Derivatives and Bankruptcy: The Flawed Case for Special Treatment
Stephen J. Lubben
Seton Hall University – School of Law
September 8, 2008
Seton Hall Public Law Research Paper No. 1265070
U. Pa. J. Bus. Law, Vol. 12, No. 1, p. 61, 2009
Abstract:
The putative scourge of “cherry picking” provides the foundation for the Bankruptcy Code’s special treatment of derivative contracts, which are not subject to the automatic stay or the Code’s normal rules prohibiting termination solely as a result of one party’s bankruptcy filing. Alternatively, some argue that the special treatment of derivatives is justified because “derivatives contracts are generally not firm-specific assets and therefore giving them special treatment will increase economic efficiency.” In this paper I argue that neither argument is very convincing, and that derivative contracts should be subject to the general rules of bankruptcy in most cases.
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