Glossary of Bankruptcy Terms363 Case – A term that has come to describe a chapter 11 case that is filed largely to facilitate the sale of the debtor’s assets pursuant to the protections of §363 of the Bankruptcy Code, as compared to a case filed to restructure the debtor’s business operations or capital structure. The process to sell the debtor’s assets usually commences shortly after the case is filed. 363 Sale – A sale of assets from a bankruptcy estate pursuant to § 363 of the Bankruptcy Code. This provision generally allows the sale of assets free and clear of liens and claims and gives a purchaser protections that are otherwise not available outside of bankruptcy. 503(b)(9) Claim – Under the BAPCPA Amendments of 2005, § 503(b)(9) was added to the Bankruptcy Code. It provides creditors with a priority claim for goods delivered to the debtor within 20 days of the petition date. Abandonment - A disclaimer of any interest by the trustee or debtor in property that is burdensome or of inconsequential value. Absolute Priority Rule - 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: first, administrative claims; second, statutory priority claims such as tax claims, rent claims, consumer deposits, and unpaid wages and benefits from before the filing; third, secured creditors' claims; fourth, unsecured creditors' claims; and fifth, equity claims. Actual Test – A construction of §365(c) of the Bankruptcy Code which limits it to situations in which the DIP is actually trying to assign the agreement to a third-party, as compared to assume the agreement as part of a plan of reorganization. See Hypothetical Test. Adequate Protection - The right of a party with an interest in the debtor's property (such as a secured creditor) to assurance that its interest will not be diminished during the bankruptcy proceedings. Section 361 of the Bankruptcy Code addresses adequate protection issues. Adequate protection may consist of replacement liens on collateral or periodic payments for the use of collateral. Administrative Claim (Or Administrative Expense Claim) - A claim asserted against the bankruptcy estate for the actual, necessary costs and expenses of preserving the estate. This type of claim is entitled to be paid before payment to any other creditors of the bankruptcy estate except secured creditors. Often these claims are asserted by professional persons employed by the bankruptcy estate (e.g., attorneys and accountants) for fees and costs incurred in the estate administration. Adversary Proceeding - A lawsuit arising in or related to a bankruptcy case that is commenced by filing a complaint with the court. A nonexclusive list of adversary proceedings is set forth in Fed. R. Bankr. P. 7001. Examples are complaints to determine the dischargeability of a debt and complaints to determine the extent and validity of liens. Allowed Claim (or Allowed Interest) - a claim of a creditor (or an equity interest) that is approved for satisfaction in the bankruptcy case. Arrangement - Arrangement may refer to a variety of formal or informal agreements concerning the conditions under which a bankrupt company may operate; often, it refers to an extension of time in which debt can be paid off. This was the term used under the old Chapter XI. Arrears The amount that is unpaid and overdue as of the date the bankruptcy case is filed. The word "arrears" is usually used when referring to back child support, back alimony owed, or the amount that is past due on mortgage payments (including interest and penalties). Assets Assets are every form of property that the debtor owns. They include such intangible things as business goodwill; the right to sue someone; or stock options. The debtor must disclose all of his assets in the bankruptcy schedules; exemptions emove the exempt assets from property of the estate. Assignment for the Benefit of Creditors - A common law or state statutory method of liquidating a debtor's assets without commencing a bankruptcy case. Typically, an independent third party is employed as the assignee who is responsible for liquidating the debtor's assets, pursuing any litigation and disbursing monies to creditors. This common law or state statutory liquidation vehicle is not available in all states. Assume a Contract - The decision by a debtor, which must then be affirmed by the bankruptcy court, after notice and hearing, that the debtor-in-possession will be fully liable for the obligations under the lease. Typically requires the curing of most monetary defaults. Attachment - A prejudgment remedy where a court orders seizure of a property by a sheriff who retains custody pending judgment. Automatic Stay - A stay, that arises automatically upon the filing of the bankruptcy petition and that generally prohibits any action by creditors to enforce their pre-petition contracts or obligations against the debtor and any action to exercise control over property in which the debtor has an interest. Among other things, it restrains creditors from terminating agreements with a debtor, collecting debts or other obligations that arose before bankruptcy and from continuing or commencing lawsuits against the debtor. If a creditor wants to pursue, for example, a lawsuit or collect a debt after a bankruptcy is commenced, it must seek and obtain an order from the bankruptcy court granting it relief from the automatic stay. Exceptions are contained at 11 U.S.C. §362(b). Avoidance Powers – Rights given to the bankruptcy trustee (or the debtor in possession in a Chapter 11) to recover certain transfers of property such as preferences or fraudulent transfers or to void liens created before the commencement of a bankruptcy case. Ballot Date - the date and time, set by the bankruptcy court, when all votes for accepting or rejecting the plan of reorganization must be received. Bankrupt - the entity that files a bankruptcy; the debtor; the insolvent entity. This is a non-technical term and is not used in the Bankruptcy Code. Bankruptcy Act - The Bankruptcy Act of 1898, which remained in effect until 1979, and is known generally as the "Act." It is frequently referred to in decisions as a source of interpretation. Bankruptcy Act of 1898 - the basis of the federal bankruptcy statutes used until the Bankruptcy Reform Act of 1978; provided primarily for liquidation of companies; reorganization could be effected indirectly under the 1898 Act through equity receiverships (these were used to keep creditors from seizing the assets of distressed companies). Bankruptcy Act of 1933 - a statutory expansion of reorganization for companies; (see Section 77); the Bankruptcy Act of 1933 and the Bankruptcy Act of 1934 were superseded by the Chandler Act of 1938. Bankruptcy Act of 1934 - a further statutory expansion of