By Andrew Miller
Bankruptcies are on the rise.
In the twelve months ending June 2026, filings rose 12.2 percent, with Chapter 11 cases climbing to 10,320 from 8,408 the year before.
There have always been two ways through bankruptcy.
One is liquidation. A trustee sells off what the company owns, pays creditors what it can, and the business is gone. That’s called Chapter 7, and it still works the way it mostly always has.
The other is reorganization, where the company keeps operating and tries to recover. Before 1978, going that route often meant losing control anyway. In the cases involving large public companies, a court installed a trustee to run the business, and the people who had managed it stepped aside.
The Bankruptcy Reform Act of 1978 changed that.
Under the changes, the same owners could stay in charge, running the business while they renegotiated what they owed. Not everyone trusted the idea.
Critics said it let the same managers who sank the company stay at the wheel. Within a few years a sharper objection arrived. Chapter 11 was not only a lifeline. It was a tool, and companies had started reaching for it on purpose.
Two notable cases pushed Congress to change the rules.
In August 1982, Johns-Manville filed for bankruptcy. It was the largest asbestos manufacturer in the country, facing thousands of lawsuits from workers sickened by its products. Chapter 11 let the company freeze those claims and route them into a trust, which capped what any one victim could collect.
A year later, Continental Airlines did something similar to its workers. Chairman Frank Lorenzo took the airline into Chapter 11 in September 1983 with more than $58 million in the bank, then moved to tear up its union contracts and cut pay. The court let him.
The reaction was loud enough that Congress acted. By 1984 it was harder to walk away from a union contract just by filing for bankruptcy.
But the bigger change held. Bankruptcy was now a strategic choice, not just a last resort.
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