It has become a reality of bankruptcy practice that most large or complex Chapter 11 cases are filed and administered in one of two so-called "magnet districts" Delaware or the Southern District of New York (Manhattan) irrespective of the location of the debtor’s principal place of business, principal assets, creditors or employees. The law that enables this to happen is 28 U.S.C. §1408, which permits a debtor to file for bankruptcy in the district in which it has: (1) its domicile (for a corporation, its state of incorporation); (2) its residence; (3) its principal place of business; or (4) its principal assets.
In addition, a corporation can file where there is a pending case concerning one or more of its affiliates, which can include not only a wholly-owned subsidiary, but a corporation in which the filing corporation holds at least a 20 percent equity interest. This means that no matter how large the parent corporation’s headquarters are or where it is located, the parent can bootstrap the entire corporate family into the venue of a small affiliate.
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