Abstract

http://ssrn.com/abstract=1065041
 
 

Footnotes (129)



 


 



Timbers of Inwood Forest, the Economics of Rent, and the Evolving Dynamics of Chapter 11


Edward R. Morrison


University of Chicago - Law School


BANKRUPTCY LAW STORIES, Robert K. Rasmussen, ed., Foundation Press, 2007
Columbia Law and Economics Working Paper No. 326

Abstract:     
The Supreme Court's decision in Timbers of Inwood Forest occupies an unhappy position in bankruptcy case law. It is often remembered as a troubled interpretation of the Code, denying undersecured creditors compensation for an important source of depreciation - depreciation in the real value of a creditor's claim during a lengthy reorganization process. But Timbers was not a simple case in which a bank was denied adequate protection for lost investment opportunities. It was instead a case in which the bank tried to opt out of the bankruptcy process itself. The debtor was an apartment complex. After it entered bankruptcy, it assigned the apartment rents to the bank. These rents, economic theory tells us, closely approximated compensation for physical depreciation as well as lost investment opportunities. Yet the bank wanted more: it requested a second helping of compensation for lost investment opportunities, citing the Code's provision for adequate protection. Surprisingly, the bankruptcy court agreed; so did the Court of Appeals. But by the time the case reached the Supreme Court, it had morphed into something altogether different. Instead of an illustration of bank over-reaching, the case had become a vehicle for testing an abstract question - whether the phrase adequate protection encompasses compensation for lost investment opportunities. The Court may have decided that question incorrectly, but the end result - preventing bank over-reaching - was probably the right one. Indeed, Timbers' long-run impact may not go far beyond the parties to the case itself. The past fifteen years have seen legislative reforms, speedier cases, relatively low interest rates, and creditor control over the bankruptcy process, all of which have effectively neutralized Timbers' impact on most secured creditors.

Number of Pages in PDF File: 35

Keywords: Bankruptcy, Chapter 11, real estate, secured debt, adequate protection, time value of money

JEL Classification: K20, K11, G33, R31

Accepted Paper Series


Download This Paper

Date posted: January 25, 2008 ; Last revised: February 13, 2008

Suggested Citation

Morrison, Edward R., Timbers of Inwood Forest, the Economics of Rent, and the Evolving Dynamics of Chapter 11. BANKRUPTCY LAW STORIES, Robert K. Rasmussen, ed., Foundation Press, 2007; Columbia Law and Economics Working Paper No. 326. Available at SSRN: http://ssrn.com/abstract=1065041

Contact Information

Edward R. Morrison (Contact Author)
University of Chicago - Law School ( email )
1111 E. 60th St.
Chicago, IL 60637
United States
Feedback to SSRN


Paper statistics
Abstract Views: 1,401
Downloads: 178
Download Rank: 94,451
Footnotes:  129

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo8 in 0.281 seconds