Absolute Priority

The order of payment to the different classes of creditors mandated by the Bankruptcy Code.

In theory, claims with higher priority are paid in full before other claims receive anything. Junior creditors and shareholders are paid after senior creditors.

Specifically, the usual order is administrative claims; priority claims; secured claims; unsecured claims; and equity claims.

Adequate Protection

In the context of Chapter 13, a secured creditor has the right to assurance that the value of its secured interest will not be diminished during the bankruptcy proceedings.

This is usually accomplished by the creditor accepting periodic payments during the bankruptcy case and requiring that the collateral be insured against damage.

Administrative Claim

A debt incurred by the debtor, with court approval, after the bankruptcy filing.

An administrative claim has first priority status. Examples include Chapter 13 debtor’s attorney fees paid in a Chapter 13 plan, trustee’s attorney fees, necessary costs expended to preserve the bankruptcy estate, and trustee expenses.

Adversary Proceeding

A lawsuit within the bankruptcy case that is commenced by filing a complaint with the court.

The most common complaints associated with consumer bankruptcies are a Complaint to Determine Dischargeability of a Debt or a Complaint to Revoke Debtor’s Discharge.

Adversary proceedings are commenced by the debtor, the trustee or a creditor.

Allowed Claim

A creditor’s claim that is approved by the court for payment or other treatment under the plan of reorganization (Chapter 13) or disbursement upon liquidation (Chapter 7).


An expert typically retained by the Chapter 7 trustee to determine the value of the debtor’s assets. Appraisers are hired in only a small percentage of cases.


Something of value in which the debtor holds an ownership interest.


An agreement between the debtor and a creditor to continue performing duties under a contract or lease.

Automatic Stay

The moment a new bankruptcy case is filed, the Court automatically enters an order that immediately stops foreclosures, repossessions, lawsuits, garnishments, and all collection activity against the debtor.

The automatic stay also stops the equitable division of property in a pending divorce case.

Under BAPCPA, the automatic stay does not stop the establishment or enforcement of child support or alimony, nor does it stop most criminal proceedings.

Avoidance Power

The power of the bankruptcy court to stop or set aside certain obligations or transactions commenced by a debtor prior to filing bankruptcy.

It is generally used to reverse a preferential treatment of creditors, which occurs when the debtor gives property or money to a creditor prior to filing a bankruptcy case.

A debtor can also avoid a judicial or judgment lien that purports to act as an involuntary lien on the homestead property.


A legal process under federal law giving protection to debtors, whether individuals or corporations, who are insolvent.

Bankruptcy Code

The informal name for Title 11 of the United States Code §§ 101-1330.

Bankruptcy Court

The Federal District Court where cases under the Bankruptcy Code are filed and, if necessary, litigated.

Bankruptcy Estate

The non-exempt property in which the debtor has an interest, whether in the possession of the debtor or other person, that is subject to the jurisdiction of the bankruptcy court.

Bankruptcy Judge

A judicial officer of the United States district court who presides over federal bankruptcy cases.

The bankruptcy judge’s rulings are subject to review by U.S. District Courts of Appeal and may be overturned if contrary to established bankruptcy law.

Bankruptcy Petition

The document filed with the bankruptcy court to initiate a bankruptcy proceeding.

It contains general information about the debtor(s) and is signed by the debtors and their attorney.


BAPCPA is the acronym for the Bankruptcy Abuse Prevention and Consumer Prevention Act of 2005.

Also known as “The New Bankruptcy Law,” it is a major overhaul of the bankruptcy system by Congress in an attempt to make it more difficult for consumers to erase debt by forcing more of them to file under Chapter 13 (reorganization) rather than Chapter 7 (liquidation).

The overwhelming consensus among all bankruptcy practitioners, both debtor and creditor, is that BAPCPA is poorly written and, in the final analysis, does not affect the vast majority of consumers’ ability to actually file Chapter 7 bankruptcy.

BAPCPA has, however, increased the work required by attorneys, trustees, and court officials, so it has resulted in higher bankruptcy attorney fees and court costs.

Bar Date

The deadline for creditors to file a claim against the debtor.

Business Bankruptcy

A bankruptcy categorized by the U.S. courts as primarily involving business debts.

Under BAPCPA, a debtor with primarily business debts does not have to file a means test nor does it have to get a certificate of credit counseling.

Data from the U.S. Administrative Office of the Courts subdivides bankruptcies into business and non-business for statistical purposes.


The Bankruptcy Code is organized into Chapters.

Chapters 1, 3, and 5 cover matters of general application. Chapter 7 concerns liquidation (business or non-business); Chapter 11 concerns business reorganization; and Chapter 13 concerns personal (i.e. non-business) reorganization.