reorganization for companies; (see Section 77B); the Bankruptcy Act of 1933 and the Bankruptcy Act of 1934 were superseded by the Chandler Act of 1938. Bankruptcy Administrator - An officer of the judiciary serving in the judicial districts of Alabama and North Carolina who, like the U.S. trustee, is responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors' committees; monitoring fee applications; and performing other statutory duties. Bankruptcy Amendments of 1984 - a set of amendments to the Bankruptcy Reform Act of 1978. The Amendments contain a number of provisions including: limiting the jurisdiction of the bankruptcy court, limiting the right of companies to invalidate labor contracts while in bankruptcy and providing for the prevention of "substantial abuse." Bankruptcy Code - The Bankruptcy Reform Act of 1978, generally referred to as the "Code" or the "Bankruptcy Code." It governs all cases filed since Oct. 1, 1979. The Bankruptcy Code is found in 11 U.S.C. §§101 et seq., and is the current version of the bankruptcy law in the United States. It was passed by Congress in 1978 and became effective on Oct. 1, 1979. Title 11 of the United States Code governs bankruptcy proceedings. Bankruptcy is a matter of federal law and is, with the exception of exemptions, the same in every state. Bankruptcy Court - The federal tribunal where cases under the Bankruptcy Code are litigated. The bankruptcy court is a unit of the district court in each jurisdiction. Bankruptcy Estate - Generally, the property of the debtor that is subject to the jurisdiction of the bankruptcy court. More specifically, it includes 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 or held by another person.). Bankruptcy Judge – The jurist that presides over issues in a bankruptcy case. Bankruptcy judges are appointed for 13 year terms by the district courts in which they are located. A bankruptcy judge’s authority is derivative of the district court’s authority and some actions taken by a bankruptcy court have to be reviewed and approved by the district court before they become binding. Bankruptcy Mill - a business not authorized to practice law that provides bankruptcy counseling and prepares bankruptcy petitions. Bankruptcy Petition - The document filed by the debtor (in a voluntary case) or by creditors (in an involuntary case) by which opens the bankruptcy case. (There are official forms for bankruptcy petitions.). Bankruptcy Reform Act of 1978 - the first substantive bankruptcy code revision since the Chandler Act of 1938; took effect on October 1, 1979; some of the major elements of this act were: upgrading the jurisdiction of the U.S. bankruptcy courts to deal with cases handled by other courts (subsequently modified); allowing the filing of a single joint petition of bankruptcy by husband and wife; reorganizing the Chapters of bankruptcy; in particular, concerning business reorganization, Chapters X, XI and XII of the old code are replaced by Chapter 11; expanding the number of people eligible and the type of relief available to people in a new Chapter 13, wage-earner reorganization bankruptcy; altering the appellate procedure allowing direct appeal to the U.S. courts of appeal (subsequently modified); and generally, making federal exemption provisions and options for debtors more extensive. Bankruptcy Reform Act of 1994 – a comprehensive piece of bankruptcy legislation after the Bankruptcy Reform Act of 1978; signed into law on October 22, 1994 with most provisions effective immediately; included in the 1994 Act are: provisions to expedite bankruptcy proceedings; provisions to standardize fees; provisions to encourage individual debtors to use Chapter 13 to reschedule their debts rather than use Chapter 7 to liquidate; provisions to aid creditors in recovering claims against bankrupt estates; creation of a National Bankruptcy Commission to investigate further changes in bankruptcy law. Bankruptcy Rule 2004 (or “2004 Exam”) – A rule of bankruptcy procedure that allows one party in a bankruptcy proceeding to compel very broad discovery or other examination against another party. Bankruptcy Tax Act of 1980 - the Bankruptcy Reform Act of 1978 did not specify how certain tax matters concerning bankruptcies should be handled. The Bankruptcy Tax Act of 1980 was passed to specify the tax treatment of bankruptcy tax issues. It specifies the tax treatment of, among other things, tax loss carry-forwards and exchanges of equity for debt. BAPCPA – An acronym for the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which is legislation that effected a major overhaul of the Bankruptcy Code, effective as of October 17, 2005. Bar Date - The last date that creditors may file a timely claim against the bankruptcy estate. Break-up Fee – A promise to a stalking horse bidder that it will receive a fee in the event its bid to acquire the debtor’s assets is not the prevailing bid. Cash Collateral - Cash and cash equivalents held by the debtor in a bankruptcy case that is subject to liens of other parties. Chapters - The Bankruptcy Code is organized into Chapters. Except for Chapter 12, the Chapters of the present code are all odd-numbered and are enumerated with Arabic numerals. (Before the Bankruptcy Reform Act of 1978, the Chapters were numbered with Roman numerals.) Chapters 1, 3, and 5 cover matters of general application. Chapters 7, 9, 11, 12, 13 and 15 concern, respectively: liquidation (business or non-business); municipality bankruptcy; business reorganization; family farm debt adjustment; wage-earner or personal (i.e. non-business) reorganization and multi-national bankruptcies. Chapter 11 - The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership, although also available to individuals. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. The debtor maintains control of the business in Chapter 11, unless the Court appoints a trustee. Chapter 12 - The chapter of the Bankruptcy Code providing for adjustment of debts of a "family farmer," or a "family fisherman" as those terms are defined in the Bankruptcy Code. A family owned farm business must have debt less than $1.5 million and have 50% of its income from farming operations. 