Derivatives and Bankruptcy: The Flawed Case for Special Treatment

Lubben, Stephen J.

doi:10.2139/ssrn.1265070

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Derivatives and Bankruptcy: The Flawed Case for Special Treatment

Seton Hall Public Law Research Paper No. 1265070

U. Pa. J. Bus. Law, Vol. 12, No. 1, p. 61, 2009

19 Pages Posted: 10 Sep 2008 Last revised: 3 Mar 2010

See all articles by Stephen J. Lubben

Stephen J. Lubben

Seton Hall Law School

Date Written: September 8, 2008

Abstract

The putative scourge of "cherry picking" provides the foundation for the Bankruptcy Code's special treatment of derivative contracts, which are not subject to the automatic stay or the Code's normal rules prohibiting termination solely as a result of one party's bankruptcy filing. Alternatively, some argue that the special treatment of derivatives is justified because "derivatives contracts are generally not firm-specific assets and therefore giving them special treatment will increase economic efficiency." In this paper I argue that neither argument is very convincing, and that derivative contracts should be subject to the general rules of bankruptcy in most cases.

Keywords: Chapter 11, derivatives, safe harbor, CDS, Lehman, bankruptcy

Suggested Citation: Suggested Citation

Lubben, Stephen J., Derivatives and Bankruptcy: The Flawed Case for Special Treatment (September 8, 2008). Seton Hall Public Law Research Paper No. 1265070, U. Pa. J. Bus. Law, Vol. 12, No. 1, p. 61, 2009, Available at SSRN: https://ssrn.com/abstract=1265070 or http://dx.doi.org/10.2139/ssrn.1265070