Is Secured Debt Used to Redistribute Value from Tort Claimants in Bankruptcy? An Empirical Analysis

53 Pages Posted: 19 Jun 2006

Date Written: June 15, 2006


Many scholars question the priority enjoyed by secured debt in bankruptcy. They fear that secured debt will be used to inefficiently redistribute value away from pre-existing unprotected creditors of a firm. These scholars advocate a host of legal innovations, such as "superpriority" for tort claimants with respect to other creditors, to mitigate the redistributional problem. Other scholars minimize the redistributional problem, however, and argue that priority for secured credit is efficient. To help resolve this debate, this paper examines the redistributional theory from an empirical perspective. In particular, the paper focuses on secured debt usage by firms facing large tort liabilities ("high-tort" firms). In theory, secured debt should be attractive for high-tort firms because they have a large class of unsecured and uncovenanted creditors (tort claimants) exposed to redistribution in bankruptcy through the use of secured credit. The paper's empirical analysis contradicts the redistributional theory's prediction, however. High-tort firms have unusually low amounts of secured debt. While this result is very difficult to explain under the redistributional theory, it can readily be explained according to other theories of secured debt. Several important policy implications for bankruptcy priorities follow from these findings.

Keywords: Secured Debt, Bankruptcy, Priority, Redistribution, Torts

JEL Classification: K13, K22, K32

Suggested Citation

Listokin, Yair, Is Secured Debt Used to Redistribute Value from Tort Claimants in Bankruptcy? An Empirical Analysis (June 15, 2006). 1st Annual Conference on Empirical Legal Studies Paper, Available at SSRN: or

Yair Listokin (Contact Author)

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
203-436-2567 (Phone)

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