By Foteini Teloni, Fordham University School of Law
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) enacted and amended several business bankruptcy provisions that triggered a heated debate over their effects on the chapter 11 landscape and the debtor’s reorganization chances.
In this article, I use multivariate regression models to examine empirically and quantify, for the first time, BAPCPA’s effect on three distinct aspects of the chapter 11 process: (a) the duration of traditional chapter 11 cases; (b) the use of preplanned bankruptcies; and (c) debtor refiling rates.
My study indicates that BAPCPA fulfilled, on the one hand, a long-standing desire of having shorter business reorganization cases. Indeed, the average duration of chapter 11 dropped from 480 days to 261 days in the post-2005 era, while the proportion of companies undergoing preplanned bankruptcies rose 23% in that same period. Even after controlling for various factors, including the companies’ pre-filing financial profile, BAPCPA remained correlated at a statistically significant level with shorter chapter 11 duration and more preplanned cases.
On the other hand, however, the proportion of debtors that had to refile for bankruptcy soon after exiting their previous filing increased 30% in the post-2005 era. BAPCPA’s effect on recidivism remained statistically significant even after controlling for a number of factors, including the companies’ post-emergence profitability and leverage.
It seems that the 2005 amendments force the debtor to emerge hastily from its chapter 11 proceedings, ignoring operational and structural problems and, therefore, not achieving true rehabilitation. And if one measure for successful bankruptcies is refiling rates, then BAPCPA seems to have failed in this respect.
The full article is published in 23 Am. Bankr. Inst. L. Rev. 571 (2015), and is available here.