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.

Straight bankruptcy
An informal term for a Chapter 7 bankruptcy or liquidation; used more commonly to describe liquidation before the Bankruptcy Reform Act of 1978.

Forbearance and Repayment
The most common way of resolving a loan default is to work out a plan which will let you repay part of the delinquency each month, along with you regular monthly installment.

Secured creditors
One of two general types of creditors of a company. Secured creditors have a lien on property of the company.

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

Default
The failure by an entity to abide by the covenants in a debt obligation or other agreement to which it is a party. The most common default is non-payment of interest or principal.

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

Repo Laws Repossess
The repo laws: If you don't make your car payments for a number of months, your lender may repo or repossess your car. Without a car you may not be able to get to work.

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.