Will Chapter 11 Bankruptcy Last?

The American Bankruptcy Institute (ABI) recently released a report in which it questioned the staying power of Chapter 11 bankruptcy, according to an article in The New York Times. Should Tampa business owners be concerned about their ability to reorganize their debts by filing for bankruptcy?

Proposed Changes to Chapter 11 Bankruptcy Laws

The report from the ABI comes in response at least in part to differing interpretations of Chapter 11 bankruptcy law in U.S. courts. Generally speaking, courts have been split when it comes to interpreting sections of the U.S. Bankruptcy Code, including but not limited to issues concerning business owners in debt and their commercial leases. In short, the ABI wanted to determine whether Chapter 11 is currently working for both debtors and creditors.

After examining the current uses of Chapter 11 bankruptcy and the ways in which they impact secured creditors, the ABI proposed a number of changes aimed at restoring a balance of power. In other words, the proposed changes aim to ensure that both small business owners and creditors are treated fairly in the debt reorganization process. For restaurant owners and other business owners in the Tampa area, such changes could prove very helpful.

As the article in The New York Times points out, “there seems to be little doubt that secured creditors have taken control of Chapter 11.” But whether changes to the bankruptcy law are a good idea depends upon your current situation. The Loan Syndications and Trading Association wants to keep Chapter 11 bankruptcy exactly as it is now. But that association largely has the interests of secured creditors at heart. If no changes are made to the ways in which business can file for Chapter 11 bankruptcy, will small business owners in the Tampa area end up losing out?

If the ABI’s proposed changes take effect, it could become easier for smaller retailers and restaurant owners in Tampa Bay to seek Chapter 11 bankruptcy. Right now, filing for Chapter 11 bankruptcy is costly and time-consuming—and those factors can make it difficult for a small business owner in South Florida to get the chance she needs to reorganize her debts. The ABI report underscores that changes to the law would allow for a different kind of debt restructuring that would benefit both small and medium-sized businesses.

Proposed Changes and Tampa Business Owners

If the ABI is right—and retailers in Tampa need to see changes made to the way Chapter 11 works—will proposed changes to the law be put into effect in time to save ailing business owners? Some commentators, including the author of the article, have expressed concerns that Congress will not act in time to turn proposed changes into law.

But even if Congress does not act, can Chapter 11 bankruptcy function in a meaningful way for businesses? Another article in The New York Times written by a corporate governance and business ethics professor asked whether this form of bankruptcy protection is “doomed,” explaining that “the famous financial reorganization law won’t work much longer in its current form.”

As that article clarifies, modern business structures largely are defined by a “trend of slicing and dicing the company, giving priority claims to select creditors before the company ever thinks about filing for bankruptcy, and sometimes even when bankruptcy is already looming.” In other words, the manner in which many modern businesses are structured simply does not lend itself to Chapter 11 bankruptcy as the drafters imagined in the late 1970s.

Contact a Bankruptcy Attorney in Tampa

The issue is not whether the language of Chapter 11 of the Bankruptcy Code will still exist, but rather whether it can remain effective for business owners in Tampa. If you are a retailer, restaurant owner, or other small business owner in the Tampa area and are weighing the benefits of bankruptcy, it is extremely important to seek advice from an experienced Tampa bankruptcy attorney. Filing for Chapter 11 bankruptcy is a complicated process, and it is essential to have experienced counsel on your side. Contact Tampa Law Advocates, P.A. to discuss your case.