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Corporate and Personal Bankruptcy Law

  • Michelle J. White
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    Bankruptcy is the legal process by which the debts of firms, individuals, and occasionally governments in financial distress are resolved. Bankruptcy law always includes three components. First, it provides a collective framework for simultaneously resolving all debts of the bankrupt entity, regardless of when they are due. Second, it provides rules for determining how the assets and earnings used to repay are divided among creditors. Third, bankruptcy law specifies punishments intended to discourage debtors from defaulting on their debts and filing for bankruptcy. This review discusses and evaluates bankruptcy law by examining whether and when the law encourages debtors and creditors to behave in economically efficient ways. It also considers how bankruptcy law might be changed to improve economic efficiency. The review shows that there are multiple economic objectives of bankruptcy law, because the law affects has very diverse effects. Some of these objectives differ for individuals versus corporations in bankruptcy.

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    File URL: http://www.nber.org/papers/w17237.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17237.

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    Date of creation: Jul 2011
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    Handle: RePEc:nbr:nberwo:17237
    Note: LE
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    1. Aghion, P. & Hart, O. & Moore, J., 1992. "The Economics of Bankruptcy Reform," Working papers 92-11, Massachusetts Institute of Technology (MIT), Department of Economics.
    2. Aghion, Philippe & Hermalin, Benjamin, 1990. "Legal Restrictions on Private Contracts Can Enhance Efficiency," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 381-409, Fall.
    3. Ang, James S & Chua, Jess H & McConnell, John J, 1982. " The Administrative Costs of Corporate Bankruptcy: A Note," Journal of Finance, American Finance Association, vol. 37(1), pages 219-26, March.
    4. Philippe Aghion and Benjamin Hermalin., 1990. "Why Legal Restrictions on Private Contracts Can Enhance Efficiency," Economics Working Papers 90-140, University of California at Berkeley.
    5. Barry Adler & Ben Polak & Alan Schwartz, 1999. "Regulating Consumer Bankruptcy: A Theoretical Inquiry," Yale School of Management Working Papers ysm128, Yale School of Management, revised 01 Jul 2000.
    6. Agarwal, Sumit & Liu, Chunlin & Mielnicki, Lawrence, 2003. "Exemption laws and consumer delinquency and bankruptcy behavior: an empirical analysis of credit card data," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 273-289.
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