Issue link: https://mbozikis.ufcontent.com/i/1422521
56 provisions, will be fully enforced in bankruptcy. 11 U.S.C. ยง 541(c)(2). Although the Bankruptcy Code contains extensive provisions spelling out what is and is not property of the estate, the ultimate determination of what is property of the estate is often governed by applicable State law. Butner v. United States, 440 U.S. 48, 54-55, 99 S. Ct. 914, 917-18, 59 L.Ed. 2d 136 (1979). This creates a situation where the classification of the transaction can vary within the same case because of the different treatment under applicable State law. A good example is the treatment of oil and gas leases in bankruptcy cases where a debtor may have oil and gas leases in several different states. The law of some states such as Texas and Oklahoma treats oil and gas leases as conveyances of real property fee interests, while the law of other states treats them as executory contracts, which can be rejected in bankruptcy. 2. Substantive Consolidation Although estates generally are delineated on a debtor-by- debtor basis, there are situations where a court may instead consolidate the assets and liabilities of different legal entities and deal with such entities as if the assets were held and the liabilities were owed by a single entity. This is referred to as "substantive consolidation." 22 Substantive consolidation merges the assets and liabilities of multiple debtor entities into a single debtor estate to which all holders of allowed claims against the merged entities are required to look for distribution, and results in all unsecured creditors of the consolidated debtors receiving the same percentage distributions. This can alter the distributions to be received by such creditors as compared to what they would have received in the absence of substantive consolidation. 23 For instance, if one debtor entity has a higher percentage of assets to liabilities than 22 This differs from joint administration, which is merely a procedural accommodation when multiple related debtors are involved. For a complete discussion of joint administration, see Chapter IV.B.1. 23 Substantive consolidation generally only affects the rights of unsecured creditors and, in some instances, equity holders. Secured creditors are not directly affected.