Bill Would Limit Venue Shopping In Bankruptcy Cases

Most lawsuits have to be filed in the location where the action leading up to the lawsuit occurred. This is currently not true for bankruptcy cases. In fact, Bon-Ton, Briggs & Stratton, and Shopko all filed for bankruptcy outside the state of Wisconsin despite their strong ties to our state. A bill that is pending in Congress would change the bankruptcy law to prevent large companies from “venue shopping” when they need to file for bankruptcy. As bankruptcy attorneys who do a fair amount of commercial bankruptcy work, and regularly represent creditors in bankruptcy cases, the Hanson & Payne team is keeping a close eye on this legislation. 

Current Law Is Flexible 

The venue or location of a corporate bankruptcy case is currently governed by 28 U.S.C. § 1408, which allows companies to file a bankruptcy petition where they are incorporated, or where one of their affiliates is located. Large corporations that do business all over the country often choose to file for bankruptcy in Delaware, New York, or Texas even if they only do a little bit of business there because there is a perception that the bankruptcy judges in those venues are better at handling large, complex cases than the bankruptcy judges in other courts. 

As bankruptcy practitioners in Milwaukee, who regularly appear in the United States Bankruptcy Court for the Eastern District of Wisconsin, the Hanson & Payne team is confident that our judges are just as capable as those in other jurisdictions. We are therefore keeping an eye on a piece of legislation that would limit bankruptcy venue shopping, and potentially mean more complex commercial bankruptcy cases are heard in our local court. 

Bankruptcy Venue Reform Act of 2021

Senators Elizabeth Warren, a Democrat from Massachusetts, and John Cornyn, a Texas Republican, have introduced a bill that would curtail bankruptcy venue shopping. If the legislation passes, it would:

  • Require individual debtors to file for bankruptcy in the district where their domicile, residence, or principal assets in the United States are located;
  • Require corporate debtors to file for bankruptcy in the district where their principal assets or principal place of business in the United States are located;
  • Corporate debtors would no longer be permitted to file simply on the basis of their state of incorporation.
  • Stop debtors from filing for bankruptcy in another district simply because an affiliate of the debtor has filed there; and
  • Require bankruptcy judges to transfer or dismiss cases filed in the wrong district.

The bill includes a finding statement noting that these changes are desirable because current law “prevents small businesses, employees, retirees, creditors, and other important stakeholders from fully participating in bankruptcy cases that have tremendous impacts on their lives, communities, and local economies,” and “deprives district courts of the United States of the opportunity to contribute to the development of bankruptcy law in the jurisdictions of those district courts.” It further notes that, “reducing forum shopping in the bankruptcy system will strengthen the integrity of, and build public confidence and ensure fairness in, the bankruptcy system.”

Milwaukee Bankruptcy Attorneys 

According to a press release from the bankruptcy reform bill’s sponsors, “In the last 20 years, more than 70% of public companies with at least $100 million in assets filed for bankruptcy in a district outside of the one closest to their headquarters.” This is a shocking statistic, but we have frequently seen what we would consider Wisconsin companies file for bankruptcy in other states. 

Whether the law passes or not, the Hanson & Payne team has full confidence in the quality of the United States Bankruptcy Court for the Eastern District of Wisconsin and the competence of the judges who practice here. We will continue to serve clients who are involved in bankruptcy proceedings here in Milwaukee and across the state of Wisconsin. Please contact us today if you think we can be of service to you.