The Bankruptcy Game

All sorts of companies are taking refuge in Chapter 11. But too many use the law to stiff creditors, enrich lawyers and protect bad managers.

ACCORDING TO THE AMERICAN capitalist gospel, it is no sin to go belly up. Quite to the contrary, U.S. firms enjoy the most liberal bankruptcy laws on earth -- a privilege strengthened by a provision of the code known as Chapter 11 that holds creditors at bay while often allowing sick firms to bleed new buckets of red ink and still operate for years.

Congress added the Chapter 11 provision to the federal bankruptcy code in 1978 so companies could stay in business while working out repayment plans. But a national debate has now sprung up over whether the country would...

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