Chapter 11

This chapter of the Bankruptcy Code provides for “reorganization” of the business debtor’s financial circumstances.

The debtor usually maintains control of the business in Chapter 11, but the Court can appoint a trustee.

A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.

Individuals can also seek relief in chapter 11 if their debts are too great for Chapter 13.

Chapter 13

This is also known as a wage-earner plan. Chapter 13 is typically filed by individuals behind in house and/or car payments.

A debtor can file a Chapter 13 Plan, which is a written proposal for bringing his/her secured debts current over a period of 36–60 months.

The debtor keeps and uses his/her property while the bankruptcy case is pending.

If a debtor “fails” the means test under Chapter 7, he/she must file bankruptcy under Chapter 13 and repay a portion of the unsecured debt.

Chapter 7

The chapter of the Bankruptcy Code providing for “liquidation” of the debtor’s non-exempt assets.

A Chapter 7 debtor can be an individual or business.


A creditor’s assertion of a right to payment from the debtor or the debtor’s property.

Claims are divided into different classes, such as secured, unsecured, and priority.


Each of the different categories of claims against a debtor.


The final approval by the bankruptcy court of a debtor’s plan of reorganization.

In Chapter 11, confirmation takes place after the plan has been approved by creditors.

In Chapter 13, a creditor can file an objection to the proposed plan, which will be heard prior to confirmation.

Consumer Debtor

A debtor whose debts are primarily (ie. greater than 50%) consumer debts.

Consumer Debts

Debts incurred for personal, as opposed to business, needs. A personal credit card used in one’s business is considered a business debt.

Contested Matter

Those matters, other than objections to claims, that are disputed by the debtor, creditor or trustee, but are not within the definition of adversary proceeding contained in Rule 7001.

Contingent Claim (or Contingent Debt)

A claim (or debt) that may be owed by the debtor under certain circumstances, such as where the debtor is the guarantor of another person’s loan.

A personal guarantor only owes the money if the primary obligor defaults under the terms of the obligation.


The legal process of changing chapters in bankruptcy, such as changing from a Chapter 13 to a Chapter 7 or vice versa.

Although a conversion is typically initiated by the debtor, the trustee can also ask the judge to convert a case against the debtor’s wishes.

Core Proceedings

Those proceedings inherent in and fundamental to the administration of a bankruptcy case.

Core proceedings are subject to the jurisdiction of the bankruptcy court.

Non-core proceedings may be conducted outside the jurisdiction of the bankruptcy court.


A bankruptcy Judge’s confirmation of a plan of reorganization over the objections of one or more classes of creditors, if the bankruptcy judge believes it is in the best interest of all parties.

Usually, a cramdown refers to splitting a secured creditor’s debt into secured and unsecured portions.

The secured portion is equal to the fair market value of the property, with the remaining balance of the debt treated as unsecured.

Credit Counseling

A dubious but absolute requirement prior to filing a bankruptcy case by a non-business debtor.

An analysis of financial circumstances from a credit counseling agency approved by the U.S. Trustee’s Office.

Credit Counseling is often referred to as the “ticket into bankruptcy.” Compare to “debtor education.”


Anyone to whom the debtor owes money or who claims to be owed money by the debtor.

Current Monthly Income (a.k.a. CMI)

The average monthly income received by the debtor’s household over the six calendar months preceding the month in which the bankruptcy case is filed.

CMI does not including social security income and certain other payments enumerated in 11 U.S.C. § 101.


A person who has filed a petition for relief under the Bankruptcy Code for the purpose of seeking protection from creditors.

Debtor Education

An instructional course in personal financial management by an agency approved by the U.S. Trustee’s Office that must be completed by all non-business debtors.

The course is often referred to as the “ticket out of bankruptcy.” Compare to “credit counseling.”

Deficient Filing (a.k.a. Skeleton Filing)

A bankruptcy petition that is filed without all of the necessary accompanying forms, such as Schedules A – J, Statement of Financial Affairs, Statement of Intentions, etc.

Failure to file all necessary forms shortly thereafter will result in the case being administratively dismissed.


The court order that legally wipes out certain debts described in the Bankruptcy Code.

A discharge releases a debtor from personal liability for “dischargeable debts” and prevents the creditors from collecting, or communicating about, those debts.

Dischargeable Debt

A debt for which the Bankruptcy Code allows the debtor’s personal liability to be eliminated.


The termination of a bankruptcy proceeding.

Typically, in the context of Chapter 13, a case can be voluntarily dismissed by the debtor or involuntarily dismissed by the bankruptcy judge for failure to comply with the provisions of the Bankruptcy Code.

