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Bankruptcy Law

In: Handbook of Law and Economics

Author

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  • White, Michelle J.

Abstract

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.

Suggested Citation

  • White, Michelle J., 2007. "Bankruptcy Law," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 2, chapter 14, pages 1013-1072, Elsevier.
    • Handle: RePEc:eee:lawchp:2-14
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    Citations

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    Cited by:

    1. Mankart, Jochen & Rodano, Giacomo, 2015. "Personal bankruptcy law, debt portfolios, and entrepreneurship," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 157-172.
    2. Berger, Allen N. & Cerqueiro, Geraldo & Penas, María 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.
    3. Binder Jens-Hinrich, 2013. "Durchsetzung von Marktdisziplin mittels zwangsweiser Übertragung systemrelevanter Teile von Banken? / The Enforcement of Market Discipline through a Transfer of Systemic Functions in Banks," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 64(1), pages 377-404, January.

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