Estimating the Need for Additional Bankruptcy Judges in Light of the COVID-19 Pandemic

We recently estimated the U.S. bankruptcy system’s ability to absorb an anticipated surge of financial distress among American consumers, businesses, and municipalities as a result of COVID-19.

An increase in the unemployment rate has historically been a leading indicator of the volume of bankruptcy filings that occur months later.  If prior trends repeat this time, the May 2020 unemployment rate of 13.3 percent will lead to a substantial increase in all types of bankruptcy filings.  Mitigation, governmental assistance, the unique features of the COVID-19 pandemic, and judicial triage should reduce the potential volume of bankruptcies to some extent, or make … Read more

Do Activist Investors Constrain Managerial Moral Hazard in Chapter 11?

Chapter 11 creates a system of collective corporate governance that allows stakeholders that are usually passive – such as shareholders or creditors like lenders and bondholders – to play a day-to-day role in overseeing management and monitoring the business.  In recent years, activist investors have begun using this system to improve their return on investment.  They buy the claims of distressed firms, hire lawyers and investment bankers and negotiate to restructure the firm’s business and capital structure.  In some cases, these negotiations conclude with an out-of-court solution, but many firms require a trip through bankruptcy court to solve their financial … Read more

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