Bankruptcy Information: Lehman Halfway through Its Bankruptcy

December 19, 2011

By: Brenna Working

Bloomberg News reports that Lehman Brothers Holdings Inc., which filed for bankruptcy protection in 2008, has had its bankruptcy exit plan approved by its bankruptcy judge. The news means that Lehman may start exiting bankruptcy, a process that could take as long as three years.

The duration of Lehman’s bankruptcy case should not be surprising, given that it is, to date, the largest bankruptcy filing on record in the United States. Once the country’s fourth-largest securities firm, Lehman collapsed in 2008 after investments connected to the real estate market proved worthless.

At the time of its bankruptcy filing, Lehman reported assets $639 billion. Right now, its bankruptcy exit plan has reportedly been supported by creditors to whom the firm owes $450 billion. Lehman’s plan for the next three years include beginning to distribute the $23 billion it has as cash on hand at present, and to raise an additional $65 billion by liquidating its assets.

In addition to being the largest bankruptcy case that the nation’s courts have ever seen, it appears to have been one of the most difficult. Judge James Peck of the U.S. Bankruptcy Court oversaw Lehman’s case and allegedly called it the "most impossibly challenging" case he’d ever witnessed.

As a point of comparison, consider that an individual debtor’s Chapter 7 bankruptcy liquidation may be completed in as little as four to six months. Lehman’s, which involved teams of lawyers, will likely take no less than six years to wind down fully. In addition to the considerable time this case has occupied, it’s cost a lot of money: since the company filed its petition three years ago, sources report, it has spent $1.5 billion in fees to lawyers and managers.

Despite the complications Lehman and its bankruptcy lawyers have so far encountered during the process, it seems that fully 95 percent of the firm’s creditors have approved its bankruptcy exit plan. Those creditors, sources note, should start seeing payments from Lehman’s asset liquidation as early as the first quarter of 2012.

Lehman Brothers’ initial bankruptcy filing became a touchstone moment in the financial crisis that touched off the Great Recession still plaguing the housing and employment markets today.