Protection for Whom?
Stanley D. Longhofer
Wichita State University - W. Frank Barton School of Business
Stephen R. Peters
Kansas State University - Department of Finance
Regulation, Vol. 28, No. 4, pp. 20-25, Winter 2005
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.
Number of Pages in PDF File: 6
Keywords: bankruptcy, bankruptcy law, bankruptcy system, creditor, debtor, debt-collection, liquidation
JEL Classification: G3, G33
Date posted: January 14, 2006