Bankruptcy Terms and Definitions

Substantive consolidation
The combination of the estate of one debtor with the estate of one or more other debtors and the application of the combined estate to satisfy their combined liabilities.

Reverse leveraged buyout
When a company that was a leveraged buyout restructures its (usually unmanageable) debt by issuing new equity (usually in exchange for some or all of the outstanding debt incurred during the original leveraged buyout).

United States Trustee
An agent of the U.S. Department of Justice appointed to assist in bankruptcy cases. The U.S. Trustee administers many of the duties of the court including appointing committees.

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.

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.

Disclosure statement
A comprehensive disclosure document sent to creditors when they are asked to vote on a plan of reorganization in Chapter 11.

Chapter Thirteen
Bankruptcy proceedings for an individual with the intention of rescheduling the individual's debt (rather than liquidating the individual's assets and debt; an individual files under Chapter 7 to liquidate);

Absolute priority
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

Garnishment Laws
Unsecured creditors in relation to garnishment laws do not hold any collateral that they can take from you if you fall behind on your payments.

Petition
The document that commences a bankruptcy proceeding. plan of reorganization - the document setting forth how a bankrupt company plans to satisfy its creditors.