A Glossary of Terms for Filing Bankruptcy (Part 3)

As part of an ongoing, educational blog series, the RGG Law team presents another entry focusing on some of the more specific and enigmatic terms related to filing bankruptcy. If you are filing bankruptcy, or are about to, there a lot of words you might hear being used that sound like legal jargon.

At RGG Law, we want you to feel confident in knowing that you are a part of the process, and that you know what to expect and why. So, to give you a head start, here are a few more phrases and their definitions to be aware of when filing bankruptcy.

Absolute Priority

During bankruptcy proceedings, “absolute priority” refers to the order in which payments are made to different creditors based on the Bankruptcy Code. Based on certain, specific requirements determined during the case, some claimants are given a higher priority and are required to be paid in full before other, lower priority claimants receive any payments.

For example, senior creditors will be paid first, with junior creditors and shareholders paid afterward. This is important to know, as it can help you determine where your payments will be going and why after filing bankruptcy.

Core Proceedings

When you begin the bankruptcy process, it can be difficult to keep up with everything that is happening. This is especially true when you consider that you will likely be more focused on your own future financial concerns.

Whatever else may be happening, the “core proceedings” of a bankruptcy case are the steps that are determined by the bankruptcy court. While subject to jurisdiction, core proceedings are essential to the administrative proceedings of any bankruptcy case.

Distressed

If you are filing bankruptcy for a business, you are likely to hear, or have heard already, the word “distressed”. Although a general term, it does have a specific meaning in relation to bankruptcy – a distressed business, for example, is one that is in or nearing bankruptcy or outright insolvency.

While it refers specifically to something or someone in the process, or on the brink of bankruptcy, it does not have a definitive use in terms of what kind of bankruptcy. As a result, you might hear this word used in a similar way in a variety of bankruptcy cases.

Substantive Consolidation

“Substantive consolidation” is a term used in bankruptcy that sounds far more complicated than it is. In simpler terms, substantive consolidation is the combining of the estate belonging to one debtor to that of another, or a number of others, to pay combined liabilities.

Think of it as pooling resources with a debtor in order to pay off related claimants. Although this explanation of the term is simple, substantive consolidation is typically applied to very specific types of cases.

RGG Law and Filing Bankruptcy

It is important to remember that these blog entries from RGG Law are purely for general information. If you need specialized representation or informed help when you file for bankruptcy, contact your local bankruptcy law firm today.