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 over time, usually three to five years. Chapter 13 is referred to as wage earner bankruptcy, personal bankruptcy or consumer bankruptcy and cannot be used by a partnership or a corporation. Individuals are not eligible for Chapter 13 if they have unsecured debts greater than $330,000 or secured debts greater than $1 million. Chapter 15 - The chapter of the Bankruptcy Code dealing with cases of cross-border insolvency. Chapter 7 - The chapter of the Bankruptcy Code providing for "liquidation." A case filed under chapter 7 of the Bankruptcy Code requires a debtor to relinquish ownership of its (his/her) assets, except certain exempt property, to a trustee who liquidates the assets and distributes monies to creditors according to the priority scheme set forth in the Bankruptcy Code. For an individual, the notion of a fresh start discharging him/her from pre-petition debts is at the heart of this type of bankruptcy. Chapter 7 Trustee - A person appointed in a chapter 7 case to liquidate the debtor’s assets and to perform other duties, including to distribute the proceeds from the liquidation to creditors and to investigate the debtor’s pre-bankruptcy financial transactions to determine if any are subject to avoidance. Chapter 9 - The chapter of the Bankruptcy Code providing for reorganization of municipalities (which includes cities and towns, as well as villages, counties, taxing districts, municipal utilities, and school districts). Only a few are filed each year. Chapters X, XI and XII - before Chapter 11 of the Bankruptcy Reform Act of 1978, these three chapters of bankruptcy existed for company bankruptcies that involved reorganization. Chapter X involved reorganization for larger companies that held public debt or equity, Chapter XI was for readjustment of debts of smaller, non-publicly held companies and Chapter XII was for companies with extensive holdings of real property. "Chapter 20" - An unofficial term describing the filing of a Chapter 7 proceeding followed by a Chapter 13. The Chapter 7 filing eliminates unsecured debts while the Chapter 13 filing handles continuing liens. "Chapter 22" - An unofficial term describing a company that has filed for Chapter 11 twice. Charged Off - This is an accounting term that means the creditor does not expect to collect on the debt. It relates to the creditor's taxes. It starts time periods under the Fair Credit Reporting Act. It does not mean that the debt is no longer legally enforceable. Claim - Any right to payment as well as any right to an equitable remedy for breach of performance if that breach also gives right to payment. It includes secured, priority and general unsecured claims. A right to payment may be liquidated, unliquidated, fixed, contingent, matured, unmatured, secured, unsecured, subordinated, legal or equitable. Class – A chapter 11 plan is required to place claims in different classes and to specify the treatment for each class. Debtors may try to manipulate classes in order to achieve confirmation of a plan over the objection of certain creditors. Collateral - The property which is subject to a lien. A creditor with rights in collateral is a secured creditor and has additional protections in the Bankruptcy Code for the claim secured by collateral. The measure of the secured claim is the value of the collateral available to secure the claim: it is possible to have a lien on property that is subject to a senior lien or liens such that the security available to pay the claim is really without value to the junior creditor. The general rule with respect to liens is "First in time, first in right." Composition - A contract between a debtor and two or more creditors where the creditors agree to take partial payment in full satisfaction of their claims. Confirmation Order – An order entered by the Bankruptcy Court that approves and thus makes binding a plan of reorganization or liquidation in chapter 11, or payment plan in chapter 12 or 13. The terms of the confirmed plan replace the prepetition rights of the debtor and creditors. Consumer Debtor - A debtor whose debts are primarily consumer debts. Contested Matter - Those matters, other than objections to claims, that are disputed but are not within the definition of adversary proceeding contained in Rule 7001. Contingent Claim - Used to describe debts that are not fixed in right at the time, but are dependent on some other event happening to fix the liability. For example, where the debtor is a guarantor on another person’s loan and that person has not defaulted yet. Conversion - Conversion refers to transforming a case under chapter 11 (reorganization) to a case under chapter 7 (liquidation) of the Bankruptcy Code. A bankruptcy case may be converted from one chapter of the Bankruptcy Code to another upon a motion filed by a party in interest or upon the court's own motion. For example, a debtor that had commenced a bankruptcy case under chapter 11 (reorganization) may subsequently conclude, or a judge--over a debtor's objection--may order, that the debtor is unable to reorganize its financial affairs and that liquidation under chapter 7 is the appropriate way to proceed. Core Proceedings - Those proceedings that are inherent in and fundamental to the administration of a bankruptcy case. Bankruptcy courts have jurisdiction to enter final orders in core proceedings. In non-core proceedings, the bankruptcy court enters proposed findings which must then be approved by the district court. Cramdown - Confirmation of a plan of reorganization over the objections of one or more classes of creditors. Credit Counseling - Generally refers to two events in individual bankruptcy cases: (1) the "individual or group briefing" from a nonprofit budget and credit counseling agency that individual debtors must attend prior to filing under any chapter of the Bankruptcy Code; and (2) the "instructional course in personal financial management" in chapters 7 and 13 that an individual debtor must complete before a discharge is entered. There are exceptions to both requirements for certain categories of debtors, exigent circumstances, or if the U.S. trustee or bankruptcy administrator have determined that there are insufficient approved credit counseling agencies available to provide the necessary counseling. Creditor - One to whom the debtor owes money or who claims to be owed money by the debtor. Creditors' Committee - A committee of representatives of a debtor's creditors appointed by the U.S. Trustee shortly after a case is filed. The committee acts on behalf of all creditors on negotiating a plan of reorganization and other major actions. In large, complex cases, there may be more than one such committee. Creeping Rollup – Used to describe DIP Financing that is used to pay down pre-petition debt over time, as compared to in a lump sum. Critical Vendor – A supplier of goods or services that are critical to the debtor’s ability to operate in bankruptcy that receives payment of all (or part of) its pre-petition claim shortly after the case is filed in exchange for agreeing to continue shipments or services. Cross Collateralization – Generally refers to provisions of a DIP Financing Order that authorize the use of post-petition collateral to secure a pre-petition obligation. Cure Claim – The amount that the debtor must pay in order to cure all defaults under an unexpired lease or executory contract that it wishes to assume. Current Monthly Income - The average monthly income received by the debtor over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and income from the debtor's spouse if the petition is a joint petition, but not including social security income and certain other payments made because the debtor is the victim of certain crimes. 