Kansas City Bankruptcy Attorney

Common Bankruptcy Terms Defined

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341 Meeting

First meeting of the creditors. Debtor is required to attend the meeting and creditors may attend.

Absolute Priority

Bankruptcy term referring to the order of payment to different creditors, which is determined by the U.S. Bankruptcy Code.

Abusive Overdraft Loan

Small amount, short-term, high-interest loans given by banks to those who overdraw their accounts.

Adequate Protection

Right of a person or company that has interest in the debtor’s property to assurance that its interest won’t be devalued during the debtor’s bankruptcy filing.

Adjustable Rate Mortgage (ARM)

A mortgage loan with a monthly payment that “adjusts” or changes from month to month. Compare to a fixed rate mortgage, in which payments remain constant throughout the lifetime of the loan.

Administrative Claim/Administrative Expense Claim

Debt accumulated after the bankruptcy filing. You must have court approval to take on the additional debt. Some examples of administrative claims are: necessary costs of preserving a home, salaries, court-related costs, bankruptcy lawyer or accountant fees and trustee expenses.

Adversary Proceeding

Document in a lawsuit in U.S. bankruptcy court. These proceedings are initiated by a person or company filing a complaint. It may be filed by the bankruptcy trustee, other parties or the debtor himself if he wants to formally complain that a creditor violated the bankruptcy automatic stay.

Allowed Claim/Allowed Interest

Claim of a creditor that the bankruptcy court approves to satisfy the plan of reorganization.

Arrangement

Formal or informal agreement between creditors and the debtor about how a bankrupt company or person is permitted to operate while filing bankruptcy.

Asset

Any item of value owned by a person or entity.

Automatic Stay

An injunction (provision) of bankruptcy law that protects those who file bankruptcy from most collection actions, including garnishment, lawsuits, repossession, debt collection and foreclosure.

Avoidance Power

The bankruptcy court has the power to invalidate certain debtor obligations and transactions made before filing bankruptcy.

Ballot Date

Date and time during a company bankruptcy reorganization that the bankruptcy court sets where all votes for accepting or rejecting the plan of reorganization must be delivered.

Bankruptcy

Legal declaration by an individual (or a company) stating an inability to pay creditors. United States Bankruptcy Code provides several versions of bankruptcy to offer individuals a “fresh start” financially after receiving a bankruptcy discharge.

Bankruptcy Code

After the Bankruptcy Reform Act of 1978, this was the given name to the body of U.S. bankruptcy laws.

Bankruptcy Court

This is the federal tribunal where bankruptcy cases are reviewed and litigated under the U.S. Bankruptcy Code.

Bankruptcy Estate

This term refers to the debtor’s property that is subject to authority of the bankruptcy court.

Bankruptcy Petition

The legal forms that must be filed at court for a bankruptcy case to officially begin.

Bankruptcy Trustee

An individual appointed by the U.S. Department of Justice or by the creditors in a bankruptcy case to oversee the proceedings of the bankruptcy case.

BAPCPA (Bankruptcy Abuse Prevention and Consumer Protection Act)

Bankruptcy laws passed in October, 2005.

Bar Date

Date is set by the bankruptcy court and is the last date that creditors can file a claim against the debtor.

Business Bankruptcy

The U.S. Administrative Office of the Courts divides bankruptcies into either business bankruptcy or non-business bankruptcy. Business bankruptcies involve companies.

Cash Collateral

Refers to cash and equivalents held by the debtor in Chapter 11 bankruptcy that are subject to creditors’ liens.

Chapter

The U.S. Bankruptcy Code is organized into different chapters.

Chapter 7 Bankruptcy

Type of personal bankruptcy sometimes referred to as “liquidation” bankruptcy because a bankruptcy trustee can liquidate (convert to cash) any non-exempt assets to help pay off debts.

Chapter 9 Bankruptcy

This bankruptcy chapter focuses on bankruptcies of municipalities, like cities and towns.

Chapter 10 Bankruptcy

This bankruptcy chapter is designed for small business reorganizations.

Chapter 11 Bankruptcy

This bankruptcy chapter focuses on reorganization proceeding for businesses.

Chapter 12 Bankruptcy

This bankruptcy chapter is for family farmer bankruptcies and was created in 1986.

Chapter 13 Bankruptcy

A type of personal bankruptcy sometimes referred to as a “reorganization of debts.” Debtors work with the bankruptcy court to develop a three to five year repayment plan to eliminate their obligations to creditors.

Claims

Creditors can file these rights to repayment against a debtor. Claims can be secured, unsecured, liquidated, unliquidated, matured, unmatured, fixed, contingent, subordinated, legal or equitable.

Class

Creditor claims are given categories, or classes, and then are ranked by priority of payment.

Collateral

An asset given as security for a loan.

