Glossary of Common Bankruptcy Terminology

Whether you are a debtor or a creditor, the terminology used in bankruptcy can be confusing. Here is a glossary of frequently used terms:

adversary proceeding: A lawsuit in or related to a bankruptcy case that is initiated by filing a complaint with the bankruptcy court.

asset: Anything you own outright that can be sold for cash. It can be something large, such as a house or car, or something small that might be overlooked, like artwork or jewelry, regardless of its value.

automatic stay: When a bankruptcy petition is filed with the court, the debtor is awarded an automatic stay. This means that creditors have to stop attempting to collect debts and may not obtain judgments against or take property from the debtor.

bankruptcy: A legal process by which an individual or a business entity unable to pay debt can seek court assistance to get a fresh start. Under the protection of the bankruptcy court, debts may be discharged, usually by paying a portion of the amount owed to each creditor.

bankruptcy code: Title 11 of the United States Code governs all bankruptcy proceedings. Bankruptcy is ruled by federal law, and with some exceptions is the same in every state. If there is a conflict between state and federal law, federal bankruptcy law prevails.

bankruptcy judge: A United States district court judicial officer who has decision-making authority in federal bankruptcy cases.

bankruptcy petition: A formal request for the protection of the federal bankruptcy laws.

bankruptcy trustee: A private individual or corporation appointed to represent the interests of both the bankruptcy estate and the creditors in all chapter 7, chapter 12, and chapter 13 cases.

Chapter 11: Named after the U.S. Bankruptcy Code 11, Chapter 11 is a form of bankruptcy that involves a reorganization of the debtor's business affairs and assets. It is generally filed by corporations in need of time to restructure their debts.

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

Chapter 7: The Bankruptcy Code chapter that provides for liquidation of assets. This generally means the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.

claim: A creditor's assertion of a right to payment from a debtor.

complaint: A document notifying the court and debtor (defendant) of the grounds claimed by a creditor (plaintiff) for an award of money or other assets.

conversion: This occurs when you change your mind about which bankruptcy type you want after filing the initial petition. For example, an individual who files Chapter 7 and then decides to go with a Chapter 13 after having already filed the Chapter 7 paperwork.

creditor: The individual or business to which the debtor owes money (or that claims to be owed money by the debtor).

debtor: The business or individual that has filed a petition for relief under the bankruptcy laws.

discharge: The elimination of debt through a bankruptcy case, releasing the debtor from personal liability for dischargeable debts and preventing the creditors 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.

disclosure statement: A document prepared by the debtor or an appropriate third party that provides the creditor with information needed to evaluate a Chapter 11 plan of reorganization.

dismissal: A bankruptcy case can be dismissed at any time if the debtor fails to comply with any rules or meet the responsibilities as set forth in the bankruptcy court. If a case is dismissed, the creditor and debtor go back to the original rights they had before any bankruptcy petition was filed.

equity: The value of a debtor's property after liens and other creditors' interests are deducted.

exemption: Property that the Bankruptcy Code or pertinent state law allows a debtor to keep from creditors. Rules regarding exemption allowances vary from state to state. The most common exemptions are your home, primary vehicle, furniture, and clothing.

lien: A charge imposed upon a debtor's property in order to secure payment of a debt.

liquidated claim: A creditor's claim for a fixed amount of money from the debtor.

liquidation: The sale of a debtor's property in which the proceeds are used to pay creditors.

non-dischargeable debt: A debt that cannot be eliminated through bankruptcy.

relief from stay: A court order that is requested by a creditor, which if awarded lifts the automatic stay you were granted the moment the papers were stamped by the county clerk. If a relief from stay is granted, you will receive notice from the bankruptcy court.

schedules: In bankruptcy court, this means the list of assets and liabilities you must provide the court with in order to start a bankruptcy case.

secured debt: Debt that is backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue the specific pledged property if payments aren't made.

unscheduled debt: A debt that the debtor failed to list in the schedules filed with the court.