11 U.S.C. § 101(10A). Debtor - A person or entity who is liable for debts, and who is the subject of a bankruptcy case. Debtor in Possession (or “DIP”) – Defines a post-petition debtor that continues to be managed by a board of directors, as opposed to a trustee. The DIP remains in possession of the debtor’s assets and is authorized to operate them in the ordinary course of business. The DIP is a fiduciary for the creditors of the estate, and owes them the highest duty of care and loyalty. Denial of Discharge – Penalty for debtor misconduct with respect to the bankruptcy case or creditors as a whole. The grounds on which the debtor's discharge may be denied are found in 11 U.S.C. 727. When the debtor's discharge is denied, the debts that could have been discharged in that case cannot be discharged in any subsequent bankruptcy. The administration of the case, the liquidation of assets and the recovery of avoidable transfers, continues for the benefit of creditors. DIP Financing Order – An order entered by a bankruptcy court that authorizes the DIP to obtain post-petition financing and to grant certain protections to the lenders that provide the financing. Section 364 of the Bankruptcy Code generally deals with DIP Financing. Dischargable Debts – Debts that can be eliminated in bankruptcy. Certain debts are not dischargeable; that it, they may not be discharged through bankruptcy or may only be discharged through Chapter 13. Student loans, family support obligations and criminal restitution obligations are examples of debts that cannot be discharged at all. Debts incurred by fraud can only be discharged in Chapter 13. Discharge - The legal elimination of debt through a bankruptcy case. When a debt is discharged, it is no longer legally enforceable against the debtor. It forever releases the debtor from pre-petition debts and permanently enjoins pre-petition creditors from collecting or attempting to collect pre-petition obligations. A corporate debtor that does not intend to continue operating post-bankruptcy (e.g., the debtor files a chapter 7 case or liquidates through chapter 11) does not obtain a discharge of any debts. Disclosure Statement - A document filed with the bankruptcy court in which the debtor's creditors are provided with adequate information from which they can vote on a plan of reorganization. It recites, among other things, the history of the debtor leading up to the filing, its financial and legal state of affairs and a summary of the plan of reorganization. Distressed – A term used to describe securities, companies and related items in or near bankruptcy or insolvency. The term does not have a strict, technical or legal definition. For example, a distressed security might be a security where the issuer has defaulted or a security that is selling at a substantially discounted price where a default is expected in the future. Docket - the schedule on which the clerk of the court records all motions, pleadings, memoranda, orders and all other court filings. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) - A standard accounting measure of the financial operating strength of a company. Although it is an accrual term, it is a reasonable estimate of the ability of an organization to produce cash before any capital outlays. ECF or Electronic Case Filing - ECF is a comprehensive case management system that allows courts to maintain electronic case files and offer electronic filing over the Internet. Courts make all case information immediately available electronically through the Internet. Effective Date - The date on which a plan of reorganization is implemented; usually it occurs after all the conditions to a plan of reorganization have been satisfied. Equitable Subordination - A legal doctrine codified in § 510(c) of the Bankruptcy Code that allows the claims of certain creditors to be involuntarily subordinated to the claims of other creditors based upon misconduct. Equity - The value of a debtor's interest in property that remains after liens and other creditors' interests are considered. (Example: If a house valued at $100,000 is subject to a $80,000 mortgage, there is $20,000 of equity.) Estate - All legal and equitable property of a debtor as of the commencement of bankruptcy. Examiner - An independent third party appointed by the court in a chapter 11 case to examine a particular issue (e.g., investigate a possible fraudulent transfer action). Exchange Offer - An offer by an issuer of debt securities to exchange new securities with less onerous provisions for currently outstanding securities. Companies often make exchange offers in an attempt to avoid bankruptcy. Exclusivity Period - A debtor in Chapter 11 has the exclusive right to file a plan of reorganization for the first 120 days of its bankruptcy. Thereafter, unless the period of exclusivity is extended by the court for cause, other parties may file reorganization plans. Pursuant to 2005 Amendments (BAPCPA), the exclusivity period cannot be extended beyond 18 months. Executory Contract - Under a widely accepted definition, the term refers to a contract in which there are material unperformed obligations on each side to the contract. An obligation is considered material if the failure to perform it would relieve the other party of its own performance obligations under applicable non-bankruptcy law. If a contract or lease is executory, a debtor may assume it or reject it and it may assign it. Exempt Property - Property that is exempt is removed from the bankruptcy estate and is not available to pay the claims of creditors. For example, in some states the debtor may be able to exempt all or a portion of the equity in the debtor's primary residence (homestead exemption), or some or all "tools of the trade" used by the debtor to make a living (i.e., auto tools for an auto mechanic or dental tools for a dentist). What property may be exempted is determined by state and federal statutes, and varies from state to state. Feasibility - Before a bankruptcy court can confirm a chapter 11 plan of reorganization, the court must find, among other things, that the proposed plan is not likely to be followed by liquidation or the need for further financial restructuring. That finding is generally referred to as the plan’s feasibility. Fee Examiner – A professional appointed