Glossary

• Jurisdiction: United States

Glossary

This glossary provides key terms useful in understanding bankruptcy matters and the subjects of liquidation and litigation trusts.

Abandonment — To relinquish ownership or right to property that one can previously claim possession of; however, it does not necessarily result in surrender of that property to any specific creditor. See Bankruptcy Code § 554.

Absolute Priority Rule/Doctrine — In a chapter 11 case, all senior class claims must receive payment in full on their claims before any junior class claims can receive payment. This issue arises when an advocate for a plan of reorganization attempts to cram down the plan over the objections of any class of creditors. Generally, a class of creditors can block a plan that allows the debtor's equityholders to retain any property under the plan, or interest in the reorganized debtor, on account of their pre-petition interests in the debtor unless the unsecured creditors are paid in full. This rule can affect the strategies available to undersecured lenders who have significant deficiency claims, and amounts owed by the debtor that exceed the value of collateral securing the debt and that leave the undersecured creditor with a significant unsecured claim. See Bankruptcy Code § 1129(b)(2)(B).

Abstention — Generally, abstention is a judicially created doctrine to resolve conflicts between federal and state courts, and is based on comity with state courts. Specifically, in a bankruptcy context, abstention is statutory. See 11 U.S.C. § 1334(c)(2).

Adequate Assurance — Financial or other protections provided to the nondebtor counterparty to an unexpired lease or executory contract with the debtor where the debtor has defaulted but seeks to assume or assume and assign the lease or contract. See Bankruptcy Code § 365(b)(1)(C).

Adequate Protection — A safeguard, or protection, for secured creditors to preserve the present state of affairs regarding the value of the secured creditor's collateral during bankruptcy estate administration. Payment may be provided by the debtor to the secured creditor for any diminution in the value of collateral during the bankruptcy case resulting from the debtor's use, sale or lease of the property. Protection may include lump-sum cash payment, periodic cash payment, the granting of an additional or replacement lien, and any other form of relief resulting in the realization of an indubitable equivalent of the secured creditor's interest in the property. See Bankruptcy Code § 361.

Administrative Expenses (Claims) — Bankruptcy Code § 507(a)(1) states the priority of claims. In a commercial chapter 11 case, administrative expenses under Bankruptcy Code § 503(b) are first priority. Administrative claims are generally incurred after the petition date and are related to costs of preserving the estate, including wages, salaries or commissions for services provided after the commencement of the case, taxes incurred by the bankruptcy estate, and goods received by the debtor within 20 days of the petition date. Professional fees (i.e., accountants and attorneys) are considered administrative expenses. See Bankruptcy Code § 503(b) for general nonexclusive types of expenses.

Adversary Proceeding — A lawsuit filed in bankruptcy court generally equivalent to a civil case filed in a federal district court, and it is governed in large part by rules similar to the Federal Rules of Civil Procedure. In contrast to the generally quicker and more summary "contested matter," adversary proceedings implicate pleadings (e.g., a complaint and answer), discovery, and ultimately, a trial. Proceedings that must be commenced through an adversary proceeding include determining the validity, priority or extent of liens on property of the estate; resolving subordinate claims other than in a plan, and dischargeability issues; recovery of money or property such as avoidance actions; and seeking injunctive or declaratory relief. See Bankruptcy Rule 7001; see also contested matters.

Allowed Claim(s) — A creditor can assert a claim against the debtor through a proof of claim filed under Bankruptcy Code § 501. A creditor's claim may be listed in the debtor's schedules. A creditor's claim can be considered "allowed" in two ways. First, under Bankruptcy Code § 502, if no objection to the claim is filed, and second, under Bankruptcy Code § 1111(a), if the claim is listed on a debtor's schedules as undisputed, non-contingent and liquidated.

Arbitration — An alternative form of dispute resolution by which parties settle their differences through an impartial person that acts as a judge and issues a decision in order to prevent potentially costly and lengthy litigation in court.

Asset Securitization — The process by which non-liquid assets are converted into liquid assets by collateralizing such illiquid assets and issuing debt or equity securities.

Assignment — In a bankruptcy case, the debtor's executory contracts and unex-pired leases can be assigned to a third party, generally notwithstanding any language in the contract or lease that prohibits such assignment. Before such contract or lease can be assigned, the debtor must meet the requirements for "assumption." See Bankruptcy Code § 365(f).

