{"id":2559,"date":"2014-04-24T09:00:39","date_gmt":"2014-04-24T14:00:39","guid":{"rendered":"https:\/\/nybankruptcy.net\/main\/?p=2559"},"modified":"2018-12-10T03:15:56","modified_gmt":"2018-12-10T03:15:56","slug":"what-is-substantive-consolidation-in-bankruptcy","status":"publish","type":"post","link":"https:\/\/nybankruptcy.net\/main\/what-is-substantive-consolidation-in-bankruptcy\/","title":{"rendered":"What Is ‘Substantive Consolidation’ in Bankruptcy?"},"content":{"rendered":"

There can be times when the bankruptcy court decides that fusing two or more debtors’ cases into one can benefit both the debtors and both the debtors’ the creditors. The term for this in the bankruptcy lingo is “substantive consolidation.” It’s an equitable power given to the bankruptcy court in 11 U.S.C. \u00a7 105(a), a statute that came up recently<\/a> in the Supreme Court case about the debtor who fought over a surcharge on his fraudulent homestead exemption. As an equitable power, the bankruptcy court’s ability to consolidate two or more debtors in bankruptcy is not explicitly specified by the Bankruptcy Code and requires balancing the interests of the creditors. It is, however, codified in the Federal Rules of Bankruptcy Procedure Rule 1015<\/a>.<\/p>\n

The most common situation in which substantive consolidation occurs is when debtors want to combine similar business bankruptcies into one case. The trustee might be able to sell the larger estate to a single buyer to the benefit of most parties. Generally it\u2019s to the debtors\u2019 advantage to combine cases because one plan can cover multiple entities, such as in a chapter 11 case.<\/p>\n

In other circumstances, though, substantive consolidation is used to prevent debtors from evading their creditors by creating multiple businesses that in truth operate as one. For example, let’s say a person creates two businesses and loads one down with debt while keeping the other solvent. The person then takes the insolvent, first business into bankruptcy. The creditors can expect to receive little, so what they might do is move for an involuntary bankruptcy of the second entity and ask the court to consolidate both entities’ assets into a single bankruptcy estate. Needless to say, the creditors of the solvent, second business might not like this arrangement because it often means they’ll receive less than what they expected. These are the interests the bankruptcy court needs to balance.<\/p>\n

Because creditors can stand to lose quite a bit of money if a more solvent debtor’s case is consolidated with a more insolvent one’s, they may need to hire a bankruptcy lawyer to fight a consolidation. Conversely, a creditor seeking to increase the size of the bankruptcy estate might need a bankruptcy lawyer to bring two debtors together in the same case.<\/p>\n

Aside from business bankruptcy, other common situations in which substantive consolidation occurs is when two or more people file joint petitions or two or more petitions, usually married partners. For the most part, the debtors benefit as their household functions jointly anyway, but some couples might prefer keeping their debts separate and have only one partner file. Later on, it might be necessary to add the second partner, such as in a chapter 13 case where the original debtor cannot make the scheduled payments. Substantive consolidation is more likely to create hassles when debtors’ businesses or partnerships with other debtors are involved.<\/p>\n

Substantive consolidation sounds like a complicated term, but it’s really just a simple mechanism the bankruptcy court can use to benefit the parties fairly.<\/p>\n

For answers to more questions about joint bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy lawyer<\/a> Bruce Weiner for a free initial consultation.<\/p>\n","protected":false},"excerpt":{"rendered":"

There can be times when the bankruptcy court decides that fusing two or more debtors’ cases into one can benefit both the debtors and both the debtors’ the creditors. The term for this in the bankruptcy lingo is “substantive consolidation.” It’s an equitable power given to the bankruptcy court in 11 U.S.C. \u00a7 105(a), a …<\/p>\n

What Is ‘Substantive Consolidation’ in Bankruptcy?<\/span> Read More \u00bb<\/a><\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"default","ast-global-header-display":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"default","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":""},"categories":[16,126,116,26,31,7],"tags":[2,71,29],"acf":[],"yoast_head":"\nWhat Is 'Substantive Consolidation' in Bankruptcy? -<\/title>\n<meta name=\"description\" content=\"There can be times when the bankruptcy court decides that fusing two or more debtors' cases into one can benefit both the debtors and both the debtors'\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/nybankruptcy.net\/main\/what-is-substantive-consolidation-in-bankruptcy\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What Is 'Substantive Consolidation' in Bankruptcy? 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