by the bankruptcy court in a bankruptcy case to monitor fees paid to professionals in the bankruptcy case. Fraudulent Conveyance – A term that is used to describe a transfer of an interest of the debtor in property, or an obligation incurred by the debtor, with the actual intent to hinder, delay or defraud a creditor; or where the debtor received less than a reasonably equivalent value in exchange for such transfer and was insolvent or was rendered insolvent by the transfer. The trustee or a debtor-in-possession can bring suit in an effort to cause the recipient of a fraudulent transfer to return the property that was transferred fraudulently to the bankruptcy estate. Free Fall – A term that has come to describe a bankruptcy case that is filed without a lot of preparation and planning and without a clearly-defined strategy for exiting bankruptcy. Fresh Start – (a) The characterization of a debtor's status after bankruptcy, i.e., free of most debts. (Giving debtors a fresh start is one purpose of the Bankruptcy Code.) (b) informal term for the new accounting rules applicable to bankrupt companies. For companies that either filed for Chapter 11 after January 1991 or emerged from Chapter 11 after June 1991, assets are valued at market value rather than at historical cost. Gap Period - The period of time after the filing of an involuntary petition, but before the entry of an order for relief. Garnishment - A court ordered method of debt collection in which a portion of a person's salary is paid to a creditor. The process by which a judgment creditor seizes money, which is owed to his judgment debtor, from a third party known as a garnishee. General, Unsecured Claim - Creditor's claim without a priority for payment for which the creditor holds no security (or collateral). If the available funds in the estate extend to payment of unsecured claims, the claims are paid in proportion to the size of the claim relative to the total of claims in the class of unsecured claims. Going Concern Value - What a company is worth if sold as a continuing business, as opposed to its liquidation value. Going Dark – A term that describes a retail store that is ceasing operations post-bankruptcy. Going Dark Provision – A provision in a lease that triggers a default if the debtor ceases operations for a limited period of time. Health Care Business - This refers to the Bankruptcy Code definition of health care business now located at 11 U.S.C. §101(27A). The definition is a very broad definition that includes "any public or private entity (without regard to whether that entity is organized for profit or not for profit) that is primarily engaged in offering to the general public facilities and services for (i) the diagnosis or treatment of injury, deformity or disease and (ii) surgical, drug treatment, psychiatric or obstetric care." The section goes on to establish a non-exclusive list of entities that are to be considered health care businesses. Hypothetical Test - A construction of §365 of the Bankruptcy Code under which a contract cannot be assumed by the DIP if it is a “non-assignable contract” pursuant to § 365(c) of the Bankruptcy Code, even if the DIP ultimately does not intend to assign the contract. See Actual Test. Impairment - When a plan of reorganization alters the contractual rights of a class of holders of claims, that class is deemed to be impaired. A class that is unimpaired is deemed to automatically accept a plan of reorganization. Insider - A term used to describe an individual or entity that has a particularly close relationship with the debtor. Section 101 of the Bankruptcy Code specifies who may be considered an insider and includes, for example, a relative, director, officer, person in control, general partner affiliate or managing agent of the debtor. Bankruptcy Courts may give transactions with insiders greater scrutiny and the period during which a DIP or trustee can recover preferences is expanded to one year with respect to insiders. Insolvency – Another term used to describe a firm that is failing; generally it means that a firm's liabilities exceed its assets or that it is unable to satisfy its obligations as they come due. Interests - The equity interests of stockholders are often referred to in bankruptcy documents merely as "interests." Involuntary Bankruptcy - A bankruptcy initiated by at least three creditors holding unsecured claims that are not subject to a bona fide dispute as to liability or amount and that aggregate more than approximately $15,000. If the debtor has less than 12 creditors in the aggregate, only one petitioning creditor is required. Involuntary Case - A bankruptcy case initiated by creditor(s) against a debtor. In response to the filing of an involuntary case, the alleged debtor either can consent to the entry of an order for relief adjudicating it a debtor in bankruptcy or challenge the involuntary petition. If the alleged debtor resists the involuntary petition and is successful, the petitioning creditor(s) can be liable for damages caused by the filing, including, in some circumstances, punitive damages. Jointly Administered Cases - The combining of two or more bankruptcy proceedings for administrative convenience. Frequently, the cases of affiliated entities are jointly administered. Joint administration does not necessarily result in substantive consolidation. Joint Petition - One bankruptcy petition filed by a husband and wife together. Lien - An interest in real or personal property that secures a debt; the lien may be voluntary, such as a mortgage in real property, or involuntary, such as a judgment lien or tax lien. Having a lien generally provides the right to take and hold or sell the property of a debtor as security or payment for a debt or duty. Liquidated Claim - A debt that is for a known number of dollars is liquidated. An unliquidated debt is one where the debtor has liability, but the exact monetary measure of that liability is unknown. Tort claims are usually unliquidated until a trial fixes the amount of the liability of the tort feasor. Liquidating Reorganization (or Chapter 11) - An informal term for a Chapter 11 proceeding when the company is essentially liquidated through one or more asset sales. Liquidation Value - The aggregate value of a business if its assets are sold piecemeal. Marshaling - Where two or more creditors have secured claims against one debtor and the creditor with the senior claim can reach properties held by the debtor that the junior creditor cannot, the marshaling doctrine permits the junior creditor to force the senior creditor to seek satisfaction of its debt from the property that cannot be reached by the junior creditor. Matrix - A mailing list of creditors of the debtor. Done as part of the forms filled out for a Chapter 11 case. Make-Whole Premium – A provision in a debt instrument that requires the payment of an additional sum of money in the event of a prepayment in order to compensate for the loss of interest over the full term of loan. Means Test - Section 707(b)(2) of the Bankruptcy Code applies a "means test" to determine whether an individual debtor's chapter 7 filing is presumed to be an abuse of the Bankruptcy Code requiring dismissal or conversion of the case (generally to chapter 13). Abuse is presumed if the debtor's aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $10,950, or (ii) 25% of the debtor's nonpriority unsecured debt, as long as that amount is at least $6,575. 