Bankruptcy Bounties

66 Pages Posted: 5 Nov 2018

See all articles by Richard M. Hynes

Richard M. Hynes

University of Virginia School of Law

Steven D. Walt

University of Virginia School of Law

Date Written: October 30, 2018

Abstract

Because theory suggests that businesses will wait too long to file voluntarily, current scholarship asks whether bankruptcy should offer larger rewards to managers and shareholders to induce them to file earlier. Although creditors could force firms into bankruptcy sooner by filing involuntary petitions, today involuntary petitions account for less than 0.05% of bankruptcy petitions. Even this meager number overstates involuntary bankruptcy’s role because most involuntary petitions are dismissed without a court even issuing an order for relief to formally begin a bankruptcy case. Involuntary petitions played a much larger role historically, accounting for more than ten percent of petitions during the first decades of the twentieth century. During this era, the total amount distributed to general creditors in all involuntary bankruptcies was double that distributed in all voluntary bankruptcies. Involuntary bankruptcies declined with the end of a practice that rewarded attorneys who filed involuntary petitions with lucrative post-petition work. We suggest that bankruptcy law should borrow from its past and reward creditors who file involuntary petitions.

Keywords: Bankruptcy

JEL Classification: G33,K00, K22, K35

Suggested Citation

Hynes, Richard M. and Walt, Steven D., Bankruptcy Bounties (October 30, 2018). Virginia Law and Economics Research Paper No. 2018-15, Available at SSRN: https://ssrn.com/abstract=3275490

Richard M. Hynes (Contact Author)

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
434-924-3743 (Phone)

Steven D. Walt

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
804-924-7930 (Phone)
804-924-7536 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
61
Abstract Views
496
rank
389,013
PlumX Metrics