Understanding the Bankruptcy: A Helpful Glossary

Understanding the Bankruptcy: A Helpful Glossary

My new favorite website — and I’ll be fickle, I’m sure, so expect another one soon! – is the Glossary on the U.S. Courts website.

And it’s not just for the casual bankruptcy observers. Here’s the site’s introduction:

“Most debtors who file a bankruptcy petition, and many of their creditors, know very little about the bankruptcy process. Bankruptcy Basics is designed to provide debtors, creditors, judiciary employees, and the general public with a basic explanation of bankruptcy and how it works. This glossary on bankruptcy terminology explains, in layman’s terms, many of the legal terms that are used in cases filed under the Bankruptcy Code.”

Here are the definitions from the site of a few of the terms we’ve heard tossed about by attorneys, reporters and spokespeople. Now you don’t need to be afraid to ask what they mean!

Note: Chapter 11 is the section of the U.S. Bankruptcy Code that applies to private companies. It’s a Chapter 9 for a municipality, like Detroit. Chapter 11 may be referenced instead of Chapter 9 — there are a lot more private bankruptcies than public ones.

Claim: A creditor’s assertion of a right to payment from the debtor or the debtor’s property.

Disclosure Statement: A written document prepared by the chapter 11 debtor or other plan proponent that is designed to provide “adequate information” to creditors to enable them to evaluate the chapter 11 plan of reorganization.

Plan (as in Plan of Adjustment): A debtor’s detailed description of how the debtor proposes to pay creditors’ claims over a fixed period of time.

Secured Creditor: A creditor holding a claim against the debtor who has the right to take and hold or sell certain property of the debtor in satisfaction of some or all of the claim.

Secured Debt: Debt backed by a mortgage, pledge of collateral, or other lien; debt for which the creditor has the right to pursue specific pledged property upon default. Examples include home mortgages, auto loans and tax liens.

Undersecured Claim: A debt secured by property that is worth less than the full amount of the debt.

Unsecured Claim: A claim or debt for which a creditor holds no special assurance of payment, such as a mortgage or lien; a debt for which credit was extended based solely upon the creditor’s assessment of the debtor’s future ability to pay.

-By WDET’s Sandra Svoboda

@WDETSandra and nextchapter@wdet.org