43 Pages Posted: 19 Feb 2007
Date Written: January 2007
This paper shows that the dynamics of Chapter 11 turn dramatically on the size of the business. The vast majority of the assets administered in Chapter 11 are concentrated in a handful of large cases, but most of the businesses in Chapter 11 are small, and the smaller the business, the smaller the distribution to general unsecured creditors. For businesses with assets above $5 million, unsecured creditors typically collect half of what they are owed. Where the business's assets are worth less than $200,000, ordinary general creditors usually recover nothing. In the typical small Chapter 11 case, the tax collector is the central figure. In small business bankruptcies, priority tax liabilities are the largest unsecured liabilities of the business. Tax obligations are entitled to priority and are obligations of both the corporation and those who run it. Given the large shadow tax claims cast over small Chapter 11 reorganizations, accounts of small Chapter 11 must focus squarely on them.
Keywords: bankruptcy, creditors, Chapter 11
JEL Classification: G32, G38, K22
Suggested Citation: Suggested Citation
Baird, Douglas G. and Bris, Arturo and Zhu, Ning, The Dynamics of Large and Small Chapter 11 Cases: An Empirical Study (January 2007). Yale ICF Working Paper No. 05-29; ECGI - Finance Working Paper No. 107/2005; AFA 2008 New Orleans Meetings Paper. Available at SSRN: https://ssrn.com/abstract=866865 or http://dx.doi.org/10.2139/ssrn.866865