A case currently pending before the U.S. Supreme Court could have a massive impact on the future of Chapter 11 bankruptcy law. In the case, the bankruptcy court approved a settlement that allowed some creditors with inferior claims to obtain a recovery, while other creditors with superior claims got nothing. According to a New York Times report, the high court’s ruling “could upend the common practice that ranks lenders, employees and other creditors in order of priority as they try to recover their money when a company files for bankruptcy.”
Filing for bankruptcy can potentially provide some important benefits for the entities that choose that path. One of these benefits is the automatic stay. The rules related to the automatic stay block the ongoing pursuit of almost all types of claims against a debtor, but not everything. One example of a claim that the automatic stay could not prevent from going forward emerged in a recent case before the U.S. District Court, Middle District of Florida. In that case, the District Judge ruled that the U.S. government could continue its pursuit of the debtor because its action under the False Claims Act fell under the “police or regulatory” exemption to the automatic stay.
In the latest chapter of a long-running dispute between the federal government and a Tampa Bay-area nursing home, the 11th Circuit Court of Appeals upheld the decision of a district court, which concluded that the protections afforded debtors in Chapter 11 bankruptcy cases do not allow the nursing home to escape the consequences of a U.S. Department of Health and Human Services decision to terminate its Medicare provider agreement with the facility. The result offers an illustration that Chapter 11 protections can be very valuable benefits, but bankruptcy protection only goes so far.