Confirmation

This is the bankruptcy court’s final approval for a plan of reorganization. Creditors must approve the plan before the court does so.

Contested Matter

Any dispute among the involved parties that is initiated by the filing of a motion to the bankruptcy court.

Conversion

Changing chapters in bankruptcy when you are already involved in a bankruptcy filing.

Core Proceedings

Proceedings that are fundamental in a filing bankruptcy case and subject to the jurisdiction of the bankruptcy court.

Cosigner

One who literally co-signs loan papers with somebody else.

Cramdown

This refers to the bankruptcy court confirming a plan of reorganization over the objection of creditor(s).

Credit Counseling Briefing

Briefing that outlines the available opportunities for credit counseling and provides assistance in performing a budget analysis.

Creditors’ Committee

Committee of representatives for the creditors that is appointed by the trustee. The committee works on behalf of all of the debtor’s creditors to negotiate a plan of reorganization.

Credit Report

Record of your credit history including your payment actions on a variety of credit sources, including credit cards, mortgage loans, rent, car loans and more.

Credit Reporting Agency (Credit Bureau)

An organization that collects, documents and reports consumer credit information. CRAs offer free credit reports to consumers, which are available at www.annualcreditreport.com.The three major CRAs are TransUnion, Equifax and Experian.

Credit Score

A number between 300 and 850 that measures the credit risk of an individual consumer.

Creditor

Someone to whom a debtor owes money.

Debtor

Someone who owes money to a creditor.

Debtor-In-Possession

This refers to the debtor who is in control of operations.

Debtor Education

Course designed to prepare bankruptcy filers for life after bankruptcy.

Default

The failure to meet financial obligations.

Discharge

The elimination of debt and exit of bankruptcy proceedings.

Dischargeable

Legally excusable, as debts.

Disclosure Statement

Comprehensive document detailing the plan of reorganization that is sent to creditors when they are asked to vote on the plan.

Dismissal

Termination of a bankruptcy filing.

Distressed

Non-legal term used to describe securities, companies or people who are close to filing bankruptcy.

Effective Date

Date when the plan of reorganization is put into effect.

Equity

Asset’s value aside from anything owed on it (mortgages, liens, etc.).

Examiner

Professional that the bankruptcy court appoints to oversee the debtor and his or her bankruptcy proceedings.

Exclusivity

Period where a Chapter 11 bankruptcy filer has the right to file a plan of reorganization, typically during the first 120 days of the company’s bankruptcy.

Executory Contract

Contract where some or all obligations of all parties haven’t been completed.

Exemptions

Assets that the bankruptcy court cannot liquidate during a Chapter 7 bankruptcy case.

Failure

Financial assessment of the viability of a business where it’s determined that the company isn’t earning the rate of return or paying its bills.

Fixed Rate Mortgage

The “traditional” home loan plan, fixed rate mortgages require borrowers to pay a constant payment over the life of the loan (usually about 30 years). Compare to “adjustable rate mortgage.”

Foreclosure (Mortgage Foreclosure)

Process followed by a bank or mortgage company to reclaim ownership of a house when a homeowner hasn’t followed the terms of the mortgage agreement.

Fraudulent Conveyance

Term referring to the transfer of significant assets from a company, which occurs when the company is considered technically insolvent or when the transfer is made for less than satisfactory consideration.

Fee Examiner

The bankruptcy court appoints a fee examiner to monitor the fees paid to bankruptcy professionals.

Fresh Start

Casual term for new accounting policies that apply to bankruptcy. Assets are appreciated at market value rather than at a historical rate.

Gap Period

Period after the filing of an involuntary petition and before the dismissal of the petition.

Garnishment

When money owed a debtor (like part of a paycheck) is ordered given to a creditor (like a credit card company) to cover some of the debt owed.

Going Concern Value

This is the worth of a company if it were sold as a continuing business, rather than its liquidation value.

Identity Theft

Crime of using someone’s identification information (Social Security Number, bank account information, credit card numbers, etc.) to pose as that person.

Impairment

When a plan of reorganization alters the contractual rights of creditors that are deemed to be impaired. An unimpaired creditor is reasoned to agree automatically to a plan of reorganization.

Insolvency

Term used to describe a failing debtor. The debtor obligations exceed his or her assets and/or the debtor can’t pay his or her bills.

Interests

In bankruptcy documents, this usually refers to the equity interest of stockholders.

Involuntary Bankruptcy

When bankruptcy proceedings are started by three or more creditors against a debtor.

Joint Administration

When bankruptcy proceedings are combined for ease of administration.

Lien

Claim or mortgage on property in exchange for debt owed.

Liquidation

Act of converting an asset to cash.

Liquidation Value

Term referring to the collective value of a business if its assets are gradually sold.

Mass Layoffs

When a company or organization is forced to let go a large number of workers at the same time, usually because of financial difficulty or reorganization.

