Bankruptcy of Business Enterprises

Abstract

The law of bankruptcy is federal in nature as provided for in Article 1, §8, Clause 4 of the US Constitution, which states that Congress shall have the power “To establish … uniform Laws on the subject of Bankruptcies throughout the United States.” Pursuant to the power given to Congress, it enacted the first Bankruptcy law in 1801, which has been followed by a number of later enactments and amendments. The latest amendment, which contains decidedly more complex filing requirements for individuals filing for Chapter 7 straight bankruptcy or liquidation, is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).¹ A vast majority of bankruptcy filings by individuals are not for matters associated with business but rather for personal debts, with the largest percentage brought about by health care expenditures. In this chapter, unlike most textbooks, the concentration will be on Chapter 11, “Reorganization,” which governs the form of bankruptcy protection that allows the debtor entity to continue business as a going concern. It may do so by the filing of a plan that will enable it to pay its bills over a specified time frame, albeit by the possible elimination of obligations that impede its continuation as a going concern. The Bankruptcy statute, called the “Bankruptcy Code,”² is composed of the following nine chapters:

• Chapter 1 (§§101–112). General Provisions (definitions; powers of the court; public access to papers; and other provisions).

• Chapter 3 (§§301–366). Case Administration (commencement of a case; officers; administrative powers).

• Chapter 5 (§§501–562). Creditors, the Debtor, and the Estate (creditors and their claims; debtors and their duties; and the composition of the bankrupt’s estate).

• Chapter 7 (§§701–784). Liquidation (officers and administration; collection; liquidation; and distribution of assets; stockbroker, commodity broker, and clearing house liquidation).

• Chapter 9 (§§901–946). Adjustment of Debts of a Municipality (mainly concerned of the filing of a plan to adjust and pay debts of a municipality).

• Chapter 11 (§§1101–1174). Reorganization (officers and administration; the plan; post confirmation matters; and railroad reorganization).

• Chapter 12 (§§1201–1231). Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income (officers, administration, and the estate; the plan).

• Chapter 13 (§§1301–1330). Adjustment of Debts of an Individual with Regular Income (officers, administration, and the estate; the plan).

• Chapter 15 (§§ 1501–1532). Ancillary and Other Cross-Border Cases (access of foreign representatives and creditors to the court; recognition of a foreign proceeding and relief; cooperation with foreign courts and foreign representatives; and concurrent proceedings).