A New Bankruptcy Subchapter for Institutions of Higher Education: A Path but not a Destiny

Almost any financially distressed entity can attempt to restructure under chapter 11 of the Bankruptcy Code (1) while continuing to operate. Institutions of higher education ("IHEs") present one of the few exceptions. The moment a bankruptcy is filed, IHEs forfeit federal financial aid funding, their primary source of liquidity. Continued operations are impossible and going-concern value dissipates. Recent articles explain why the purported policy supporting the current treatment of IHEs is stale and misplaced, while the question of how they should be treated remains unexplored. This article fills the void and suggests administering IHE restructurings through the enactment of an IHE-specific subchapter to chapter 11 of the Bankruptcy Code.