Bankruptcy Terms and Definitions

Reorganization
The resolving of a Chapter 11 bankruptcy by the emergence of the debtor as a viable business. Generally, the company agrees with creditors on a plan for payment of their claims (plan of reorganization) and emerges from Chapter 11 after the plan is confirmed by the court.

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

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

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

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.

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

Chapter Twelve
Family farmer bankruptcies; created by Congress in 1986 (Chapter 12 became effective on November 26, 1986 and is now a permanent Chapter of the Bankruptcy Code); only a family owned farm business can qualify for Chapter 12

Adversary proceeding
Litigation within a bankruptcy proceeding instituted by the filing of a complaint.

Bankrupt
The entity that files a bankruptcy; the debtor; the insolvent entity. This is a non-technical term and is not used in the Bankruptcy Code.

Bankruptcy Court
The federal tribunal where cases under the Bankruptcy Code are litigated.