See also Conversion.

Disposable Income

Disposable income is the difference between monthly income and monthly expenses.

This is frequently a contested point between the debtor and the Chapter 13 Trustee.

The Trustee often scrutinizes the debtor’s monthly expenses in an effort to increase the amount paid to general unsecured creditors in a Chapter 13 Plan.


An official list of all motions, pleadings, memoranda, and orders in a debtor’s case compiled by the Clerk of Bankruptcy Court.


The difference between the value of a debtor’s property and the amount owed to the creditor holding a security interest in the property.

In other words, if the debtor were to sell the property, it is the amount of money left over after paying the secured creditor.

Executory Contract

A contract in which parties to the agreement have duties remaining to be performed.

A debtor is allowed to assume or reject certain executory contracts.

Exemptions, Exempt Property

Specific property owned by an individual debtor that the Bankruptcy Code or applicable state law allows the debtor to keep from unsecured creditors.

Exempt property is not property of the bankruptcy estate.

Filing Fees

The amount charged by the Clerk of Court to initiate a bankruptcy case, adversary proceeding, or certain motions.

Fraudulent Transfer

A transfer of a debtor’s property made with intent to defraud creditors of the bankruptcy estate.

A transfer is usually considered fraudulent if the debtor receives less than the transferred property’s value and/or the transfer is to an “insider” (e.g., a friend or family member).

Fresh Start

Giving debtors a financial “fresh start” is the stated purpose of the bankruptcy system.

Going Concern Value

The value of a business if it remains operational versus liquidating its assets.


Someone with a close connection to the debtor, typically a friend or relative or close business acquaintance.

Transactions between the debtor and insiders are scrutinized by the bankruptcy trustee to ensure that they are fair and reasonable.


Generally, a condition of not being able to pay one’s debts as they come due.

Involuntary Bankruptcy

A bankruptcy case initiated by at least three creditors holding unsecured claims totaling at least $5000 against the debtor.

Data from the U.S. Administrative Office of the Courts subdivides bankruptcies into voluntary and involuntary.

Joint Petition

A single bankruptcy petition filed by a husband and wife together.


The right to take and hold or sell the property of a debtor as security or payment for a debt or duty.

Can also be referred to as a “Security Interest” or an “encumbrance.”

Liquidated Claim       

A creditor’s claim set at a fixed sum of money.


The process in a Chapter 7 case of selling off a company or individual’s non-exempt assets for the benefit of unsecured creditors.

Usually, a bankruptcy auction or approved private sale is how assets are liquidated in bankruptcy court.

Liquidation Value

The value of a business’s assets if sold individually.


A mailing list of creditors of the debtor and other interested parties.

The matrix is submitted to the Clerk of the Bankruptcy Court by the debtor at the beginning of the case, and upon request, the clerk adds parties in interest to the matrix throughout the case.

Means Test

The biggest amendment to the “old law,” Section 707(b)(2) of the “new” Bankruptcy Code requires every consumer debtor to complete a “means test” to determine whether a Chapter 7 filing is presumed  to be an “abuse” of the Bankruptcy Code.

If the test is positive, the consumer debtor can only file a Chapter 13 reorganization bankruptcy unless the presumption of abuse will be challenged by the debtor.

Abuse is presumed if the debtor’s aggregate current monthly income over the next 5 years, less certain statutorily allowed expenses is more than (i) $10,000, or (ii) $6,000 if the debtor’s non-priority unsecured debt is no more than $24,000.

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.

For example, if “abuse” is presumed because of a one-time bonus or severance payment, the presumption of abuse may be successfully rebutted.

Median Income Test

A test to determine whether a person or married couple can file a Chapter 7 Bankruptcy.

The individual or couple can file a Chapter 7 if their household income falls below the “median income,” as reported by the United States Census Bureau, for their state of residence.

The median income is equal to the 50th percentile of household income.

For example, exactly one-half of households have an income less than the reported “median income.” The median income figures are updated on February 1st and October 1st.

If an individual or couple has gross income above the median income, they can still qualify to file Chapter 7 bankruptcy if they pass the means test.

Meeting of Creditors (a.k.a. 341 Meeting)

A meeting, required by Bankruptcy Code § 341, at which the debtor is questioned about his/her financial affairs under oath by the trustee.

Since the enactment of BAPCPA, the U.S. trustee also attends with regularity. Ironically, creditors, for whom the meeting is named, rarely appear.

Motion to Lift the Automatic Stay

An application to the bankruptcy judge by a creditor for permission to take action against the debtor or the debtor’s property that would otherwise be prohibited by the automatic stay.