Assumption — The concept that allows a debtor to make the post-petition decision to become bound under an unexpired lease or executory contract. A debtor may only assume a contract or lease with court approval, after showing that it has cured all defaults and has provided the nondebtor counterparty with adequate assurance of future performance. See Bankruptcy Code § 365(a) and (b).

Automatic Stay — A statutory injunction prohibiting most creditor actions against a debtor or its property that, in a voluntary bankruptcy case, takes effect upon the date a bankruptcy petition is filed. Creditors can seek to lift or modify the automatic stay with permission from the court. See Bankruptcy Code § 362.

Avoidance Actions — Lawsuits filed by the debtor to recapture, or nullify, pre-pe-tition and post-petition transfers made by the debtor involving preferences and fraudulent transfers. See Bankruptcy Code §§ 544-550.

Bankruptcy Appellate Panels (BAPs) — Appeals from dispositive orders of bankruptcy judges may be taken to the district court or, if a circuit court establishes, a Bankruptcy Appellate Panel. BAPs were created under the Bankruptcy Reform Acts of 1978 and 1994 and were designed to promote circuit-wide uniformity. BAPs consist of three active bankruptcy judges. BAPs are currently established in the First, Sixth, Eighth, Ninth and Tenth Circuits. In circuits that have established BAPs, the BAP will hear all appeals of bankruptcy court decisions unless one of the parties to the appeal makes an election to have the appeal heard by the district court.

Bankruptcy Abuse Protection and Consumer Protection Act of2005 (BAPCPA) —

Reforms enacted in 2005 to the U.S. Bankruptcy Code and of Rules of Bankruptcy Procedure are generally viewed as creditor-friendly. The Act gave the U.S. Trustee Program new responsibilities in a number of areas, including: (1) significant changes to consumer bankruptcy cases, including implementing a "means test" to determine whether an individual debtor is eligible for chapter 7 (liquidation) or must file under chapter 13 (wage-earner repayment plan); (2) strict limitations on debtor-tenants to assume or reject commercial leases; (3) the broadening of the application of single-asset real estate cases in the Bankruptcy Code; (4) the addition of cases under chapter 15 for cross-border insolvency cases; and (5) changes to certain provisions of the Bankruptcy Code relating to avoidance actions.

Bankruptcy Code — Title 11 of the U.S. Code, which establishes the basis for the current federal bankruptcy system, which includes substantive and procedural law and has been amended several times since 1978.

Bankruptcy Court — The U.S. Bankruptcy Courts function as units of the U.S. District Courts and are primarily responsible for administering bankruptcy proceedings and cases filed under the various chapters of the Bankruptcy Code.

Bankruptcy Crimes — Include: (1) concealing assets or financial records of the debtor from the trustee or any official associated with the bankruptcy court; (2) submitting false claims against the debtor; (3) embezzling against the estate; or (4) committing fraud related to the bankruptcy proceeding set forth by the Bankruptcy Code. See 18 U.S.C. §§ 151-158.

Bankruptcy Estate — The legal entity established when the bankruptcy petition is filed consisting of all legal or equitable interests of the debtor in property, real or personal, as of the commencement of the estate. See Bankruptcy Code § 541.

Bankruptcy Petition — Document filed by the debtor in a voluntary case to initiate its bankruptcy case. See Bankruptcy Code § 301.

Bankruptcy Reform Act of 1994 — The Bankruptcy Reform Act of 1994 made numerous changes to the Bankruptcy Code. The Act also created a National Bankruptcy Review Commission to analyze and make recommendations regarding the current bankruptcy system.

Bankruptcy Remote Entity — Also known as a "single purpose entity," often utilized in asset securitization. An entity with restricted debts and obligations that is maintained apart from its affiliate entities. Such entities may be challenged for consolidation into the debtor's estate.

Bankruptcy Rules — Federal Rules of Bankruptcy Procedure, which govern the processes in bankruptcy proceedings.

BAPCPA — Bankruptcy Abuse Prevention and Consumer Protection Act enacted on April 20, 2005. BAPCPA is a legislative act that made several significant changes to the U.S. Bankruptcy Code and is referred to colloquially as the "New Bankruptcy Law."

Bar Date — The last date for filing a proof of claim or interest against the debtor.

Best Interest of Creditors Test — A requirement that each creditor that has not accepted a chapter 11 plan must receive no less than it would have if the debtor's...