Small Business Bankruptcy

Washington Post Staff Writer

There's still a lot of money to be made when a small business bankruptcy & company goes bankrupt. Believe it or not, in this era of corrupt companies going belly up, the cost of corporate bankruptcies is bottoming out. But that doesn't mean bankruptcy cases and corporate bankruptcy filings aren't lucrative for law firms, a new study says.

According to researchers at the UCLA School of Law, bankruptcy costs for the largest U.S. companies in Chapter 11 reorganization have dropped 57 percent in real dollars since the 1980s. This include llc bankruptcy and s corporation bankruptcy filings.

But the length of time that cases are in bankruptcy has decreased almost as much -- 50 percent -- which the researchers say roughly correlates with the drop in costs.
Yes, say Lynn M. LoPucki and Joseph W. Doherty, the bankruptcy lawyers are doing quite well. As The Washington Post reported last month, legal fees in the Enron Corp. bankruptcy have exceeded $496 million, making it the most expensive case ever.

The researchers also found that fees and expenses in 48 cases they studied totaled more than $600 million. Eighty percent went to firms working for debtors; most of the rest went to those working for creditors. And less than 1 percent went to professionals working for lowly shareholders, who usually are at the end of the line when it comes to recovering their losses.

Among the other nuggets in LoPucki's study, which can be found at www1.law.ucla.edu/~erg/pubs.html, is a chart showing that the more firms there are in a bankruptcy case, the higher the fees.
LoPucki wanted to title the chart "Pigs at the Trough." But, then he decided, no, "it lacks the dignity required for a scholarly paper."

It stands to reason that the more lawyers and firms there are in a case, the higher the fees. But LoPucki has another, clearer way to put it. He said it reminds him of the old story about the town that didn't have enough legal work for one lawyer, but had plenty for two.

" When you add lawyers, you're not just dividing the work among more people, you are creating more work," LoPucki said.

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