Bankruptcy Glossary of Terms

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 of the United States Code (the Bankruptcy Code).

Bankruptcy Code
The informal name for title 11 of the U.S. Code (11 U.S.C. §§ 101 - 1330), the federal bankruptcy law.

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 by or held by another person.

Bankruptcy trustee
A private individual or corporation appointed in a Chapter 7, Chapter 12, Chapter 13, and sometimes a Chapter 13 case to represent the interests of the bankruptcy estate and the debtor's creditors.

Chapter 7
The chapter of the Bankruptcy Code providing for liquidation, that is, the sale of the debtor's nonexempt property and the distribution of the proceeds to creditors. Chapter 7 is frequently called "Liquidation Bankruptcy" or "Straight Bankruptcy," and it contemplates an orderly, court-supervised procedure by which the trustee collects the assets of the debtor's estate, reduces them to cash, and makes distributions to creditors, subject to the debtor's right to retain certain exempt property and the rights of secured creditors. Because there is typically little or no nonexempt property in most Chapter 7 cases, there may not be an actual liquidation of the debtor's assets. These cases are called "no-asset cases" and no monies are distributed by the trustee to the debtor's creditors. In most Chapter 7 cases, the debtor receives a discharge that releases the debtor from personal liability for certain dischargeable debts.

Chapter 11
A reorganization bankruptcy usually involving a corporation or partnership. A Chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in Chapter 11. Although predominantly used for reorganization purposes, Chapter 11 also permits liquidation plans. The debtor typically remains in possession of the estate's assets during the Chapter 11 process, unless a trustee is appointed by the court. The debtor, or in some instances another party in interest, will file a plan of reorganization or liquidation. The court ultimately approves (confirms) or disapproves the plan. Under a confirmed plan, the debtor may reduce its debts by repaying a portion of its obligations and discharging others. The debtor may also terminate burdensome contracts and leases, recover assets, sell assets, and rescale its operations in order to return to profitability. Under Chapter 11, the debtor normally goes through a period of consolidation and emerges with a reduced debt load and a reorganized business.

Chapter 12
The chapter of the Bankruptcy Code providing for adjustment of debts of a "family farmer," as that term is defined in the Code. The process under Chapter 12 is very similar to that of Chapter 13, under which the debtor proposes a plan to repay most debts over a period of time. There is a trustee in every Chapter 12 case whose duties are very similar to those of a Chapter 13 trustee. The Chapter 12 trustee's disbursement of payments to creditors under a confirmed plan parallels the procedure under Chapter 13. Chapter 12 allows a family farmer to continue to operate a farm business while the plan is being carried out, and the debtor typically remains in possession of the assets of the estate.

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 debts under a confirmed plan over time, as long as five years. Unlike Chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. Typically, Chapter 13 trustees do not sell assets.

Debtor
A person or entity for which a case under Title 11 of the U.S. Code has been commenced.

Debtor in possession
A debtor in a Chapter 11 case who remains in possession of the estate's assets, operates the estate's business, and generally has the duties of a case trustee.

Involuntary bankruptcy
A case initiated by the debtor's creditors.

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

Property of the estate
All legal or equitable interests of the debtor in property as of the commencement of the case.

Trustee
A person appointed in a bankruptcy case to represent the interests of the bankruptcy estate and the unsecured creditors. The trustee's responsibilities include reviewing the debtor's petition and schedules, liquidating the property of the estate, and making distributions to creditors. The trustee may also bring actions creditors or the debtor to recover property of the bankruptcy estate.

Voluntary bankruptcy
A case initiated by the debtor.