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Article Title

Bankrupting the Faith

Authors

Pamela Foohey

Abstract

This Article examines the institutions’ characteristics, reasons for filing, and case outcomes to investigate what benefits Chapter 11 brings to the organizations and whether bankruptcy is an effective solution to their financial problems. Based on the successful reorganizations and continued operations of some of the debtors in the study, it finds that Chapter 11 has the potential to provide a productive means for addressing their financial problems by offering religious organizations an avenue to rehabilitate their operations following economic downturns, failures and transitions in leadership, and standstills in negotiating with creditors. In exploring these Chapter 11 cases, this Article not only reveals the previously unreported prevalence of religious organizations’ bankruptcies,16 but it also adds to only recently developing scholarly discussions of nonprofit bankruptcies, providing groundwork for future consideration of the Code’s application to nonprofit entities. Further, drawing upon the religious organization cases, the Article responds to two broader debates about Chapter 11: the role of bankruptcy courts in adjudicating these cases, and the broad purposes of business reorganization. As to the former, an assessment of the religious organization cases parallels recent studies suggesting that Chapter 11 is not an inefficient method for addressing the financial problems of corporations. The review additionally shows that a greater percentage of debtors confirm and consummate plans or otherwise benefit from Chapter 11 than historically thought. As to the latter, in considering whether the religious organization cases focus more on preserving going-concern value or keeping owner-operators and their small businesses together, the analysis reveals that the cases straddle these two accounts of Chapter 11, thereby identifying a set of cases that implicate multiple theories of business reorganization.

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