Bankruptcy Terms and Definitions

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.

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

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

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.

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

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.

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

Core proceedings
Those proceedings that are inherent in and fundamental to the administration of a bankruptcy case.

Skeleton filing
Term used at bankruptcy courts to describe a bankruptcy filing in which not all the necessary forms have been filed. Certain courts allow a case to commence if only certain important forms are filed so long as the balance of required forms are forthcoming within a certain period of time.