Bankruptcy Legal Resource Materials

Entrepreneurship Law Editorial Team

Books

Aspatore, Representing Small Businesses in Bankruptcy: Leading Lawyers on Achieving Bankruptcy Relief for Small Business Debtors, Identifying Creative Solutions, and Understanding Today’s Bankruptcy Environment (2011).

Abstract: This book provides an authoritative insider's perspective on best practices for counseling small businesses in financial trouble. Featuring articles written by experienced bankruptcy partners from around the country, this book guides the reader through the complexities of understanding what constitutes a small business and the problems they face in today's economic climate. Whether the answer lies in restructuring, liquidating, or other non-bankruptcy options, these top lawyers analyze how to identify and achieve the best possible outcome for a small business client.

Sandy Baker, The Complete Bankruptcy Guide for Consumers and Small Businesses: Everything You Need to Know Explained So You Can Understand It (2009).

Abstract (from Amazon Product Description): According to the US Courts Bankruptcy Statistics Web site, more than 801,000 bankruptcies were filed with U.S. courts in 2007, with almost 97 percent of those being personal, non-business filings. The volume of those who face the stress that coincides with bankruptcy filing continues to grow and it can be hard to discern between the six different forms of common bankruptcy and how each might affect you or your business. This book was written with the goal of providing a complete handbook to understanding the complex bankruptcy laws of the United States in an easy-to-read format that will allow you to move forward in your life, either through the bankruptcy process or through viable financial alternatives that help you to avoid filing. Before you even approach the bankruptcy process, you will learn if there is anything left you can do to salvage your finances. You will learn how to manage existing debt in avoidance of bankruptcy and how to handle debt collectors, and also acknowledging which of the debts that you hold are the most important. You will learn how to decide when bankruptcy is the best or only option left at your disposal, including what a bankruptcy actually entails, from the first piece of paperwork you sign to the lasting effect it has on your credit. You will learn how to deal with the emotional and social implications of bankruptcy and also what aspects of your life will immediately change as a result. The six different kinds of bankruptcies are outlined in full detail with walkthroughs of what each format offers and when you can utilize them to your advantage. Specifically, detailed instructions for liquidating debt with a Chapter 7 bankruptcy and using a Chapter 13 bankruptcy to rebuild your life are given as well in their own chapters. You will learn what it takes to find and utilize a qualified consumer bankruptcy attorney and exactly what to expect throughout the process. For businesses that are navigating the complex corridor of bankruptcy filing, information is provided about the specific processes you must follow for your specific kind of business. You will learn how to choose which Chapter to file under and what you must do to protect your personal assets during a business bankruptcy. Finally, a special section is included to guide you through the harrowing post-bankruptcy process, helping you to rebuild your credit after the process with a timeline of how long you can expect to wait before you start to regain the standing you originally had. You will be given details and tips on how to manage your finances in the future, and interviews taken from bankruptcy experts and individuals with personal experience will help you know exactly what you can expect before, during, and after your bankruptcy.

Stephen R. Elias & Bethany K. Laurence, Bankruptcy for Small Business Owners: How to File for Chapter 7 (2010).

Abstract (from Amazon Product Description): Bankruptcy for Small Business Owners helps small businesses assess the financial condition of their business, determine whether they should declare bankruptcy, and offers step-by-step instructions for completing all of the bankruptcy forms and filing them in court.

Deborah Levine Herman & Robin L. Bodiford, FRESH START BANKRUPTCY: A SIMPLIFIED GUIDE FOR INDIVIDUALS AND ENTREPRENEURS (2003).

Abstract (from product description at Amazon.com):  This book provides a friendly and non-intimidating guide for the layman that walks step by step through the bankruptcy filing process.

Nathalie Martin & Ocean Tama, Inside Bankruptcy Law: What Matters and Why (2d ed. 2011).

Abstract: Inside Bankruptcy Law: What Matters and Why, helps students absorb the nuances of bankruptcy issues by explaining the essential topics so that they can understand not only the law itself, but also what makes it interesting and important.

James A. Pusateri, Karen S. Kressin & James J. O'Malley, Small Business Bankruptcy Reorganizations (1994).