Most typically, a finance company or mortgage company will file this motion against a Chapter 7 debtor to seek repossession of an automobile or proceed with a foreclosure upon the debtor’s home.

If there is equity in the collateral and the collateral is insured, the court should deny the motion.

No-Asset Case

A chapter 7 case where there are no assets available to liquidate and pay unsecured claims.

This occurs when all of the debtor’s assets are valued less than the allowable state or federal exemptions.

Non-Dischargeable Debt

A debt that cannot be wiped out in bankruptcy, such as past-due 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 restitution or fine included in a sentence on the debtor’s conviction of a crime.

Additionally, a creditor may ask the bankruptcy court to determine that the debtor incurred its debt through dishonest or fraudulent conduct.

Such an allegation, known as an Objection to Dischargeability, is difficult to prove and rarely made.

Objection to Dischargeability

A trustee’s or creditor’s objection to the debtor being released from personal liability for an otherwise dischargeable debt on the grounds that the debt to be discharged was incurred by false pretenses or that the debt arose because of the debtor’s fraud while acting as a fiduciary.

Objection to Exemptions

A trustee’s or creditor’s objection to the debtor’s attempt to claim certain property as exempt from the bankruptcy estate.

The most common basis for the objection is that the debtor has allegedly valued his or her assets too low.

PACER (Public Access to Court Electronic Records)

A service provided by the bankruptcy court system that gives users access to case filing information.

All cases and pleadings are filed electronically, and all pleadings filed in a case are viewable online with approved access.

Very cool, but it costs $.08 or $.09 per page viewed. Given the absurd increases in bankruptcy filing fees, the service should be free.

Party in Interest

A party who has standing to be heard by the court in a matter to be decided in the bankruptcy case.

The debtor, the U.S. trustee or bankruptcy administrator, the case trustee and creditors are parties in interest for most matters.


The act of properly recording a valid security interest in collateral by a secured creditor.

For instance, a mortgagor must record a copy of the mortgage in the county in which the real property is located, and an automobile finance company must note its lien on the title to the automobile.

Failure to perfect a security interest results in the creditor being unsecured.

Personal Guarantee

An individual’s (known as the “Guarantor”) legal promise to repay a debt incurred by an incorporated business.

If the business becomes unable to repay debt, the individual guarantor becomes personally responsible.

Often, when a small business fails, at least one of the shareholders is pursued by business creditors because of the personal guarantee.

Petition (or Bankruptcy Petition or Petition for Relief)

The document that commences a bankruptcy proceeding.

Petition Preparer

A person or business not authorized to practice law that prepares bankruptcy petitions.

The act of filling out bankruptcy schedules is easy, but the strategy behind those forms takes decades of experience to master.

A petition preparer cannot give competent legal advice.

An unrepresented debtor is an easy target for a bankruptcy trustee, and for this reason, a petition preparer will usually end up costing debtors more than if they hired an experienced bankruptcy attorney.


A person or business that files a formal complaint, known as an adversary proceeding, with the bankruptcy court.


A debtor’s detailed description of how the Chapter 13 or Chapter 11 debtor proposes to pay creditors’ claims over a fixed period of time.


Occurring after the filing of a petition. For example, post-petition obligations are usually not part of the bankruptcy case, and post-petition collection activity by creditors is usually a violation of federal law.

Post-Petition Transfer

A transfer of the debtor’s property made after the commencement of the case.

Pre-Bankruptcy Planning

The reorganization of a debtor’s property to allow the debtor to take maximum advantage of exemptions.

A competent bankruptcy attorney can properly advise a debtor how to legally and effectively plan a bankruptcy filing.

Accordingly, potential debtors should seek legal advice as soon as possible.


A payment by a debtor made 90 days prior to the bankruptcy filing that favors one creditor over others.

If the payment is to an insider, the preference period is one year prior to filing the bankruptcy.

Preference payments can usually be recovered from the payee (not the debtor) by the trustee and returned to the debtor’s estate.

Presumption of Abuse

The biggest amendment to the “old law,” Section 707(b)(2) of the “new” Bankruptcy Code requires every consumer debtor to complete a “means test” to determine whether a Chapter 7 filing is an “abuse” of the Bankruptcy Code.

If the test is positive, the consumer debtor can either file a Chapter 13 reorganization bankruptcy or challenge the “presumption of abuse.”

Abuse is presumed if the debtor’s aggregate current monthly income over the next 5 years, less certain statutorily allowed expenses is more than (i) $10,000, or (ii) $6,000 if the debtor’s non-priority unsecured debt is no more than $24,000.

