Why Do Busted Companies Always File for Bankruptcy on Sundays?

Lots of busted companies, including WorldCom, Enron, and US Airways, have filed their bankruptcy papers on Sundays. Why on Sundays?

The dearth of business activity on the traditional day of rest makes Sunday an ideal time to declare insolvency. Bankruptcy petitions are time-stamped to the minute, instantly dividing a failed company’s dealings into pre-bankruptcy transactions and post-bankruptcy transactions. Since little business is conducted on Sundays, odds are a company won’t be in the midst of a transaction when it formally goes belly up, a situation that could cause quibbling with a creditor over whether a deal was pre- or post-bankruptcy. A filer typically wants to have as many deals as possible labeled “pre-bankruptcy,” since it may wind up paying only pennies on the dollar to those unfortunate creditors.

Sunday filings are also designed to lessen media scrutiny of a collapse, because Monday newspaper business sections are often geared toward “soft” features on publishing or advertising rather than market-driven news. This strategy is akin to the old political trick of making embarrassing announcements at 4:59 p.m. on Friday, right before the Beltway press corps flees to the suburbs for the weekend. But in the age of CNBC and Yahoo! News, a Sunday filing scarcely lessens the public-relations blow.

But the courts are closed on Sunday, right? In theory, the courts are always open for business. Bankrupt companies need to locate a clerk or judge willing to accept their documents on a weekend, an arrangement that usually requires a few days notice and a little clout. About a third of federal bankruptcy courts now accept electronic filings, including the ever-popular Southern District of New York, where Enron, WorldCom, Adelphia, and Global Crossing all went bust.

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Explainer thanks Lynn LoPucki of the UCLALawSchool, Ray Warner of the University of Missouri-Kansas City School of Law, and Todd Zywicki of the GeorgeMasonUniversitySchool of Law. Thanks to Martin Henner of Eugene, Ore., for asking the question.