Plain English Glossary of Bankruptcy Creditor Terminology

In the following definitions, “you” refers to the supplier who provided goods or services to a customer. “Customer” refers to a company that received the goods or services and later filed for bankruptcy.

“Antecedent debt” – This is an obligation of your customer to pay you after you deliver goods or provide services. If your customer paid you for a delivery before the delivery, there was no antecedent debt. What actually occurs, and not what you expected to happen, decides if an antecedent debt exists. For example, if your customer paid you by check before delivery, you deliver, and the check bounces, what you are owed becomes an antecedent debt.

“Avoidable” or “Voidable” – These words mean the same thing in a bankruptcy. The words are used to refer to a transfer from your customer to you that can be cancelled. Once a transfer is cancelled, you have to give back what you received or the value of what you received in the transfer.

“Chapter 11” – This refers to the part of the US Bankruptcy Code that allows a company to try and continue its operations by reorganizing its finances and operations.

“Chapter 7 Trustee” – This is a person appointed by the US Trustee, as the representative of the debtor’s estate, for the recovery, preservation, liquidation, and distribution of the customer’s assets. He or she is not a government employee. He or she is usually a lawyer or accountant.

“Chapter 7” – This refers to the part of the US Bankruptcy Code providing for a liquidation of a company in bankruptcy.

“Debtor in possession” – If your customer remains in control of its business during the bankruptcy, then it is a “debtor in possession”. If a “Chapter 7 Trustee” (see definition above) is appointed, he takes over your customer, and your customer is no longer a “debtor in possession”.

“Debtor’s estate” – This covers everything that your customer has rights in or to at the time of filing for bankruptcy and during the bankruptcy. Your customer does not have to own something for it to be part of the debtor’s estate. For example, if your customer has a right to use equipment under lease, the right to use that equipment is in the debtor’s estate.

“Debtor” – This is the name for your customer whenever it is referred to in the bankruptcy case.

“Executory Contract” – A contract between your company and the now bankrupt customer under which both you and the customer still have material performance obligations to one another.

“Insolvent” – Your customer’s liabilities exceed the fair value of its assets.

“Liquidation” – This means that your customer or the Chapter 7 Trustee is selling all the customer’s assets.

“Payment” – This is anything of value your customer gives you to pay what your customer owes you. A payment may be in money, providing you services or by offsetting an amount that you owed the customer.

“Preference period” – The preference period for you, like most suppliers, is the period that starts on the 90th day before your customer filed bankruptcy and ends on the day of filing. There is a longer period of 1 year for insiders (people who by ownership, contract or relationship have the ability to exert control over the debtor).

“Transfer” – This is anything of value, whether or not tangible, that your customer gives to you for any reason. A payment (as defined above) is just one type of transfer. There are many types of transfers. For example, if your customer gives you a security interest in its inventory (even inventory you provided), the giving of that security interest is a transfer. Also, if your customer returns to you goods it can not pay for, that return is a transfer.

“Trustee” – This usually means the Chapter 7 Trustee (see definition above), but sometimes is used to refer to the US Trustee (see definition below). If the case is a Chapter 11, then the reference is to the US Trustee. If the case is a Chapter 7, the reference usually is to the Chapter 7 Trustee.

“United States Trustee” – This is a Department of Justice attorney whose job it is to oversee the day-to-day administration of bankruptcy cases. He or she is also responsible for ensuring compliance with applicable laws and procedures and identifying and investigating bankruptcy fraud and abuse.