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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.
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.
Automatic stay
The suspension of actions, such as debt collection or foreclosure, against the company in bankruptcy. Occurs automatically when the bankruptcy petition is filed.
Foreclosure
Your mortgage lender may start a foreclosure action and sell your home at a Sheriff's sale. If the sale nets less than you owe, there will be a "deficiency balance" that you will own to the lender.
Chapter Seven
Liquidation proceedings; generally assets are sold by a trustee and the company ceases operation. (Individuals may file Chapter 7 also.)
Asset
An economic resource or item owned by a business that is expected to benefit its future operations.
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.
Secured creditors
One of two general types of creditors of a company. Secured creditors have a lien on property of the company.
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.
Debtor
The entity seeking protection from creditors under the bankruptcy laws.
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