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http://ssrn.com/abstract=266414
 
 

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A New Approach to Valuing Secured Claims in Bankruptcy


Lucian A. Bebchuk


Harvard Law School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)

Jesse M. Fried


Harvard Law School; European Corporate Governance Institute (ECGI)


Harvard Law Review, Vol. 114, pp. 2386-2436, 2001
Harvard Law and Economics Discussion Paper No. 321, 2001
UC Berkeley Public Law Research Paper No. 49

Abstract:     
In many business bankruptcies in which the firm is to be preserved as a going concern, one of the most difficult and important problems is that of valuing the assets that serve as collateral for secured creditors. Valuing a secured creditor's collateral is needed to determine the amount of the creditor's secured claim, which in turn affects the payout that must be made to the creditor. Such valuation has generally been believed to require either litigation or bargaining among the parties, which in turn give rise to uncertainty, delay, and deviations from parties' entitlements. This paper puts forward a new approach to valuing collateral that involves neither bargaining nor litigation. Under this approach, a market-based mechanism would determine the value of collateral in such a way that no participant in the bankruptcy would have a basis for complaining that secured creditors are either over- or under-compensated. Our approach would considerably improve the performance of business bankruptcy and could constitute an important element of any proposal for bankruptcy reform.

Number of Pages in PDF File: 50

Keywords: bankruptcy, insolvency, secured debt, security interest, collateral, valuation, bankruptcy reform

JEL Classification: G33, K22

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Date posted: April 10, 2001 ; Last revised: May 10, 2009

Suggested Citation

Bebchuk, Lucian A. and Fried, Jesse M., A New Approach to Valuing Secured Claims in Bankruptcy. Harvard Law Review, Vol. 114, pp. 2386-2436, 2001; Harvard Law and Economics Discussion Paper No. 321, 2001; UC Berkeley Public Law Research Paper No. 49. Available at SSRN: http://ssrn.com/abstract=266414 or http://dx.doi.org/10.2139/ssrn.266414

Contact Information

Lucian A. Bebchuk
Harvard Law School ( email )
Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)
HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) and European Corporate Governance Institute (ECGI)
Jesse M. Fried (Contact Author)
Harvard Law School ( email )
1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)
HOME PAGE: http://www.law.harvard.edu/faculty/directory/10289/Fried
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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