The debtor may rebut a presumption of abuse by showing special circumstances that justify additional expenses or adjustments of current monthly income.

For example, if “abuse” is presumed because of a one-time bonus or severance payment, the presumption of abuse may be successfully rebutted.

Also, the presumtion can be rebutted if the debtor became recently unemployed with no liklihood of regaining similar employment income anytime soon.

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.

Examples of priority claims are administrative expenses and salaries, past-due alimony and child support, wages, employee benefits, customer deposits, and taxes which occurred pre-petition.

Priority claims are also typically non-dischargeable.

Accordingly, if a debtor knows that he/she has non-exempt assets that will be liquidated during the bankruptcy, the debtor should make sure priority claims are filed to ensure that they are paid first, since the obligation will survive bankruptcy anyway.

Pro Rata

The proportional manner in which general unsecured claims are paid in bankruptcy.

In other words, each general unsecured creditor that files a valid proof of claim is paid the same percentage of its total debt.

Proof of Claim

An official form filed by a creditor setting out its claims against a debtor.

The form must describe the type of debt (e.g., administrative, priority, secured, or unsecure

d), the amount of the debt and when it was incurred. It must also attach documentation proving the validity of the debt.

A proof of claim is presumed valid on its face unless the debtor can prove, through an objection to the proof of claim, that the claim is invalid.

Property of the Estate

All legal or equitable interests of the debtor in property as of the commencement of the case that is not “protected” by a state or federal exemption.

Reaffirmation Agreement

An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan or a home loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e., the car or the house).

Since BAPCPA, the requirement that a debtor execute a reaffirmation agreement or surrender the collateral is strengthened.


In the context of Chapter 13, it is the restructuring and resolution of the debtor’s financial obligations as outlined in the plan confirmed by the bankruptcy court.

Rule 2004 Exam

An examination under oath of one party in a bankruptcy proceeding (usually the debtor) by another party (usually the trustee).


Official Forms, enumerated A through J, filed by the debtor at the beginning of his/her case detailing the debtor’s assets, liabilities, and other financial information.

Secured Creditor

A creditor that has the right to take and hold or sell certain property of the debtor (collateral) in satisfaction of some or all of their claim against the debtor.

A creditor is only secured if it validly perfects its interest in the property before the filing of the bankruptcy petition.

Secured Debt

The debt owed to a secured creditor.

Examples include home mortgages, auto loans, tax liens, and some debts owed to furniture or electronic stores.

Statement of Financial Affairs

An official bankruptcy form that every debtor must file at the beginning of the case that answers a series of questions intended to more fully disclose the debtor’s financial circumstances.

Statement of Intention

An official bankruptcy form filed by a Chapter 7 debtor to disclose what the debtor intends to do with his/her secured debts.

Substantial Abuse

A term that refers to the act of filing a bankruptcy for the primary purpose of hindering, delaying, or defrauding creditors.


Any mode or means by which a debtor disposes of or parts with his/her property.


The court-appointed private individual who manages the property of the debtor for the principal benefit of the unsecured creditors.

The trustee is under the general supervision of the court and the direct supervision of the U.S. trustee.

The trustee’s responsibilities include review of the debtor’s petition and schedules, conducting the 341 Meeting of Creditors, and bringing actions against creditors or the debtor to recover property of the bankruptcy estate.

A Chapter 7 trustee liquidates property of the estate and makes distributions to creditors.

A Chapter 13 trustee has the additional responsibilities of overseeing the debtor’s plan, receiving payments from debtors, and disbursing plan payments to creditors.

Undersecured Claim

A debt secured by collateral that is worth less than the full amount of the debt.

The debtor is said to have “negative equity” in such collateral.

United States Trustee

An agent of the United States Department of Justice who is responsible for supervising the administration and monitoring of bankruptcy cases, estates, and trustees.

Under BAPCPA, the role of the trustee is more prevalent and adversarial toward debtors.

Unliquidated Claim

A debt for which a specific value is unknown.

Unscheduled Debt

A pre-petition debt that a debtor failed to list in his/her bankruptcy schedules.

If the debtor amends the schedules to include the debt, it is no longer unscheduled.

An unscheduled debt may not be discharged.

Unsecured Claim

A debt for which no collateral exists to guarantee the satisfaction of the financial obligation.

In other words, it is a debt for which credit was extended based solely upon the creditor’s assessment of the debtor’s future ability to pay.

Unsecured Creditor

A creditor holding an unsecured claim.

Voluntary Bankruptcy

A bankruptcy case initiated by the debtor.

Almost every bankruptcy is voluntary. See involuntary bankruptcy.

Voluntary Transfer

A transfer of a debtor’s property with his/her consent.

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