Abstract (from the publisher): Practitioners and judges offer commentary on the unique aspects of this burgeoning area of bankruptcy practice. This resource anticipates the enactment of proposed amendments to the Bankruptcy Code which would create procedures to handle small business reorganizations. It covers a wide range of issues vital to small businesses including ERISA, postpetition financing and capital gains taxes.

Wendell Schollander, Bankruptcy for Small Business (2010).

Abstract (from Amazon Product Description): Many small business owners make decisions that prevent them from using the bankruptcy laws to save their businesses, homes, or other property. Bankruptcy for Small Business provides the information you need to avoid making these kinds of mistakes, hurting your credit permanently, and losing everything you have worked so hard to build.

Gabriel Del Virginia & Lori Lapin Jones, Consumer, individual and small business bankruptcy cases 2011 (2011).

Abstract: Covers some interesting areas for small business including small business and individual bankruptcy cases, and creditor considerations in consumer and small business cases.

Articles

Douglas G. Baird & Edward R. Morrison, Serial Entrepreneurs and Small-Business Bankruptcies, 105 Colum. L. Rev. 2310 (2005).

Abstract (from authors): Chapter 11 is thought to preserve the going-concern surplus of a financially distressed business - the extra value that its assets possess in their current configuration. Financial distress leads to conflicts among creditors that can lead to inefficient liquidation of a business with going-concern surplus. Chapter 11 avoids this by providing the business with a way of fashioning a new capital structure. This account of Chapter 11 fails to capture what is happening in the typical case. The typical Chapter 11 debtor is a small corporation whose assets are not specialized and rarely worth enough to pay tax claims. There is no business worth saving and there are no assets to fight over. The focal point is not the business, but the person who runs it. She is a serial entrepreneur, searching for the business that best matches her skills. For the vast majority of cases, then, Chapter 11 is best seen through the lens of labor economics, not corporate finance. Chapter 11 offers the entrepreneur increased liquidity as well as a forum for renegotiating debts (such as unpaid withholding taxes) for which she as well as the corporation are liable. But Chapter 11 offers these benefits only to entrepreneurs who remain with their existing businesses. This lock-in effect is qualitatively no different from the one commonly associated with rent control. These effects, as well as the costs the process imposes on third parties, should be the focus of any assessment of how well Chapter 11 works.

Brian A. Blum, The Goals and Process of Reorganizing Small Businesses in Bankruptcy, 4 J. Small & Emerging Bus. L. 181 (2000).

Abstract (from author): In examining the problem of dealing effectively with the bankruptcy rehabilitation of small businesses, this Article is primarily concerned with the judicial initiatives and legislative reform efforts relating to Chapter 11. However, because a significant number of small business cases qualify for and are dealt with under Chapters 12 and 13, the Article goes beyond Chapter 11 to consider the relationship between all three of these rehabilitation Chapters and the alternative regimes that they make available to some, but not all, small business debtors.

Don B. Bradley & Michael J. Rubach, Small-business Bankruptcies: A Comparison of Causes From 1981 and 1995, 11 J. Bus. & Entrepreneurship 31 (1999).

David I. Cisar & Shay A. Agsten, Second Chances: Serial Filing Effectively Prohibited in Small Businesses Chapter 11s, 30 Am. Bankr. Inst. J. 24 (2010).

Abstract (from authors): Congress sought to streamline and truncate the chapter 11 process for small business debtors as a part of the changes to the Bankruptcy Code in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Prior to the changes in the Code, “available statistics suggested that as few as five percent of Chapter 11 debtors confirm and perform plans and survive as operating entities.” It was noted that “the majority of Chapter 11 debtors cannot generate positive cash flow going forward” and that “[t]his problem [did] not regulate itself because the Bankruptcy Code [did] not discourage debtors that lack genuine prospects for reorganization from filing under Chapter 11.” Certain changes were made to the Code, and some were intended not only to make the process of filing a chapter 11 case easier and less costly for small business debtors but to also make it easier to identify problematic chapter 11 cases where the prospects for confirmation and successful performance of a chapter 11 plan are dim.

