Debtor’s Dilemma: The Economic Case for Ride-Through in the Bankruptcy Code
122 Yale L.J. 1594 (2013).
Following the 2005 amendments to the Bankruptcy Code, a Chapter 7 debtor hoping to retain an encumbered asset such as a motor vehicle after bankruptcy faces at least five options. The Bankruptcy Code allows a debtor to redeem the asset, reaffirm the debt, or convert to a Chapter 13 proceeding. Alternatively, a creditor may simply agree to forbear on its right to repossess collateral, leaving the asset in the debtor’s possession. In certain circumstances a bankruptcy court may also impose a binding nonrecourse debt arrangement known colloquially as “backdoor ride-through.”
This Note employs an economic framework to show how these retention options fall short of Chapter 7’s policy goals: a “fresh start” for debtors, adequately protected interests for secured creditors, and national uniformity of bankruptcy law. After illustrating the shortcomings of the status quo, this Note argues that enacting a statutory ride-through provision—a successor to an option available in five circuit courts of appeals before 2005—would better accord with the principles and policy underlying bankruptcy law.