Do U.S. Bankruptcy Laws Offer Unfair Aid to Domestic Companies ...

The redemptive benefits of bankruptcy for individuals who use it wisely are viewed by many as a positive force for the American economy. Allowing individuals to discharge debts in bankruptcy gives them an opportunity for a second financial chance.

Companies in the United States, however, may see even bigger benefits from bankruptcy than individual consumers, according to a recent report from NASDAQ.com.

In fact, some experts are now arguing that American bankruptcy laws help domestic businesses gain a competitive advantage over their international competitors

Corporate Bankruptcy Laws in the United States

According to the NASDAQ report, bankruptcy law in the United States may be excessively kind to American businesses:

• Chapter 11 bankruptcy. Chapter 11, which is the main form of corporate bankruptcy, has been viewed by one economics professor as ?the darling of the international business world? because of its lenient nature towards American businesses.
• Chapter 11 benefits. Sources indicate that, when American companies file bankruptcy, they are able to reduce their debts without taking much risk. In bankruptcy, U.S. corporations are often able to shed union contracts, pension obligations, and other similar burdens. In contrast, companies that go broke in England are often required to fire all their top officials.
• Bankruptcy as business planning. Because of these features, some observers argue that companies in the U.S. use bankruptcy as a sort of business strategy to reorganize their finances in times of trouble. Many companies know that they may emerge from bankruptcy in a stronger financial position than they were before they filed.

The article discussing the issue also observed that many of the most famous American companies have sought bankruptcy protection, including the recent filing of the parent company of American Airlines.

Are These Bankruptcy Laws Good or Bad?

So, if the U.S. Bankruptcy Code allows companies to shed debts without making much of a sacrifice in bankruptcy court, is this a positive development for the country as a whole?

Some say no, given the real human costs that employees of bankrupt companies encounter when they lose their pensions, or lose certain benefits in the contracts.

However, the ease with which companies can file bankruptcy may promote more entrepreneurship amongst U.S. citizens, which, theoretically, could create more jobs.

The relative merits of the forgiving U.S. bankruptcy system can be debated, but one thing is for sure?many companies abroad would love to see their countries adopt a similar system.

Source: http://www.clearbankruptcy.com/blog/do-u-s-bankruptcy-laws-offer-unfair-aid-to-domestic-companies/

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