Arbitrating Bankruptcies

Courts do not enforce contracts prohibiting a party from filing for bankruptcy, but what about contracts requiring that any bankruptcy filing and ensuing case be in arbitration rather than in court? This article is the first to envision unanimous arbitration agreements among all the parties to a bankruptcy. It concludes that the Federal Arbitration Act requires courts to enforce such agreements, and it shows how fully the FAA enables parties to move both personal and business bankruptcy from litigation to arbitration, so long as the arbitration agreement is unanimous. However, this article also shows that with respect to nearly all business debtors the practical challenges of securing unanimous consent to a predispute arbitration agreement are daunting. So, unanimous agreements to arbitrate will be extremely rare for all but the smallest, simplest firms. In contrast, unanimous consent by all creditors of an individual debtor predicts to be less rare. But even if enforceable agreements to arbitrate personal bankruptcies are achievable with some frequency, the greater recoveries they would provide creditors seem usually not worth the additional fees of arbitration compared to publicly subsidized courts