Vanderbilt Law Review


Eric Winston

First Page



Bankruptcy is the principal device by which failing businesses and financially-troubled families get one last chance to reorganize their affairs back to financial health. It is also the graveyard for business failures, the place where we bury dead corporations and divide their remaining assets among their surviving creditors. In the last decade, the bankruptcy system has given seven million middle-class families a way to start over-an opportunity to save their homes from foreclosure, rid themselves of overwhelming debts, and reintegrate themselves into the workforce as productive citizens. It has also been the way that 10,000 corporations have restructured their way from failure to health, avoiding the disruptive costs of dissolution and liquidation and instead preserving jobs, stabilizing community tax bases, and fueling the longest period of economic expansion in United States history. Another 100,000 less fortunate corporations have had their funerals in bankruptcy, as their creditors have divided their assets and facilitated the redistribution of capital and labor resources that must accompany liquidation.

Bankruptcy is the safety valve in America's capitalist system: technical and arcane, but so important. For the last 100 years, bankruptcy has functioned efficiently, providing a vital lubricant at the rough edges of the American economy. We do not expect individuals to live life without hope and force them into the underground economy to avoid a mountain of debt. Nor do we discourage entrepreneurs from starting new ventures by holding them personally liable if that corporate venture fails. Instead, we give each individual and business person a fair chance to start over. This second chance breeds innovation and risk taking that puts the United States at the cutting edge of technological and scientific development.

When our corporations experience liquidity problems, we do not allow lenders to shut them down and break them up. Rather, we permit sick businesses to file under chapter to provide a breathing spell to rehabilitate themselves; if rehabilitation cannot be accomplished, we provide a forum for liquidation of the businesses for the collective good of all creditors.