Responding to Threats of Bankruptcy Abuse in a Post-Enron World: Trusting the Bankruptcy Judge as the Guardian of Debtor Estates

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Rachel M. Jackson


The recent bankruptcy boom reached its crescendo with a string of the largest Chapter 11 filings in history. As a result, bankruptcy law has become the subject of increased scrutiny. Practitioners and academics alike have focused on a number of empirical trends as evidence of the abuse and potential demise of the bankruptcy process. These include the use of Chapter 11 to sell rather than reorganize companies; the solicitation of filers among debtor-oriented jurisdictions producing a potential race-to-the-bottom; the premature emergence of failing companies from bankruptcy at the insistence of vulture funds; and the “double-dipping” problem in the Chapter 22 context. Moreover, commentators censure bankruptcy judges for contributing to this flagrant bankruptcy abuse through their inconsistent rulings on the use of particular sales devices. These critics argue that bankruptcy judges should create bright-line rules to protect both the integrity of bankruptcy sales and party expectations. Despite this recent criticism, imposing such formalism and rigidity onto bankruptcy sales would tie the hands of bankruptcy judges. The powers of bankruptcy courts must remain adaptable to the needs of each debtor, and for this reason, crafting a one-size-fits-all approach is not amenable to the bankruptcy process. As a reflection of this reality, the current bankruptcy landscape reveals one clear focus: an effort to preserve the breadth and integrity of bankruptcy judges’ equitable powers of discretion. In this way, bankruptcy judges can retain the flexibility to respond to the new challenges of conducting sales in bankruptcy by adhering to the fundamental principle of maximizing the value of the bankruptcy estate. To illustrate the need to preserve judicial discretion in bankruptcy proceedings, this Note will first provide an overview of the different methods and devices for conducting sales in bankruptcy, as well as the relative advantages and detriments of such structures. Second, it will delineate the various sources of power of the bankruptcy courts and the principles of the United States Bankruptcy Code (the “Code”) that guide their performance in conducting bankruptcy sales. Third, this Note will survey recent bankruptcy decisions that reject bright-line rules that would jeopardize the ability of bankruptcy courts to effectuate the goals of the Code.

Author Biography

Rachel M. Jackson

J.D. Candidate 2006, Columbia University School of Law.

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How to Cite
Jackson, R. M. (2005). Responding to Threats of Bankruptcy Abuse in a Post-Enron World: Trusting the Bankruptcy Judge as the Guardian of Debtor Estates. Columbia Business Law Review, 2005(2).