6 Pages Posted: 14 Jan 2006
Once a debtor becomes financially distressed, conflict among creditors can occur, leading to an inefficient liquidation of the debtor. We argue that bankruptcy law is intended to protect creditors from one another. In the absence of a bankruptcy system, creditors generally find individual debt-collection remedies privately optimal, even though a coordinated liquidation would increase the total value of the firm's assets that could be distributed to the creditors as a group.
Keywords: bankruptcy, bankruptcy law, bankruptcy system, creditor, debtor, debt-collection, liquidation
JEL Classification: G3, G33
Suggested Citation: Suggested Citation
Longhofer, Stanley D. and Peters, Stephen R., Protection for Whom?. Regulation, Vol. 28, No. 4, pp. 20-25, Winter 2005. Available at SSRN: https://ssrn.com/abstract=875362