Chapter 11 Triage: Diagnosing a Debtor’s Prospects for Success

This Article presents the results of a large empirical study of Chapter 11 cases filed in 2004, the year before Congress enacted the small business reforms in the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). The study confirms what the National Bankruptcy Review Commission (“Commission”) and Congress suspected: Overall rates of plan success are low in Chapter 11, and those low rates are largely attributable to the small Chapter 11 debtor. Congress, however, did a better job than the Commission at determining the criteria for identifying debtors with low prospects for success in Chapter 11. Committee formation—present in the Code’s small business debtor definition but absent in the Commission’s definition—was significantly associated with increased rates of plan confirmation and successful plan performance. In addition, the $2 million liability cutoff that Congress put into place in BAPCPA generally served as a better predictor than the Commission’s $5 million limit of the point at which plan confirmation and performance rates became significant.

| View PDF | Appears in Volume 54, Issue 4

Comments are closed.