Matrix

This is a mailing list of a debtor’s creditors.

Means Test

Part of the BACPA, the Chapter 7 means test is used to determine who qualifies for protection under Chapter 7 of the U.S. Bankruptcy Code. It’s based on median income comparisons, disposable income available and unsecured debts owed.

Medical Bankruptcy

Bankruptcy caused by debts incurred from medical expenses.

Mortgage

A pledge to pay (a loan) backed by real estate.

Net Operating Loss (NOL)

Also referred to as tax loss carry-forward, NOL is losses that can be carried forward and applied to reduce taxable income in the future.

Non-Dischargeable Debt

Debt that is legally unable to be excused in the bankruptcy court. In Chapter 7 bankruptcy cases, child support, tax debt and student loans are usually non-dischargeable and must eventually be paid by the filer.

Non-Revolving Credit

A line of credit that requires monthly payments and does not allow repaid funds to be drawn down again from the credit limit.

Payday Loan

Offered by payday lending stores, these short-term, small-dollar amount, high interest loans are marketed to those who need cash between paychecks.

Personal Bankruptcy

Bankruptcy that is filed by an individual or household. It’s also called a consumer bankruptcy or wage-earner bankruptcy.

Petition

Document begins the bankruptcy proceeding.

Plan of Reorganization

Document lays out how a bankrupt entity will satisfy its creditors.

Post-Petition

Period that occurs after the filing of a petition.

Predatory Lending

Generally refers to tactics used by lenders to convince borrowers to agree to unfavorable loan terms or to deceive the borrower in some way for profit

Preference

Occurs when a debtor pays a creditor during a specific period before filing bankruptcy and it favors one creditor over other creditors.

Prepackaged Bankruptcy

When a debtor and his or her creditors agree to a repayment plan or plan of reorganization before the debtor files bankruptcy.

Pre-Petition

Period that occurs before the bankruptcy petition is filed.

Priority Claims

Claims that are related to administration expenses, employee benefits, salaries, wages, customer deposits and taxes that occur pre-bankruptcy petition.

Pro Rata

This is a Latin word that means “proportionately”.

Proof of Claim

Form filed by a creditor that lays out its claims against a debtor filing bankruptcy.

Receiver

Term for the person appointed by the bankruptcy court that takes guardianship of the debtor’s property.

Reorganization

When a Chapter 11 bankruptcy filer successfully fixes his or her business’ financial problems.

Repossession

Reclamation of ownership of property when payments aren’t made on time.

Restructuring

When the debtor and creditors agree to reorganize debts outside of bankruptcy court.

Retired Benefits Bankruptcy Protection Act

Act was passed on June 16, 1988 and allows a debtor to continue to pay employees’ insurance premiums during the bankruptcy proceedings.

Reverse Leveraged Buyout

When a leveraged buyout company streamlines its debt by issuing fresh equity in exchange for a portion (or all) of the debt it incurred during the initial leveraged buyout.

Revolving Credit

A line of credit that allows spending and repayment as desired with a variable minimum payment and a service charge.

Schedules

The documents filed with the court that contain information on your assets, debts and income.

Secured Creditors

These creditors have lien(s) on the property of the debtor.

Secured Debt

Any debt backed by collateral (material goods).

Set-Off

Occurs when debt is discharged or reduced when a counter claim is applied between the same parties.

Skeleton Filing

A bankruptcy case where not all of the required forms have been filed.

Small Claims

Claims that are in the hundreds or low thousands of dollars range.

Straight Bankruptcy

Unofficial term for a Chapter 7 bankruptcy.

Subprime Loan

Loan given to someone with a low credit score or shaky credit history.

Substantial Abuse

A filer abusing the bankruptcy law or committing fraud in a bankruptcy case.

Substantive Consolidation

When one debtor combines his property with another debtor’s property and the mixture results in that satisfaction of their combined liabilities.

Super Priority Claim

Administrative claim that is paid ahead of the other claims.

Tax Loss Carry-Forward

Losses that can be advanced forward and applied to reduce taxable income in later years.

Trustee

Agent of the court who oversees the debtor’s property for the advantage of the creditors.

United States Trustee

Employee of the U.S. Department of Justice that administers the duties of the bankruptcy court in most Chapter 7 bankruptcy and Chapter 11 bankruptcy cases. The U.S. Trustee appoints committees, trustees and examiners and dissects court filings, among other tasks.

Unsecured Creditor

Creditors that don’t have liens on the property of the debtor.

Unsecured Debt

Any debt not backed by collateral.

United States Bankruptcy Code

Collection of statutes and regulations that governs how bankruptcy courts in the United States run.

Voluntary Bankruptcy

When a debtor files bankruptcy on his or her behalf.

Workout

Arrangement with a creditor that takes place outside of the bankruptcy court to reschedule a debtor’s payment plan or reduce his or her debt.

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