Adversary Proceeding: An independent lawsuit within the case that is normally tried before the bankruptcy judge without a jury. There is a complaint filed, summons issued and served, discovery conducted, and (unless settled by agreement or resolved by motion) a trial in the bankruptcy court. Adversary proceedings are most common for determining issues of discharge, dischargeability, and the recovery of preferences or fraudulent conveyances.
Assumption: If there is a lease of any sort that the Debtor wishes to keep, the Debtor may be able to “assume” the lease and continue the lease as if the bankruptcy were never filed. Conversely, if there are leases that are not essential or are unaffordable, the Debtor may reject such leases.
Automatic Stay: An injunction that springs forward the instant a bankruptcy case is filed. The injunction exists, whether a creditor has actual knowledge of the filing or not. With few exceptions, any act by a creditor against the Debtor, or against property of the estate, is void and can be set aside by the bankruptcy court.
Credit Counseling: Any individual must take a credit counseling course from a non-profit credit counseling agency before filing a bankruptcy under any chapter of the bankruptcy code. Once in bankruptcy, the individual must take a Budget Management program through the credit counseling agency in order to be eligible for a discharge in bankruptcy.
The Debtor: The individual(s) or business entity that files a bankruptcy case and who is the subject of the bankruptcy.
Debtor-in Possession: The Debtor in a chapter 11 case, who assumes the duties and responsibilities of a Trustee in Chapter 7 or Chapter 13. Commonly referred to as “DIP.”
Discharge: Essentially, a forgiveness of debt which prevents a creditor from collecting pre-petition obligations of the Debtor.
Examination of Debtor: The opportunity to question the Debtor, under oath, regarding assets, liabilities, payments, and other financial information. This is typically accomplished at the Meeting of Creditors or through a 2004 Exam.
Exceptions to Discharge: Certain claims cannot be discharged and are, therefore, excepted from discharge. Most common are such debts as student loans, alimony, and certain tax liabilities.
2004 Exam: Named after Bankruptcy Rule 2004, this resembles a deposition in non-bankruptcy case, and is a wide open “fishing expedition” concerning any claims, liabilities, payments, transfers, or any matter that could affect the administration of the case or the granting/denial of a discharge.
Exemptions: The law permits individuals to “exempt out” certain assets. Put another way, a Debtor can keep the proverbial shirt on his back, together with a modest equity in property. Property that is exempted is not property of the estate.
Fraudulent Conveyance: If the Debtor transferred assets for less than they are worth, or if the Debtor made gifts of property shortly before the filing of a bankruptcy case, a Trustee can ask the court to “unto” the transfer and take back the property to be sold and distributed to creditors.
Insider: While the definition is very broad, an insider is typically an officer, director, or significant owner/member of a company, or a relative of a debtor.
Meeting of Creditors: A required meeting between the Trustee, the Debtor, and occasionally creditors, which takes place approximately a month after the case is filed, and where the Debtor can be questioned by the a trustee and creditors regarding debt, property, payments, and other appropriate financial disclosures.
Petition: The document identifying the Debtor which, when filed, begins the bankruptcy case.
Preference: If a creditor has been paid shortly before the filing of a bankruptcy case, while other creditors were not paid, a Trustee can ask the court to “undo” the payment and require the creditor to pay back the amount it received.
Property of the Estate: The moment a case is filed, and “estate” is created, consisting of all property, claims, and other assets in which the Debtor has any interest or rights of ownership. Under chapter 11 property of the estate continues to accrue after the filing of the case.
Relief from the Automatic Stay: Under certain circumstances a creditor can ask the court to allow them to take certain measures that are otherwise forbidden by the automatic stay.
Schedules: The documents filed with the court that disclose all assets of and claims against the Debtor. The form of the Schedules is mandated by statute.
Statement of Financial Affairs: The document filed with the court that discloses such things as income history, payment histories, litigation history, ownership interests.
Chapter 11: In a Chapter 11 case the Debtor, acting as a “debtor in-possession,” is responsible to administer the estate in much the same way as a Chapter 7 Trustee is responsible to administer a Chapter 7 case. If there is evidence of fraud or gross mismanagement, the court can appoint an independent person to act as Trustee.
United States: An agent of the U.S. Department of Justice, the U.S. Trustee is responsible for overseeing all bankruptcy cases, investigating allegations of bankruptcy fraud or other bankruptcy crimes, and is instrumental in the administration of Chapter 11 cases.