The Examiners: Take a Second Look at BAPCPA

If you could make one change to the bankruptcy code, what would it be?

If I could make one change to the bankruptcy code, I would take a close second look at the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

It is common knowledge that BAPCPA has made it more difficult for individuals seeking a fresh start. BAPCPA has done the same for corporations by including a number of the creditor-friendly adjustments that tend to consume a debtor’s precious liquidity at a time when that debtor can ill afford to spare it.   These range from the expanded “adequate assurance” definitions for utilities and changes to rights of reclamation to what is perhaps the most burdensome of the adjustments: the administrative-claim status conferred on creditors for a significant portion of the business they conduct with the debtor in the period prior to a Chapter 11 filing. These protections, and the timelines on which they are enforced, impact a debtor’s liquidity without explicitly requiring continued creditor support. The limitations on debtor exclusivity, particularly for large and complex reorganizations, contribute to an accelerated bankruptcy process that often doesn’t allow for the operational restructuring that is sorely needed. This can, as we have seen, lead to repeat trouble down the road, including Chapter 22s. 

We should re-examine BAPCPA with the goal of aligning the interests of creditors and debtors toward a common goal of sustainable rehabilitation, perhaps by requiring the ongoing participation of creditors in exchange for certain protections. This would help to create an environment that encourages more debtors to address their issues, both financial and operational. It would also give judges more flexibility as it relates to debtor exclusivity.

Lisa Donahue is global leader of the turnaround and restructuring services group at business-advisory firm AlixPartners LLP and is based in New York. Follow her on Twitter at @LisaJDonahue