Bankruptcy Terms and Definitions

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

Chapter Nine
Bankruptcies of municipalities; only a few of these are filed each year; over the period 1980 through 1988 there averaged about 4 Chapter 9 filings per year.

Automatic stay
The suspension of actions, such as debt collection or foreclosure, against the company in bankruptcy. Occurs automatically when the bankruptcy petition is filed.

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.

Liquidating reorganization
An informal term for a Chapter 11 proceeding when the company is essentially liquidated through one or more asset sales.

Foreclosure
Your mortgage lender may start a foreclosure action and sell your home at a Sheriff's sale. If the sale nets less than you owe, there will be a "deficiency balance" that you will own to the lender.

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

Asset
An economic resource or item owned by a business that is expected to benefit its future operations.

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.

Chapter Twenty
An unofficial term describing the filing of a Chapter 7 proceeding followed by a Chapter 13.