Bankruptcy Terms and Definitions

Voluntary bankruptcy
Bankruptcy filed by the debtor itself; data from the U.S. Administrative Office of the Courts subdivides bankruptcies into voluntary and involuntary.

Avoidance power
The power of the court to invalidate certain obligations or transactions undertaken by a debtor prior to filing bankruptcy.

Bankruptcy estate
Generally, the property of the debtor that is subject to the jurisdiction of the bankruptcy court.

Debtor-in-possession
The debtor which remains in control of operations; as opposed to having a trustee operate the company.

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.

Chapter Seven
Liquidation proceedings; generally assets are sold by a trustee and the company ceases operation. (Individuals may file Chapter 7 also.)

Trustee
An agent of the court who manages the property of the debtor for the benefit of the creditors. The court appoints a trustee in most Chapter 7 cases and in Chapter 11 cases when it determines that the debtor's management should not remain in control.

Debtor
The entity seeking protection from creditors under the bankruptcy laws.

Post-petition
Occurring after the filing of a petition. Preference - a payment by a debtor made during a specified period (90 days or one year) prior to the filing that favors one creditor over others.

Liquidation value
The aggregate value of a business if its assets are sold piecemeal.