In the best of times, a chapter 11 reorganization is an uncertain and stressful process for all involved. When the disruptive effects of COVID-19 are added to the mix, and many businesses face significant economic difficulties, one can begin to appreciate the daunting task facing bankruptcy courts, debtors, creditors, and their lawyers.

Accept an unpalatable offer, or reject it and risk getting much less (or even nothing)? This is the choice stakeholders in chapter 11 bankruptcies increasingly face as a result of the proliferation of “deathtrap” provisions in plans of reorganization. For example, a class of bondholders may be forced to decide between accepting 60 cents on the dollar if they vote to accept a plan, or 40 cents if they reject. A class of equityholders may have to decide between accepting equity warrants, or rejecting and getting nothing. Adding to the paralysis of being confronted with a deathtrap is the reality that there is surprisingly little authority on whether, and under what conditions, such provisions are enforceable under the Bankruptcy Code. The authorities that do exist are split on this question—emboldening debtors seeking to precipitate chapter 11 settlements while leaving impaired classes of stakeholders to decry deathtraps as “draconian” and “coercive” mechanisms.