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. Added to the Code in 2005, the means test is intended to screen out those filing Chapter 7 who are supposedly able to repay some part of their debts. Meeting of creditors (or 341 meeting) - The debtor must appear at a meeting with the trustee to be examined under oath by a representative of the Office of the United States Trustee about assets and liabilities. Creditors are invited but seldom attend. The meeting is sometimes called the 341 meeting, after the section of the Bankruptcy Code that requires it. Motion To Lift Automatic Stay - A request that a creditor files with the Bankruptcy Court to obtain an order allowing the creditor to take an action against a debtor or the debtor’s property that would otherwise be prohibited by the automatic stay. No Asset Case - A chapter 7 case where there are no assets available to satisfy any portion of the unsecured claims. Non-dischargeable - A debt that cannot be eliminated in bankruptcy. Non dischargeable debts remain legally enforceable despite the bankruptcy discharge. The Code's list of non dischargeable debts is found at §523. The scope of the discharge in Chapter 13 differs from the discharge in Chapter 7. Some debts, such as debts for money or property obtained by false pretenses and debts for fraud or defalcation while acting in a fiduciary capacity may be declared nondischargeable only if a creditor timely files and prevails in a nondischargeability action. Non-monetary Default – A default under a lease that is not related to the failure to pay rent. Objection To Dischargeability - The filing of a complaint to have the bankruptcy court declare that a particular debt is non-dischargeable. Objection To Exemptions - A trustee's or creditor's objection to the debtor's attempt to claim certain property as exempt from creditors’ claims. Omnibus Hearing - An omnibus hearing is a Court hearing at which the Court may hear a variety of different matters relating to one particular case. Order for Relief - The order entered by the bankruptcy court adjudicating a person or entity a debtor and, therefore, under the protection of the bankruptcy court. PACER (Public Access to Court Electronic Records) - A service provided by the court system that gives case filing information. Party In Interest - An entity 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. Patient Care Ombudsman - The 2005 Bankruptcy Act added Bankruptcy Code Section 333 that requires a court in a health care business case to order the appointment of a patient care ombudsman unless "the court finds that the appointment of such ombudsman is not necessary for the protection of patients under the specific facts of the case." The duties of the patient care ombudsman are spelled out in Section 333. Perfection - When a secured creditor has taken the required steps to perfect his lien, the lien is senior to any liens that arise after perfection. A mortgage is perfected by recording it with the proper entity under applicable law; a lien in personal property is perfected by filing a financing statement with the applicable secretary of state. An unperfected lien is valid between the debtor and the secured creditor, but may be behind liens created later in time, but perfected earlier than the lien in question. An unperfected lien is subject to avoidance in bankruptcy by the trustee or DIP. Personal Bankruptcy – A bankruptcy case filed by an individual; also called a household bankruptcy, consumer bankruptcy or wage-earner bankruptcy. Individuals can file for bankruptcy under chapters 7, 11 and 13. Personal Property - Assets, such as cars, stock, furniture, etc., that is not real estate or affixed to real property, Petition - The document that is filed with the clerk of the bankruptcy court to commence a voluntary or involuntary bankruptcy case. The filing of the petition constitutes an order for relief and institutes the automatic stay. Events are frequently described as "prepetition", happening before the bankruptcy petition was filed, and "post petition", after the bankruptcy was initiated. Petition Preparer - A business not authorized to practice law that prepares bankruptcy petitions. Plan of Reorganization - The document that sets forth how the debtor proposes to restructure its financial affairs and to pay its creditors. The plan of reorganization is the cornerstone of a successful Chapter 11 bankruptcy. Post-Petition - The time period following the commencement of a bankruptcy proceeding. Postpetition Transfer - A transfer of the debtor's property made after the commencement of the case. Prebankruptcy Planning - The arrangement (or rearrangement) of a debtor's property to allow the debtor to take maximum advantage of exemptions. Preference - A pre-petition transfer of an interest of the debtor in property: to or for the benefit of a creditor; for or on account of a debt existing prior to the transfer; made while the debtor was insolvent (the Bankruptcy Code provides a presumption of insolvency within the 90-day period immediately preceding the filing); that enables the creditor to receive more than it would receive if the case were a chapter 7 case (liquidation). The trustee, or a debtor-in-possession, can cause the recipient to return to the bankruptcy estate property, or its value, that is a preference. The preference period extends back 90 days from the date of commencement of the case or one year when the recipient is an "insider." Prepackaged Bankruptcy – Describes a process where a company and its creditors agree to a plan of reorganization before the company files a bankruptcy petition. In a true prepackaged bankruptcy, a plan of reorganization is circulated and approved by creditors before the petition is filed. The court then confirms the plan and the company emerges from bankruptcy quickly. Pre-Petition - The time period prior to commencement of a bankruptcy proceeding. Priority - The Bankruptcy Code establishes the order in which claims are paid from the bankruptcy estate. All claims in a higher priority must be paid