The United States is at a crossroad in its treatment of Chapter 11 of the Bankruptcy Code, which deals with reorganization of bankrupt organizations. It is vital that the issues surrounding the debate be properly framed. This paper attempts to do just that by reviewing the evolution of bankruptcy law, assessing the impact of Chapter 11 leniency on societal stakeholders, considering bankruptcy as a strategic option, and addressing the ethical and societal issues that arise from the use of Chapter 11 (...) to avoid massive litigation or to abrogate labor contracts. Serious threats to the underlying fibers of the American system of enterprise are exposed and an assessment of these threats is offered. (shrink)

The ethical issues involved in bankruptcy affect the debtor, the creditor and the society in which they operate. Facing the debtor is his responsibility to pay back the loans and credit extended to him while the creditor has to decide whether or not to press his legal rights, irrespective of the consequences to the debtor. Society will have to determine to what extent, if any, it is prepared or obligated to fund the rehabilitation of the debtor and those employees, whose (...) employment is terminated as a result of the bankruptcy. These issues will be determined according to the value structure of the particular souly in which debtor and creditor operate. This paper views the issues in a Jewish perspective. Debtors are considered to always be liable for their debts and there is a moral shame attached to bankruptcy, except in those cases where it is caused by natural disasters. While creditors are taught and encouraged to voluntarily waive their rights, this is considered charity with all its negative overtones. The courts are obligated to review the debtors assets and sell them, if necessary, to meet the creditors loans, leaving only basic necessities for minimal living of the debtor and his family. Society however, including the creditor, a part of the group, are obligated to fund the rehabilitation of the debtor either through its interest-free loan, charity or the provision of alternative employment. These may be funded out of communal taxes. (shrink)