On average, bankruptcy cases last between one and two years; however, pre-negotiated or pre-packaged bankruptcies can sometimes be resolved within a year, while other bankruptcies can last 4 years or more. The duration of an individual bankruptcy case will be affected by a number of factors, including the complexity of a debtor's legal and capital structure, the number of creditor classes and level of hostility, pre- and post-petition litigation, environmental and other contingent liabilities, asset sales, labor and regulatory issues, and fraud. Creditors typically will not receive any recovery until 30-90 days after a plan of reorganization is declared effective and the debtor (or plan administrator) has completed the claims reconciliation process. In the current environment, bankruptcy case duration is expected to increase due to the significant number of recent bankruptcy filings and the backlog of cases in the federal bankruptcy courts.
Lastly, in terms of other considerations, creditors should be aware of the possible types of consideration (payment received for a debt or claim) provided to creditors in a reorganization. Consideration may come in the form of cash, debt, common stock, warrants or a combination thereof. Claim holders who receive common stock or warrants often find this type of "soft consideration" hard to value and difficult to liquidate (particularly if there is no current or liquid market for the reorganized entity's stock).