Encore Performances

Is Chapter 11 working?


The writer F. Scott Fitzgerald once said that there are no second acts in American lives. But of course that was before the Bankruptcy Reform Act of 1978. Thanks to Chapter 11 of that law, companies and individuals in the United States have a far better shot at a second act than almost anywhere else in the world. Unlike the bankruptcy laws in many other countries, Chapter 11 is predicated on the belief that it is better to revive than to liquidate a struggling company.

Given the record-breaking number and size of companies seeking Chapter 11 protection over the past two years, we decided to focus this issue on the state of bankruptcy today, with stories on bankrupt companies and their overseers — the banks and the courts. The cover story "Second Acts," by staff writer Alix Nyberg, sheds light on the forces that make it so difficult for companies to thrive after filing for Chapter 11. In "False Security," senior writer Tim Reason warns that securitizations, so often sought by troubled companies, may be rendered unsafe by their treatment in bankruptcies.

Finally, in "From the Bench," Tina Brozman, a former bankruptcy court judge of the Southern District of New York who now defends companies in Chapter 11, explains why she thinks the U.S. system is still the best despite numerous failed attempts at reform.

Fitzgerald was wrong. There are many second acts in American lives. Most of them, like the novelist's own second career as a screenwriter, fail to live up to the first. But at the very least, they do keep the actors on stage for much longer.


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