in full before claims with a lower priority receive anything. All claims with the same priority share pro rata. Claims are paid in this order: 1) costs of administration 2) priority claims and 3) general unsecured claims. Secured claims are paid from the proceeds of liquidating the collateral which secured the claim. Priority Claim - An unsecured claim asserted against the bankruptcy estate that, according to Section 507 of the Bankruptcy Code, is entitled to be paid after secured creditors but before other unsecured creditors (e.g., administrative claims, wage claims or tax claims). Proration – The concept that Stub Rent obligations are payable in a timely manner and not deferrable as administrative expense claim Professional Person - A professional such as an attorney, accountant or appraiser who is employed to render services on behalf of the debtor's estate. Proof Of Claim - A written statement and verifying documentation filed by a creditor that describes the reason the debtor owes the creditor money. (There is an official form for this purpose.) Property Of The Estate - All legal or equitable interests of the debtor in property as of the commencement of the case. Reaffirm - The debtor can chose to waive the discharge as to a debt that is reaffirmed. Generally, the parties to the reaffirmed debt have the same rights and liabilities that each had prior to the bankruptcy filing: the debtor is obligated to pay and the creditor can sue or repossess if the debtor doesn't pay. Reaffirmation Agreement - An agreement by a chapter 7 debtor to continue paying a dischargeable debt (such as an auto loan) after the bankruptcy, usually for the purpose of keeping collateral (i.e. the car) that would otherwise be subject to repossession. Receiver - A disinterested person appointed by a state court of equity to administer, care for, collect and dispose of property. A receiver is not appointed in a bankruptcy case. Recharacterization of Debt - An equitable doctrine pursuant to which a creditor's claim can be recharacterized from debt to equity. This situation usually emerges where an insider makes a "loan" to a debtor and engages in other conduct that is found to be inequitable. Under certain circumstances, courts can consider such "loans" as capital contributions, invested in the hope of returns, which should not be allowed to be paid before or on par with the claims of general creditors who have not bargained for the risks and rewards associated with equity interests. Recoupment - The common law doctrine of recoupment, which allows a reduction or satisfaction of a claim, applies where a creditor's claim against a debtor arises from the same transaction as a debtor's claim against the creditor. Recoupment is distinguished from setoff, which is addressed specifically by Section 553 of the Bankruptcy Code. Rejection - Bankruptcy Code §365 gives a debtor a right to reject executory contracts and unexpired leases of nonresidential real property. This rejection is deemed a breach of the contract or lease as of the petition date. The creditor is entitled to a claim for damages for the breach of the lease or contract, which is considered a general unsecured claim. Rejection Deadline – The last day by which the debtor must decide whether to assume or reject unexpired leases and executory contracts. Relief from Stay - A creditor can ask the judge to lift the automatic stay and permit some action against the debtor or the property of the estate. If the motion is granted, the moving party (but no one else) is free to take whatever action the court permits. Relief can be absolute, for example, permitting the creditor to foreclose on property, or limited, as for example, allowing the recordation of a notice of default. Reorganization - The resolving of a Chapter 11 bankruptcy by the emergence of the debtor as a viable business. Generally, the company agrees with creditors on a plan for payment of their claims (plan of reorganization) and emerges from Chapter 11 after the plan is confirmed by the court. Replevin - A lawsuit to recover personal property that is commenced by a creditor who has title or right to possession of such property (e.g., a right to foreclose upon the property). Repossession - Once in default, as defined by the creditor in the security agreement, occurs, the creditor can: repossess the collateral by self-help (depending on state law) or with the aid of a court order, dispose of the collateral by public or private foreclosure sale, retain the collateral in satisfaction of the debt, terminate the debtor's right of redemption, add the costs of repossession and foreclosure to the unpaid balance of the debt, and pursue the debtor for any remaining unpaid balance or deficiency. Roll-up – A term used to describe DIP Financing in which a part of the loan is used to pay down pre-petition indebtedness in a lump sum. The pre-petition indebtedness is rolled up into the post-petition loan. See Creeping Roll-up. Sale Guidelines – The terms proposed by the DIP or Trustee that for the sale of the debtor’s assets. Schedules - The debtor must file schedules of its assets and liabilities with the bankruptcy court within 15 days after commencing a bankruptcy case unless granted an extension of time. The schedules detailed lists filed by the debtor showing the debtor's assets, liabilities, and other financial information. (There are official forms a debtor must use.) Section 502(b)(6) Cap - Bankruptcy Code §502(b)(6) imposes a cap on damages collectable by lessors for damages arising from the termination of a lease. The cap limits damages to the greater of the rent reserved by the lease for one year, or for 15 percent of the remainder of the lease, not to exceed three years. Section 524(g) Plan – A plan that establishes a mechanism for dealing with a debtor’s asbestos liabilities by channeling them to a trust and enjoining claimants for pursuing the debtor post-petition. Secured Creditor - Creditors who have a lien, mortgage or other property interest on property of the debtor and, hence, in property of the estate. Secured Debt - A claim secured by a lien in the debtor's property by reason of the debtor's agreement or an involuntary lien such as a judgment or tax lien. The creditor's claim may be divided into a secured claim, to the extent of the value of the collateral, and an unsecured claim equal to the remainder of the total debt. Generally a secured claim must be perfected under applicable state law to be treated as a secured claim in the bankruptcy. Setoff - At times, a party is both a creditor and a debtor of another party. Setoff is the cancellation of cross-demands between two parties. A creditor only may exercise its setoff rights in a bankruptcy case after obtaining relief from the automatic