Potential Issues in Most Business Bankruptcy Cases

By: Jay H. Ong
February 21, 2007

Since the turn of the millennium, our bankruptcy system has been in the throes of a great state of flux. It has traversed the historical highs of one of the greatest bankruptcy booms in United States history, rebounded equally strongly into a period of near inactivity, and along the way, the bankruptcy system itself has undergone substantial restructuring.

The aforementioned crest arose largely from the bursting of the Dot-Com bubble, as the national economy slid into a period of recession in late 2000 and early 2001.1 This trend included not only more business bankruptcies generally, but also began a peak of “mega” cases involving enormous restructurings of business debts and operations, and with them, naturally, rose the complexity of issues they presented as the amounts at stake and universe of interests implicated grew correspondingly.2 Many of the more prominent cases continue to ring in the national consciousness: Enron, K-Mart, WorldCom, and Global Crossing – all of these sought protection from their creditors under Chapter 11 of the Bankruptcy Code during this period.3 In fact, of the fifteen largest business bankruptcies to have occurred in the past twenty-six years, eleven have been commenced since 2001.4

Just when it began to feel as though the bankruptcy heyday might never end, the economy began to turn the corner, and with it, bankruptcies around the middle of 2004 through 2005 began to recede from their unprecedented levels.⁵ By late 2006, business bankruptcy filings had declined over sixty percent from the rate of business bankruptcy filings in 2005.⁶

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