Automatic stay
An injunction sought by a bankruptcy attorney that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.
Assume
An agreement to continue performing duties under a contract or lease, often an issue in a bankruptcy that is worked out between the bankruptcy attorney, the trustee, and the parties involved.
Adversary proceeding
A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A bankruptcy attorney is usually hired to represent the interests of the client that is filing. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankruptcy P. 7001.
Bankruptcy petition
The document filed by the debtor (in a voluntary bankruptcy case) or by creditors (in an involuntary bankruptcy case) by which the bankruptcy case is opened. (There are official forms for bankruptcy petitions).
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 estate
All legal or equitable interests of the debtor in property at the time of the bankruptcy filing. (The estate includes all property in which the debtor has an interest, even if it is owned or held by another person not involved in the bankruptcy filing.)
Bankruptcy court
The bankruptcy judges in regular active service in each district; a unit of the district court. In Orange County, the Bankruptcy Courthouse is located in Santa Ana. In Riverside County and San Bernardino County, the Bankruptcy Courthouse is located in the city of Riverside.
Bankruptcy Code
Bankruptcy Code is the informal name for title 11 of the United States Code (11 U.S.C. & 101-1330), the federal bankruptcy law.
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. Also called creditors’ meeting.
Current monthly income
The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor’s spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. & 101(10A).
Credit counseling
Generally refers to two events in individual 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 chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling.
Creditor
One to whom the debtor owes money or who claims to be owed money by the debtor.
Contingent claim
A claim that may be owed by the debtor under certain circumstances, e.g., where the debtor is a cosigner on another person’s loan and that person fails to pay.
Disclosure statement
A written document prepared by the chapter 11 debtor (and often reviewed by a bankruptcy attorney) or other plan proponent that is designed to provide “adequate information” to creditors to enable them to evaluate the chapter 11 plan of reorganization.
Dischargeable debt
A debt for which the Bankruptcy Code allows the debtor’s personal liability to be eliminated.
Discharge
A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. (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. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact.)
Defendant
An individual (or business) against whom a lawsuit is filed.
Debtor
A person who has filed a petition for relief under the Bankruptcy Code.
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. Since exemptions are guided by state law, California exemptions are equally applicable to residents in Orange County as in Riverside County or any other county, for that matter. But California exemptions may differ from those offered by other states. 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 (i.e., auto tools for an auto mechanic or dental tools for a dentist). The availability and amount of property the debtor may exempt depends on the state the debtor lives in.
Executory contract or lease
Generally includes contracts or leases under which both parties to the agreement have duties remaining to be performed. (If a contract or lease is executory, a debtor may assume it or reject it.)
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 $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.)
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.)
Fraudulent transfer
A transfer of a debtor’s property made with intent to defraud or for which the debtor receives less than the transferred property’s value.
Family farmer or 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.
Joint petition
One bankruptcy petition filed by a husband and wife together with the same bankruptcy attorney, under one case number.
Joint administration
A court-approved mechanism under which two or more cases can be administered together. (Assuming no conflicts of interest, these separate businesses or individuals can pool their resources, hire the same bankruptcy attorneys, professionals, etc.)
Liquidated claim
A creditor’s claim for a fixed amount of money.
Liquidation
A sale of a debtor’s property with the proceeds to be used for the benefit of creditors.
Lien
The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.
Motion to lift the automatic stay
A request made by a bankruptcy attorney on behalf of 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.
Means test
Section 707(b)(2) of the Bankruptcy Code applies a “means test” to determine whether an individual debtor’s chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor’s aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,000, or (ii) 25% of the debtor’s non priority unsecured debt, as long as that amount is at least $6,000. The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.
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 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, 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 non dischargeable only if a creditor timely files and prevails in a non dischargeability action.
No-asset case
A chapter 7 bankruptcy case where there are no assets available to satisfy any portion of the creditors’ unsecured claims.
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.
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.
Property of the estate
All legal or equitable interests of the debtor in property as of the commencement of the bankruptcy case.
Proof of claim
A written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. (There is an official form for this purpose.)
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 these unsecured claims are to be paid.
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. For example, under the Bankruptcy Code’s priority scheme, money owed to the case trustee or for prepetition alimony and/or child support must be paid in full before any general unsecured debt (i.e. trade debt or credit card debt) is paid.
Preference or preferential debt paymen
A debt 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 bankruptcy case.
Reaffirmation agreement
An agreement by a chapter 7 bankruptcy debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession.
Substantive consolidation
Putting the assets and liabilities of two or more related debtors into a single pool to pay creditors. (Bankruptcy courts are reluctant to allow substantive consolidation since the action must not only justify the benefit that one set of creditors receives, but also the harm that other creditors suffer as a result.)
Statement of intention
A declaration made by a chapter 7 bankruptcy debtor concerning plans for dealing with consumer debts that are secured by property of the estate.
Statement of financial affairs
A series of questions the bankruptcy 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.)
Small business case
A special type of chapter 11 bankruptcy 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 U.S. trustee than other chapter 11 debtors. The Bankruptcy Code contains certain provisions designed to reduce the time a small business debtor is in bankruptcy.
Secured debt
Debt 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.
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 and the direct supervision of the U.S. trustee or bankruptcy administrator. The bankruptcy trustee is a private individual or corporation appointed in all chapter 7, chapter 12, and chapter 13 bankruptcy cases and some chapter 11 bankruptcy 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.
Transfer
Any mode or means by which a bankruptcy debtor disposes of or parts with his/her property.
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.
Unscheduled debt
A debt that should have been listed by the bankruptcy debtor in the schedules filed with the court but was not. (Depending on the circumstances, an unscheduled debt may or may not be discharged.)
Unliquidated claim
A claim for which a specific value has not been determined.
Undersecured claim
A debt secured by property that is worth less than the full amount of the debt.
U.S. trustee
An officer of the Justice Department 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. Compare, Bankruptcy Administrator
Voluntary transfer
A transfer of a bankruptcy debtor’s property with the debtor’s consent.
