Document Type
Article
Publication Date
2009
DOI
https://doi.org/10.1086/597982
Abstract
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.
Disciplines
Bankruptcy Law | Business Organizations Law | Law | State and Local Government Law
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Recommended Citation
Edward R. Morrison,
Bargaining Around Bankruptcy: Small Business Workouts and State Law,
38
J. Legal Stud.
255
(2009).
Available at:
https://scholarship.law.columbia.edu/faculty_scholarship/2652
Included in
Bankruptcy Law Commons, Business Organizations Law Commons, State and Local Government Law Commons
Comments
© 2009 by The University of Chicago.