Matthew Cormack, The Cost of Representation: An Argument for Permitting Pro Se Representation of Small Corporations in Bankruptcy, 2011 Colum. Bus. L. Rev. 222 (2011).

Abstract (from author): Bankruptcy filings have steadily increased as the economy struggles to recover from the mortgage and financial crisis. Total filings increased 27.4 percent from fiscal year 2009 to 2010. In fiscal year 2010, 61,148 businesses filed for bankruptcy, and 13,553 filings occurred under Chapter 11. The failures and subsequent bankruptcies of massive corporations such as Lehman Brothers and General Motors have grabbed headlines. However, large businesses account for only a fraction of total bankruptcy filings. Studies of bankruptcy filings have shown that the vast majority of bankruptcy petitions are filed by small businesses. Small business bankruptcies increased 44 percent from the third quarter of 2008 to the third quarter of 2009.  

If these small businesses are corporations, LLCs, partnerships or other artificial entities, they are required to appear in bankruptcy court through a licensed attorney. Even for those businesses that are able to afford such representation, the cost--relative to the firm's assets--can be extremely high, reducing the total assets available to creditors during litigation. This Note argues that bankruptcy judges can and should be more willing to create exceptions to the rule requiring all corporations to attain representation.

Rafael Efrat, Bankruptcy Study: Senior Entrepreneurs in Bankruptcy, 42 Creighton L. Rev. 83 (2008).

Abstract (from author): Senior entrepreneurs do not only constitute a sizeable number of small business owners in the United States, but they also report a higher self-employment rate as compared to their younger counter-parts. For example, one study found that almost 25% of all employed men in the United States aged sixty-five and older and 13% of those aged fifty-five to sixty-four are self-employed, compared to only 8% of those aged twenty-five to fifty-four. For women, the propensity to become self-employed is lower than men, however, a greater proportion of women still opt to become self-employed at an older age. Whereas 14% of all employed women age sixty-five or older are self-employed and 9% of all employed women aged fifty-five to sixty-four are self-employed, only 6% of employed women are self-employed among those aged twenty-five to fifty-four. Some scholars have contended that these figures have seriously under-stated the disproportionate share of the self-employed among middle aged individuals. These scholars point out that previous studies examining the self-employment rate among seniors only studied unincorporated, self-employed individuals. According to such studies, incorporated individuals who work for themselves were not classified as self-employed but were rather classified as wage and salary workers because they are technically paid employees of a business entity, regardless of whether the worker is the only employee of the business.

Wei Fan & Michelle J. White, Personal Bankruptcy and the Level of Entrepreneurial Activity, 46 J. Law & Econ. 543 (2003).

Abstract (from author): The U.S. personal bankruptcy system functions as a bankruptcy system for small businesses as well as consumers, because debts of noncorporate firms are personal liabilities of the firms' owners. If the firm fails, the owner has an incentive to file for bankruptcy, since both business debts and the owner's personal debts will be discharged. In bankruptcy, the owner must give up assets above a fixed exemption level. Because exemption levels are set by the states, they vary widely. We show that higher bankruptcy exemption levels benefit potential entrepreneurs who are risk averse by providing partial wealth insurance and therefore that the probability of owning a business increases as the exemption level increases. We test this prediction and find that the probability of households owning businesses is 35 percent higher if they live in states with unlimited rather than low exemptions.

Donald R. Korobkin, Vulnerability, Survival, and the Problem of Small Business Bankruptcy, 23 Cap. U. L. Rev. 413 (1994).

Abstract (from author): This Article addresses the following question: To what extent should the law promote the survival of a financially distressed business as a going concern? In other words, what should be the "survival standard" that defines and limits the role of the law in this regard? I will approach this question by way of normative theory -- by sketching a model that identifies underlying principles of bankruptcy law. After using these principles of bankruptcy to define a normative survival standard, I will then apply this standard to evaluate current reorganization law. My special focus in this latter part of the Article will be on small businesses. I will argue that this survival standard supports the need for legislative action that responds to the special characteristics of small businesses and small business failure.

