Are Bankruptcy Professional Fees Excessively High?

64 Pages Posted: 31 Mar 2020 Last revised: 17 Dec 2021

Date Written: December 16, 2021

Abstract

Chapter 7 is the most popular bankruptcy system for U.S. firms and individuals. Chapter 7 professional fees are massive. Theoretically, high fees might be an unavoidable cost of incentivizing professionals. I show empirically that most fees are actually an avoidable consequence of a suboptimal bankruptcy code. In Chapter 7, the key professional is a trustee, who liquidates assets in exchange for legally-mandated commissions. Exploiting kinks in the commission function, I estimate a structural model of moral hazard by trustees. While reducing commissions would harm trustee incentives, lowering liquidation values, I nonetheless find that lower commissions would benefit creditors enormously. The law that specifies commissions is thus far more costly than the moral hazard problem it aims to solve.

Keywords: bankruptcy, recovery rate, structural estimation, bunching, moral hazard

JEL Classification: G33, G38, K22

Suggested Citation

Antill, Samuel, Are Bankruptcy Professional Fees Excessively High? (December 16, 2021). Available at SSRN: https://ssrn.com/abstract=3554835 or http://dx.doi.org/10.2139/ssrn.3554835

Samuel Antill (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
87
Abstract Views
1,367
rank
386,360
PlumX Metrics