded;

FEDERAL DEPOSITARY INSTITUTION
Under 11 U.S.C. Section 101, the term:
(21B) ''Federal depository institutions regulatory agency'' means
(A) with respect to an insured depository institution (as defined in section 3(c)(2) of the Federal Deposit Insurance Act) for which no conservator or receiver has been appointed, the appropriate Federal banking agency (as defined in section 3(q) of such Act);
(B) with respect to an insured credit union (including an insured credit union for which the National Credit Union Administration has been appointed conservator or liquidating agent), the National Credit Union Administration;
(C) with respect to any insured depository institution for which the Resolution Trust Corporation has been appointed conservator or receiver, the Resolution Trust Corporation; and
(D) with respect to any insured depository institution for which the Federal Deposit Insurance Corporation has been appointed conservator or receiver, the Federal Deposit Insurance Corporation;

Federal Rules of Bankruptcy Procedure (FRBP)
Provides the procedural law of bankruptcy. Besides the Federal Rules of Bankruptcy Procedure, each district as well as each individual Bankruptcy Judge may have its own local rules.

Fee Application (also see Trustee, Compensation)
In order for attorneys and other court-appointed professionals in bankruptcy cases to receive compensation, they must file an application or motion with the bankruptcy court detailing their activities and the amount of time spent. The court provides notice to creditors and other parties in interest and allows an opportunity for objections to be filed. No court-appointed professional may be paid without an order approving that payment.

Filing
The delivery to the clerk of the bankruptcy court of a proof of claim. The purpose of filing a claim is to make sure that the creditor is included in any potential distribution or voting on any plan.

Financial Institution
Under 11 U.S.C. Section 101, the term:
(22) ''financial institution'' means a person that is a commercial or savings bank, industrial savings bank, savings and loan association, or trust company and, when any such person is acting as agent or custodian for a customer in connection with a securities contract, as defined in section 741 of this title, such customer;

FOIA - Freedom of Information Act
Under the Freedom of Information Act (FOIA), 5 U.S.C. 552, and the EOUST - Executive Office for U.S. Trustees Department's FOIA Guide, any person may request access to U.S. Trustee Program (USTP) records. Before submitting a FOIA request, visit their "Electronic Reading Room" to see if what you want is publicly available on-line at no cost.

Fraudulent Conveyance
A transfer that can be avoided (annulled or cancelled) by the trustee if the transfer was made with (1) actual fraud evidenced by an intent to defraud, hinder or delay creditors; or (2) constructive fraud, evidenced by the debtor's receipt of less than reasonably equivalent value in exchange for the transfer.

If a debtor, prior to filing bankruptcy, were to sell a $100,000 piece of real estate to a friend for $10, the transfer would probably be a fraudulent transfer.

Fiduciary
One who is entrusted with duties on behalf of another. The law requires the highest level of good faith, loyalty and diligence of a fiduciary, higher than the common duty of care that we all owe one another.

Fresh Start
The characterization of a debtor's status after bankruptcy, i.e., free of most debts. (Giving debtors a fresh start is one purpose of the Bankruptcy Code.)

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Governmental Unit
Under 11 U.S.C. Section 101, the term:
(27) ''governmental unit'' means United States; State; Commonwealth; District; Territory; municipality; foreign state; department, agency, or instrumentality of the United States (but not a United States trustee while serving as a trustee in a case under this title), a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government;

Indenture
Under 11 U.S.C. Section 101, the term:
(28) ''indenture'' means mortgage, deed of trust, or indenture, under which there is outstanding a security, other than a voting-trust certificate, constituting a claim against the debtor, a claim secured by a lien on any of the debtor's property, or an equity security of the debtor;

Indenture Trustee
Under 11 U.S.C. Section 101, the term:
(29) ''indenture trustee'' means trustee under an indenture;

Individual With Regular Income
Under 11 U.S.C. Section 101, the term:
(30) ''individual with regular income'' means individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan under chapter 13 of this title, other than a stockbroker or a commodity broker;

Impairment
A lien is considered to impair (interfere) exempt property if the sum of (i) the lien, (ii) all other liens on the property, and (iii) the amount of the exemption the debtor could claim if there were no liens on the property, exceeds the value the debtor's interest would have in the absence of the liens [11 U.S.C. § 522(f)(2)(A)].

Injunction
An order by a court directing that a party act or refrain from acting in a given way. Generally, injunctions are difficult to obtain and may require the posting of a bond to pay for possible damages to a party who may be wrongfully enjoined.

Insider
Under 11 U.S.C. Section 101, the term:
(31) ''insider'' includes -
(A) if the debtor is an individual -
(i) relative of the debtor or of a general partner of the debtor;
(ii) partnership in which the debtor is a general partner;
(iii) general partner of the debtor; or
(iv) corporation of which the debtor is a director, officer, or person in control;
(B) if the debtor is a corporation -
(i) director of the debtor;
(ii) officer of the debtor;
(iii) person in control of the debtor;
(iv) partnership in which the debtor is a general partner;
(v) general partner of the debtor; or
(vi) relative of a general partner, director, officer, or person in control of the debtor;
(C) if the debtor is a partnership -
(i) general partner in the debtor;
(ii) relative of a general partner in, general partner of, or person in control of the debtor;
(iii) partnership in which the debtor is a general partner;
(iv) general partner of the debtor; or
(v) person in control of the debtor;
(D) if the debtor is a municipality, elected official of the debtor or relative of an elected official of the debtor;
(E) affiliate, or insider of an affiliate as if such affiliate were the debtor; and
(F) managing agent of the debtor;

If the debtor is an individual, insiders include family members, partners and any other business owned or operated by the debtor. If the debtor is a corporation, insiders include officers, directors and those who own or control more than 20% of the voting shares.