Edward R. Morrison, Bargaining Around Bankruptcy: Small Business Workouts and State Law, 38 J. Legal Stud. 255 (2009).

Abstract (from author): Federal bankruptcy law is rarely used by distressed small businesses. For every 100 that suspend operations, at most 20 file for bankruptcy. The rest use state law procedures to liquidate or reorganize. This paper documents the importance of these procedures and the conditions under which they are chosen using firm-level data on Chicago-area small businesses. I show that business owners bargain with senior lenders over the resolution of financial distress. Federal bankruptcy law is invoked only when bargaining fails. This tends to occur when there is more than one senior lender or when the debtor has defaulted on senior debt (harming trust-based relationships with lenders). These findings raise questions about the design of and need for federal bankruptcy law.

Yongwook Paik, The Bankruptcy Reform Act of 2005 and Entrepreneurial Activity, 22 J. Econ. & Mgmt. Strategy 259 (2013), available at: http://ssrn.com/abstract=2245423.

Abstract (by author): This paper empirically investigates the effect of the Bankruptcy Reform Act of 2005 on entrepreneurial activity. The author finds that this act had virtually no noticeable effect on the overall level of entrepreneurship, measured by selfemployment, partly because potential entrepreneurs were more likely to seek limited liability to offset the reduction in wealth protection imposed by the new law. That is, the incorporation rate increased for small businesses after the new law was enacted. This increase emphasizes that limited liability provided by incorporation is an important strategic variable that potential entrepreneurs utilize in response to changes in personal bankruptcy law. This study implies that incorporation is an important parameter to consider in understanding the relationship between bankruptcy law and entrepreneurial activity. The policy implication of this study is that entrepreneurs do respond to changes in personal bankruptcy law, even though it is intended for consumers, so this potential side effect should be considered when designing a new law.

Mike W. Peng, Yasuhiro Yamakawa & Seung-Hyun Lee, Bankruptcy Laws and Entrepreneur- Friendliness, 34(3) Entrepreneurship: Theory & Prac. 517 (2010).

Abstract (from authors): Using bankruptcy laws as a case of formal institutions, we show how formal institutions impact entrepreneurship development. Historically, bankruptcy laws usually have been harsh. Recently, many governments have realized that entrepreneur-friendly bankruptcy laws can not only lower exit barriers, but also lower entry barriers for entrepreneurs. Since bankruptcy laws are not uniform around the world, it is important to understand how they differ in their friendliness to entrepreneurs. This Article focuses on six dimensions of entrepreneur-friendliness: (1) the availability of a reorganization bankruptcy option, (2) the time spent on bankruptcy procedures, (3) the cost of bankruptcy procedures, (4) the opportunity to have a fresh start in liquidation bankruptcy, (5) the opportunity to have an automatic stay of assets during reorganization bankruptcy, and (6) the opportunity for entrepreneurs and managers to remain on the job after filing for bankruptcy. In an effort to cover both developed and emerging economies and to draw on geographically diverse examples, we use data from Australia, Canada, Chile, Finland, Hong Kong, Japan, Norway, Peru, Singapore, South Korea, Thailand, the United States, and other countries to illustrate these differences. Overall, this Article contributes to the institution-based view of entrepreneurship by highlighting the important role that formal institutions such as bankruptcy laws play behind entrepreneurship development around the world.

Gregory R. Schaaf, Small Business Cases Develop Some Teeth, 10 Am. Bankr. Inst. J. 46 (2010).

Abstract (from author): Two years after the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), not much law had developed regarding the new small business bankruptcy provisions. Three years later, debtors are making more use of the small business bankruptcy provisions and courts have had an opportunity to provide guidance on some issues. This article addresses more recent case law interpreting some of the BAPCPA small business bankruptcy provisions.

Online Resources

Findlaw, Small Business, Business Bankruptcy and Debt
http://smallbusiness.findlaw.com/small-business-bankruptcy/

Teresa A. Sullivan, Elizabeth Warren & Jay Westbrook, Financial Difficulties of Small-businesses and Reasons for Their Failure 9 (1998).
http://www.sba.gov/advo/research/rs188tot.pdf

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