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The Success of Chapter 11: A Challenge to the Critics

31 Pages Posted: 1 Apr 2009  

Elizabeth Warren

Harvard Law School

Jay Lawrence Westbrook

University of Texas at Austin School of Law

Abstract

Although Chapter 11 has served as a model for bankruptcy reform around the world, the conventional wisdom has been that it is characterized by a relatively low success rate and endless delay. The data from large samples of Chapter 11 cases filed in 1994 and 2002 demonstrate that this characterization is wrong. Nearly all troubled companies choose Chapter 11 over Chapter 7 liquidation, which means that the system serves a critical screening function to eliminate hopeless cases relatively quickly. Almost half the unsuccessful cases were jettisoned within six months and almost eighty percent were gone within a year. The cases that survive the early screening result in confirmed plans of reorganization around seventy percent of the time. The mistaken conventional view has not only skewed the academic debate, but also prompted changes to the statute in 2005 regarding small business reorganizations, changes that may have produced little benefit in reducing delay at the price of blocking many small business reorganizations of a sort that were succeeding prior to the amendments.

Suggested Citation

Warren, Elizabeth and Westbrook, Jay Lawrence, The Success of Chapter 11: A Challenge to the Critics. Michigan Law Review, February 2009; U of Texas Law, Law and Econ Research Paper No. 150. Available at SSRN: https://ssrn.com/abstract=1371089

Elizabeth Warren (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-495-3101 (Phone)
617-496-6118 (Fax)

Jay L. Westbrook

University of Texas at Austin School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States
(512) 232-1303 (Phone)

HOME PAGE: http://www.law.utexas.edu/webra/faculty/jwestbrook

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