Bankruptcy Terms and Definitions

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

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

Chapter Twenty Two
An unofficial term describing a company that has filed for Chapter 11 twice.

Chapter Seven
Liquidation proceedings; generally assets are sold by a trustee and the company ceases operation. (Individuals may file Chapter 7 also.)

Post-petition
Occurring after the filing of a petition. Preference - a payment by a debtor made during a specified period (90 days or one year) prior to the filing that favors one creditor over others.

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

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).

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.

Set-off
The ability to discharge or reduce a debt by applying a counter claim between the same parties.

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