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Bankruptcy Law


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  • White, Michelle J.
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    Bankruptcy is the legal process whereby financially distressed firms, individuals, and occasionally governments resolve their debts. The bankruptcy process for firms plays a central role in economics, because competition drives inefficient firms out of business, thereby raising the average efficiency level of those remaining. The main economic function of corporate bankruptcy is to reduce the cost of default by having a government-sponsored procedure that resolves all debts simultaneously. The main economic function of personal bankruptcy is to provide partial consumption insurance to individual debtors and therefore reduce the social cost of debt. This chapter surveys theoretical and empirical research on both types of bankruptcy.

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    This chapter was published in:

  • A. Mitchell Polinsky & Steven Shavell (ed.), 2007. "Handbook of Law and Economics," Handbook of Law and Economics, Elsevier, edition 1, volume 2, number 2.
    This item is provided by Elsevier in its series Handbook of Law and Economics with number 2-14.

    Handle: RePEc:eee:lawchp:2-14

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    Keywords: Corporate bankruptcy; personal bankruptcy; small business; financial distress; reorganization; liquidation; absolute priority rule (or APR); limited liability; cramdown; prepack (or prepackaged bankruptcy); human capital; Chapter 11; Chapter 7; Chapter 13; option;

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    Cited by:
    1. Berger, Allen N. & Cerqueiro, Geraldo & Penas, MarĂ­a F., 2011. "Does debtor protection really protect debtors? Evidence from the small business credit market," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1843-1857, July.


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