Entering bankruptcy is a difficult decision, and it can be even more trying when you realize how expensive it can be. Bankruptcies cost money to file, and you may also have to pay legal fees and other debts during the process. Because of the expense, you may be questioning what is being done to reduce the load of expenses and to make bankruptcy more accessible to the common business.
Chapter 11 bankruptcy is expensive, with some arguing that it’s simply too expensive for the protection it offers. Some amount of relief for those expenses has been sought from the American Bankruptcy Institute, which controls the costs of such bankruptcies. In a 332-page report on recommended reforms in bankruptcy law, the institute failed to offer solutions despite the fact that professional fees in cases can extend as high as hundreds of millions of dollars.
It’s been recommended by over 20 professors, practitioners and judges that these fees be monitored and limited. In current practices, it’s been shown that fees can range from $1,000 an hour or more, which seems extensive. Some claim this is a modest percentage, because the companies themselves are worth enough to cover these high fees.
The commission working with the American Bankruptcy Institute has proposed a change in the law that would prohibit rollups. A rollup is when pre-bankruptcy debt is paid down or allowed to be converted to debt to be paid following bankruptcy. Essentially, debt needs to be taken care of during the bankruptcy. However, some special cases exist; taking a loan out to pay off old debt, for instance, and to secure a better financial outlook, may be acceptable under the proposed law change.
Source: Bloomberg, “ABI Protects Its Own on Fees; Restricts Lenders: Bankruptcy” Bill Rochelle and Sherri Toub, Dec. 31, 2014by