My point is going over your head. Pledging money that you will never receive to get over the finish line is not the best offer. You could not consider such debt in any other purchase. Going back to that example, if the guy owed $2B pledged to buy the asset for $500M and the other one didn't even know about the auction, or instead pledged $501M, then the one who was owed less would be stealing from the one who was owed more. The fact that neither of them has any actual money is another very troublesome point on its own, as is the fact that the bidding was completely private. There might have been someone willing to pay 10x the winning bid for InfoWars in actual cash and been out of the loop.

Put it in any other context. Do you think a bank would issue a loan whose repayment was contingent on income from an individual who was seeking relief in bankruptcy? Obviously they would not. The court has an obligation to not accept fugazi money to buy real assets.

My understanding is that the other (minor) creditors would get more cash in the Onion offer because the Sandy hook reps weren’t going to take their huge cut in the event their preferred bid was accepted. That means in any other deal, the other creditors would be strictly worse off. The families would be financially worse off but they were the ones driving the decision, so they clearly felt holistically better off.

I don’t see how they shouldn’t be able to take less money themselves as long as the other creditors also got more money.

In your theoretical framework you can. In real-life bankruptcy court, you almost certainly can't.

Honestly I don't see how this theoretical framework is much different from corporate leveraged buyouts.

This isn't a leveraged buyout. Also this structure is not at all like a leveraged buyout.

Says who? It was clearly going to work like that until more lawyer nitpicking intervened about the auction (not the sale itself).

You are absolutely correct. Matt Levine wrote about this topic in his newsletter the other day. Well worth subscribing if corporate/legal shenanigans interest you.