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Favorable and Non-Favorable Changes for Business Creditors
October 2005

Though the name may not indicate it, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has a few benefits for commercial entities. A few examples include:

• Tighter laws in favor of commercial landlords in most cases and provide stronger remedies.
• A longer period for making reclamation demands from 20 to 45 days. In addition, a creditor shipping goods within 20 days before the customer files bankruptcy is now entitled to an administrative claim. An Administrative claim is generally entitled to higher priority than unsecured claims.
• Preference claims for business debt of less than $10,000 must now be filed in the jurisdiction where the creditor is located, rather than where the bankruptcy was filed, making it more reasonable for creditors to defend against a smaller preference claim petition.

Possible unfavorable consequences of the new Act on business creditors include tougher Chapter 11 provisions that may make it more difficult for businesses to successfully reorganize, which is sometimes the only hope a creditor has of repayment. In turn, this may diminish the credit available to companies in Chapter 11 bankruptcy, strapping them for cash and making it a challenge to pay the operation expenses necessary to keep the business afloat during reorganization.