Attorneys’ Group Concerned Chapter 11 Can’t Handle Modern Debts
Chapter 11 bankruptcy is designed to offer relief to business corporations and partnerships that have become overwhelmed by debt. In some cases, Chapter 11 bankruptcy can also be helpful to high-income individuals who do not qualify for relief under Chapter 7 or Chapter 13.
Chapter 11 was developed more than 30 years ago as a way for filers to reorganize their financial affairs and pay creditors back over time. Recently, though, a number of prominent bankruptcy lawyers have begun to voice concerns that the current Chapter 11 system may not be well-suited to the realities of the modern age.
For one thing, Chapter 11 is not set up to handle the new types of Wall Street-brokered debt that became popular over the last decade. Many large companies fell into trouble when the securitized debt market collapsed during the recession.
In some cases, these debt instruments can be traded as a way for outside individuals or organizations to gain control during a Chapter 11 bankruptcy.
Even smaller organizations may run into trouble, as Chapter 11 reorganization can be prohibitively expensive. Instead, filers are left with no choice but to liquidate, which makes it much harder to save the business in the long run.
Commission to Study Chapter 11 Bankruptcy Reforms
The American Bankruptcy Institute has convened a commission of bankruptcy experts to come up with a plan to reform the Chapter 11 bankruptcy system. That group held its first meeting in April 2012.
The commission's goal is to develop a system that will work for companies from all different sectors of the economy, regardless of their size. Although no specific proposals have been put forward, commission members have agreed to focus on the following topics:
- How to determine the value of a company and its assets
- How to manage labor and benefits issues
- Methods for distributing money to creditors
- Deadlines for filers to decide which contracts and leases they wish to keep
The American Bankruptcy Institute doesn't directly lobby Congress, but it hopes the commission can put forward a recommendation that can form a framework for future government action.
In the meantime, individuals and organizations who are considering Chapter 11 bankruptcy should make sure to consult with an experienced attorney who can help them manage their debts while protecting their financial futures.
