‘Good Faith’ Bankruptcy Filings Get Fresh Look Ahead of J&J Move
August 29, 2024 – Media MentionHannah Waldman, an associate in the firm's Bankruptcy & Litigation Groups, discussed good and bad faith bankruptcy filings with Bloomberg Law.
Excerpts:
“A good faith filing requirement would have to allow for a lot of flexibility, but would generally be based upon debtor’s demonstration of need rather than financial distress,” said bankruptcy lawyer Hannah Waldman of Greenberg Glusker Fields Claman & Machtinger LLP.
When a “bankruptcy is being used as a sword rather than as a shield,” it’s typically dismissed for bad faith, Waldman said. “This is mostly true when there is no value to be created through the bankruptcy.”
Debtors in some of those cases seemed “to be abusing the automatic stay,” Waldman said.
In the US Court of Appeals for the Fourth Circuit, a debtor battling challenges to its bankruptcy must defeat allegations of “objective futility,” after a 1989 decision included that factor when addressing good faith, she noted.
Under that standard, a Chapter 11 filer can be rejected if there’s a “showing that reorganization is not realistically possible within a reasonable amount of time,” Waldman said.
The US Court of Appeals for the Eleventh Circuit in 1988, on the other hand, found that even when reorganization is possible, a case filed in bad faith may be dismissed, Waldman said.
“If a Chapter 11 debtor cannot demonstrate a need for use of the protections afforded by the code, aside from harassing or delaying creditors, that is a bad faith filing,” Waldman said.
