In Delaware, there are no big professional sports teams, no big TV stations, no big commercial airports, no mountains. The sleepy US state, 96 miles long and 35 miles wide, has even more chickens than people.

Now one of the few things the place had going for it – a reputation for the friendliest jurisdiction to sort your business out of bankruptcy – is in jeopardy by the big and daring 790-mile-long Texas. New data shows bankruptcy attorneys are bringing as many cases to Houston as The Diamond State.

Alone with the lonely star

US bankruptcy law allows businesses to file for Chapter 11 registration in just about any federal bankruptcy location they choose. Legal critics say this encourages large companies to seek out the courts they think are most likely to offer them favorable terms. Policies – and judges ‘trends – on things like lease terminations, restructuring plans, creditors’ payments, and liability protections vary by location.

Since the 1980s, Delaware – which is famous for its flexible corporation laws – has been the hotbed for major bankruptcies. But, as legal teams learned how to shop, Texas’ largest city caught it in a bind:

  • A third of bankruptcy filings in the United States with debtor liabilities greater than $ 500 million were filed in Houston last year, linking longtime frontrunner Wilmington, according to data from BankruptcyData.com of the Financial Time.
  • In 2020, Houston briefly passed Delaware by handling 41 major cases, including JC Penney, Neiman Marcus, and Chesapeake Energy.

Houston? Those who support the current system say it has created a small group of expert lawyers who specialize in complex bankruptcy proceedings. Two of those judges, David Jones and Marvin Isgur, are based in Houston. Other specialized sites have also sprung up: Richmond, Virginia, is a favorite location for retail bankruptcies, such as Toys R Us and J Crew.

Critical mass: The criticisms of forensic shopping are clearly heard. U.S. Senators John Cornyn, a Republican from Texas, and Elizabeth Warren, a Democrat from Massachusetts, co-sponsored a bill that would require companies to file for bankruptcy where they are located. Meanwhile, Virginia and the Southern District of New York – where Purdue Pharma automatically got a judge it wanted by filing in Westchester County – both began to randomize assignments among bankruptcy judges.