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.

Insolvent /Insolvency Presumption
A debtor is presumed to be insolvent during the 90-day period preceding the date the petition is filed [BC § 547(f)].
Insolvent
Under 11 U.S.C. Section 101, the term:
(32) ''insolvent'' means -
(A) with reference to an entity other than a partnership and a municipality, financial condition such that the sum of such entity's debts is greater than all of such entity's property, at a fair valuation, exclusive of -
(i) property transferred, concealed, or removed with intent to hinder, delay, or defraud such entity's creditors; and
(ii) property that may be exempted from property of the estate under section 522 of this title;
(B) with reference to a partnership, financial condition such that the sum of such partnership's debts is greater than the aggregate of, at a fair valuation -
(i) all of such partnership's property, exclusive of property of the kind specified in subparagraph (A)(i) of this paragraph; and
(ii) the sum of the excess of the value of each general partner's nonpartnership property, exclusive of property of the kind specified in subparagraph (A) of this paragraph, over such partner's nonpartnership debts; and
(C) with reference to a municipality, financial condition such that the municipality is -
(i) generally not paying its debts as they become due unless such debts are the subject of a bona fide dispute; or
(ii) unable to pay its debts as they become due;

Institution-Affiliated Party
Under 11 U.S.C. Section 101, the term:
(33) ''institution-affiliated party'' -
(A) with respect to an insured depository institution (as defined in section 3(c)(2) of the Federal Deposit Insurance Act), has the meaning given it in section 3(u) of the Federal Deposit Insurance Act; and
(B) with respect to an insured credit union, has the meaning given it in section 206(r) of the Federal Credit Union Act;

Insured Credit Union
Under 11 U.S.C. Section 101, the term:
(34) ''insured credit union'' has the meaning given it in section 101(7) of the Federal Credit Union Act

Insured Depository Institution
Under 11 U.S.C. Section 101, the term:
(35) ''insured depository institution'' means-
(A) has the meaning given it in section 3(c)(2) of the Federal Deposit Insurance Act; and
(B) includes an insured credit union (except in the case of paragraphs (21B) and (33)(A) of this subsection);

Intellectual Property
Under 11 U.S.C. Section 101, the term:
(35A) ''intellectual property'' means -
(A) trade secret;
(B) invention, process, design, or plant protected under title 35;
(C) patent application;
(D) plant variety;
(E) work of authorship protected under title 17; or
(F) mask work protected under chapter 9 of title 17; to the extent protected by applicable nonbankruptcy law;

Involuntary Case/Petition
Creditors of a debtor may petition the court to force the debtor into a bankruptcy proceeding. This may also be referred to as a creditors' petition. If the debtor has 12 or more creditors, the petition must be filed by three or more creditors whose claims total at least $11,625. If the debtor has fewer than 12 creditors, a single creditor whose claim is at least $11,625 may petition the debtor into bankruptcy. After the filing of the petition, the debtor is given an opportunity to contest the filing. If the creditors are successful, an order for relief is entered and the case proceeds substantially like any other bankruptcy case. Creditors may choose to file an involuntary case under Chapter 7 or Chapter 11. [BC § 303(a)].

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Joint Administration
A court-approved mechanism under which two or more cases can be administered together. (Assuming no conflicts of interest, these separate firms or individuals can pool their resources, hire the same professionals, etc.)

Joint Petition
One bankruptcy petition filed by a husband and wife together.

Judicial Lien
Under 11 U.S.C. Section 101, the term:
(36) ''judicial lien'' means lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding;

When a judgment has been entered in a civil case, and the party liable for the judgment fails to pay it, the judgment creditor may file a lien against the property of the party liable, to give notice that the property is subject to to sale in satisfaction of the judgment. The judgment creditor may enforce the lien by having the sheriff seize the property and sell it at a sheriff’s sale.

Leases And Executory Contracts
Executory contracts are contracts where obligations are yet to be performed by both parties. The bankruptcy code gives special treatment to unexpired leases and executory contracts by allowing the debtor, in many cases, to choose whether it wants to continue with the agreement (assume) or terminate the agreement (reject).

A contract to sell goods where the goods have not yet been delivered is an executory contract. A contract for the sale of goods where the goods have been delivered and the receiving party has yet to pay, is not an executory contract. Most leases of personal property or real estate are executory contracts. A collective bargaining agreement is an executory contract and is given special treatment.

Lender Liability
A developing body of law which includes liability for breach of contract and other wrongs where banks and other lenders may be made to pay damages to customers.

A bank which terminates a long standing credit relationship without warning, where no default exists, may be held liable for damages.

Leveraged Buy Out (Lbo)
A transaction where a purchaser uses the assets of the corporation to be acquired (target) as collateral for the loan to buy the stock of the target. LBOs stand a significant risk of bankruptcy because, after the transaction, they have little net worth to weather a business downturn. Unsecured creditors of a bankrupt LBO often argue that the lenders and former shareholders received a fraudulent transfer.

Lien
Under 11 U.S.C. Section 101, the term:
(37) ''lien'' means charge against or interest in property to secure payment of a debt or performance of an obligation;
An interest in real or personal property which secures a debt; the lien may be voluntary, such as a mortgage on real property, or involuntary, such as a judgment lien or tax lien.
(See Purchase-Money Lien, Nonpossessory Non-Purchase-Money Lien, Possessory Nonpurchase-Money Lien).

A mortgage on real property is a lien. An encumbrance on the title of an automobile is a lien.

Liquidated Claim
A debt that is for a “known” amount of dollars is liquidated. (See Liquidated, Unliquidated and Contingent)

Liquidation
A sale of a debtor's property with the proceeds to be used
for the benefit of creditors.