Corporate Financial Distress, Restructuring, and Bankruptcy, 4th Edition
by Edward I. Altman, Edith Hotchkiss, Wei Wang
CHAPTER 3An Overview of the U.S. Bankruptcy Process
To best understand the U.S. bankruptcy process, it is helpful to briefly review the previous statutes and codes that have helped to form the present system. In this chapter, we trace the developments leading to the current U.S. Bankruptcy Code. We then provide a comprehensive summary of the most important features of Chapter 11 of the Code, which are key to enabling the reorganization and survival of firms via court supervised bankruptcy proceedings.
EVOLUTION OF THE U.S. BANKRUPTCY PROCESS
The Constitution empowers the U.S. Congress to establish uniform laws regulating bankruptcy. By virtue of this authority, various acts and amendments have been passed, starting with the Bankruptcy Act of 1800. A number of revisions were enacted and led to the establishment of the Bankruptcy Act of 1898, known as the Nelson Act. These early acts in the nineteenth century established the modern concepts of debtor‐creditor relations. The three most important Bankruptcy Acts subsequently passed since the beginning of the twentieth century are: in 1938, the Chandler Act, replacing the inadequate earlier statute; in 1978, the Bankruptcy Reform Act of 1978, providing the standard until recently; and in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act.
Equity Receiverships of 1898
The Bankruptcy Act of 1898 provided only for a company's liquidation and contained no provisions allowing corporations to reorganize and thereby ...