stay and provided that the creditor is seeking to offset pre-petition debts. Section 553 of the Bankruptcy Code expressly preserves the right of setoff, although relief from the stay is needed to effectuate a post-petition setoff. Skeleton Filing – A term used at bankruptcy courts to describe a bankruptcy filing in which not all the necessary forms have been filed. Certain courts allow a case to commence if only certain important forms are filed so long as the balance of required forms are forthcoming within a certain period of time. Small Business Case - A special type of chapter 11 case in which there is no creditors' committee (or the creditors' committee is deemed inactive by the court) and in which the debtor is subject to more oversight by the U.S. trustee than other chapter 11 debtors. The Bankruptcy Code contains certain provisions designed to reduce the time a small business debtor is in bankruptcy. Small Claims (also sometimes called convenience claims) - Under a plan of reorganization or liquidation, claims that are small (e.g. in the hundreds or thousands of dollars range) and numerous are often grouped into a single class and settled for cash for administrative convenience. Stalking Horse – An entity that makes an initial offer to acquire the assets of a debtor. That offer usually sets a benchmark for higher and better offers. The stalking horse usually obtains certain benefits in exchange for agreeing to lead the pack of potential bidders, including a break-up fee and bid protection. Statement of Financial Affairs - The debtor must file a statement of financial affairs, setting forth various matters regarding the status of the debtor's legal and financial affairs, within 15 days after commencing a bankruptcy case, unless granted an extension of time. Statement Of Intention - A declaration made by a chapter 7 debtor concerning plans for dealing with consumer debts that are secured by property of the estate. Straight Bankruptcy - An informal term for a Chapter 7 bankruptcy or liquidation; used more commonly to describe liquidation before the Bankruptcy Reform Act of 1978. Stub Rent – The portion of post-petition rent that is due during the first month of the bankruptcy case. . Substantial Abuse - A term that refers to the abuse of the privilege to file a petition. It usually describes fraud in cases of personal bankruptcy. Substantive Consolidation - Substantive consolidation is a concept whereby the assets and liabilities of two or more related entities are treated as if they belong to a single entity. Substantive consolidation may be appropriate where (a) the affiliated entities operated as a single economic unit and their respective creditors did not rely on their separate legal status in extending credit or (b) the business affairs and operations or the affiliated entities are so entangled that the creditors will benefit because untangling the entities is impossible or costly. Substantive consolidation is often considered (although infrequently applied) in the case of parent/subsidiary debtors and other affiliated entities. Super-Priority Claim - An administrative claim that will be paid ahead of other administrative and priority claims. Transfer - Any mode or means by which a debtor disposes of or parts with his/her property. Trustee - The representative of the bankruptcy estate who exercises statutory powers, principally for the benefit of the unsecured creditors, under the general supervision of the court and the direct supervision of the U.S. trustee or bankruptcy administrator. The trustee is a private individual or corporation appointed in all chapter 7, chapter 12, and chapter 13 cases and some chapter 11 cases. The trustee's responsibilities include reviewing the debtor's petition and schedules and bringing actions against creditors or the debtor to recover property of the bankruptcy estate. In chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in chapter 12 and 13 have similar duties to a chapter 7 trustee and the additional responsibilities of overseeing the debtor's plan, receiving payments from debtors, and disbursing plan payments to creditors. The term "trustee" in a chapter 11 case is generally used interchangeably with "debtor-in-possession," and describes the rights and duties of the person/entity that operates the debtor-in-possession. There can also be a chapter 11 trustee appointed by the court for cause. U.S. Trustee - An officer of the Justice Department responsible for supervising the administration of bankruptcy cases, estates, and trustees; monitoring plans and disclosure statements; monitoring creditors' committees; monitoring fee applications; and performing other statutory duties. Undersecured Claim - A debt secured by property that is worth less than the full amount of the debt. Unliquidated Claim - A claim for which a specific value has not been determined. Unscheduled Debt - A debt that should have been listed by the debtor in the schedules filed with the court but was not. Depending on the circumstances, an unscheduled debt may or may not be discharged. Unsecured - A claim or debt is unsecured if there is no collateral that is security for the debt. Most consumer debts are unsecured. Unsecured Creditor - Those creditors who have pre-petition claims against the debtor and who do not have any form of lien, mortgage or other entitlement to priority. In a bankruptcy case, unsecured creditors are paid on a pro rata basis only after all secured creditors and creditors holding priority claims have been paid in full. Voluntary Bankruptcy – A bankruptcy case filed by the debtor itself, as compared to an involuntary bankruptcy case filed against the debtor. Vulture Funds (also referred to as vulture capitalists or vulture investors) - Investment groups that actively participate in the restructuring of financially distressed and bankrupt companies usually by the buying or selling of large pieces of the distressed company's debt and/or equity. Workout - An arrangement, outside of bankruptcy, by a debtor and its creditors for payment or re-scheduling of payments of the debtor's obligations. Usually applies to an informal agreement between a business and its creditors, although it can be a formal agreement and it can also apply to consumer debtors. X-Clause – A provision in an intercreditor agreement that addresses second lien lender's rights to receive and retain debt and equity securities pursuant to a plan of reorganization of the borrower. It is called an “X-Clause” because it constitutes an exception to the general rule of lien subordination that requires that any and all first lien lender debt must be paid in full, in cash, before anything of value is distributed to the second lien lender with respect to second lien obligations.