Not So “Free and Clear”: A Critical Examination of the Piper Test in Light of Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
Chapter 11 of the Bankruptcy Code provides for a complete discharge of “claims” against the debtor once a plan of reorganization has been confirmed. The approach taken by bankruptcy courts to define a bankruptcy claim has varied. One such approach—the Piper test—has sought to balance discharging the maximum amount of claims against a debtor while still providing due process to the debtor’s claimants, including future claimants. The Piper test defines dischargeable claims to include those claims that accrued post-petition, but before plan confirmation. This Note seeks to explore the effectiveness of the Piper test in light of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which has significantly altered the bankruptcy process by incentivizing debtors to enter and exit Chapter 11 quickly. The consequentially reduced interval between petition and confirmation has weakened the effectiveness of the Piper test, potentially leaving many more liabilities against a debtor outstanding after the bankruptcy process is complete and thereby threatening the going concern value of the reorganized debtor. In light of such an effect, this Note advocates an alternative approach to handling bankruptcy claims. This Note recommends defining a claim as broadly as possible so that the going concern value of reorganized debtors is preserved, while mitigating the resulting due process concerns by adopting wider usage of specific mechanisms to preserve due process to the debtor’s current and future claimants.