Reorganizing Health Care Bankruptcy

By Laura Coordes (Sandra Day O’Connor College of Law)

Many health care providers are experiencing financial distress, and if the predicted wave of health care bankruptcies materializes, the entire U.S. economy could suffer. Unfortunately, health care providers are part of a growing group of “bankruptcy misfits,” in the sense that bankruptcy does not work for them the way it works for other businesses. This is so for two primary reasons. First, the Bankruptcy Code is insufficiently specific with respect to health care debtors. Second, the Code lacks an organizing principle to allow the court to reconcile the competing players and interests in a health care bankruptcy case.

Previous attempts to address these issues have not succeeded. Notably, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 scattered reforms across the Code, making bankruptcy more complicated for health care debtors. As a result, some have argued that these debtors are better off using bankruptcy alternatives such as state receiverships to address their debts.

In Reorganizing Health Care Bankruptcy, I assert that despite their bankruptcy misfit status, health care providers can realize distinct benefits from bankruptcy relief. To be effective, however, this relief must respond to health care providers’ unique needs. Creating separate Bankruptcy Code subchapters for health care business bankruptcies would allow Congress to clarify many aspects of health care bankruptcy and enable the development of specific procedures and a distinct organizing principle unique to health care provider bankruptcies. Although this proposal contemplates a significant structural change to the Bankruptcy Code, the Article explains why this change is warranted as part of the Code’s necessary evolution.

The full article is available here.

Gatekeepers Gone Wrong: Reforming the Chapter 9 Eligibility Rules

posted in: Municipal Bankruptcy | 0

By Laura N. Coordes (Arizona State University Law School)

In order to gain access to chapter 9 bankruptcy, municipalities must demonstrate that they meet several eligibility requirements. These requirements were put in place to prevent municipalities from making rash decisions about filing for bankruptcy. Too often, however, these requirements impede municipalities from attaining desperately needed relief. This Article demonstrates that as currently utilized, the chapter 9 eligibility rules overemphasize deterrence and are not rationally connected to the reasons the chapter 9 bankruptcy system was developed. This Article, therefore, posits that the chapter 9 eligibility requirements should be relaxed.

To support this claim, the Article conducts a detailed analysis of the history and theory of chapter 9 to determine the primary reasons for the eligibility rules and the core functions of a municipal bankruptcy solution. It then demonstrates how many of the concerns driving the eligibility rules’ existence are addressed in other chapter 9 mechanisms, and it proposes sweeping revisions to the eligibility rules to facilitate appropriate access to chapter 9. Specifically, municipalities in fiscal distress should be able to access bankruptcy when they demonstrate a need for the primary types of assistance that bankruptcy can best provide: nonconsensual debt adjustment, elimination of the holdout creditor problem, and breathing space. Through its analysis, this Article brings needed attention to the broader questions of who should have access to bankruptcy and when that access should be granted.

The full article is available here.


For more Roundtable posts on municipal bankruptcy, see Parikh & He, “Falling Cities and the Red Queen Phenomenon”; Skeel, “From Chrysler and General Motors to Detroit”; and Roundtable updates on Puerto Rico’s debt crisis (covering a call for congressional action and Puerto Rico’s Public Corporation Debt Enforcement and Recovery Act).