Reforms Coming for Corporate Bankruptcy

judge in courtroom with gavel in front of himIn December 2014, a new report is due out about how to go about modernizing the U.S. bankruptcy code. For the past 18 months, project commissioners from the American Bankruptcy Institute have been listening to testimony from 150 different professionals on how it could be done.

Now, all the rules will be examined to see what should change since the original Chapter 11 rules were established in 1978. The few changes that the code has undergone since then have largely been consumer related. Although the American Bankruptcy Institute itself doesn’t have the power to enact changes, the 13,000-member organization plans to take their work and present it to lawmakers for consideration.

Among the concerns is the increasing power that secured lenders have over a business in bankruptcy proceedings. However, a relaxation of the rules could mean an increased cost in lending because of the additional risk and losses in court. Other concerns include large companies exploiting Chapter 11 with Wall Street-brokered debt that can be traded, giving outsiders leverage in the reorganization process, and the prohibitive cost of Chapter 11 for small businesses.

The commission hopes to address changes to several issues that arise in Chapter 11, including who gets to determine the value of a company and it’s assets, labor issues, benefits, distributing money to creditors, and deadlines for companies to thin out contracts and real-estates leases during the reorganization process.

Chapter 11 bankruptcy helps keep businesses running while they address debt through consolidation or renegotiation of payments. A payment plan helps them to get debt down while remaining operational.

Please keep in mind that every case is different, so if you are thinking of filing bankruptcy, and would like to schedule a no-cost consultation, please contact our office by completing the form on this website or calling us at (954) 932-5377.


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