Recovery Rate for Chapter 11
The recovery rate for Chapter 11 bankruptcy can vary significantly depending on various factors, including the specific reorganization plan, the type of creditors involved, and the overall financial health of the debtor. Here are some insights from the provided sources:
- Subchapter V vs Traditional Chapter 11: Subchapter V cases have a higher recovery rate for unsecured creditors compared to traditional Chapter 11 cases. The introduction of Subchapter V has causally affected bankrupt firms' ability to confirm a reorganization plan, unsecured creditor recoveries, and post-bankruptcy viability. 1
- Projected Recovery Rates: For cases filed between March 2020 and September 2023 with total liabilities between $4 million and $11 million, projected recovery rates for unsecured creditors in Subchapter V cases are generally higher than in traditional Chapter 11 cases. However, the actual recovery rates can be lower due to factors such as prolonged existence of "zombie" firms and potential liquidation. 1
- Post-Bankruptcy Survival: Subchapter V cases have a higher post-bankruptcy survival rate, with an estimated 22 percentage points increase in firm survival for cases with liabilities between $4 million and $11 million. 1
- Repeat Filings: The high number of repeat Chapter 11 filings (Chapter 22) in 2023 suggests that many companies do not make the necessary changes to successfully revive themselves the first time around, often due to lingering debts, operational troubles, and overly optimistic financial outlooks. 4