A New Approach to Valuing Secured Claims in Bankruptcy / Lucian Arye Bebchuk, Jesse M. Fried.

Format:

Book

Author/Creator:

Bebchuk, Lucian Arye.

Contributor:

National Bureau of Economic Research.

Fried, Jesse M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8276.

NBER working paper series no. w8276

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

In many business bankruptcies in which the firm is to be preserved as a going concern, one of the most difficult and important problems is that of valuing the assets that serve as collateral for secured creditors. Valuing a secured creditor's collateral is needed to determine the amount of the creditor's secured claim, which in turn affects the payout that must be made to the creditor. Such valuation has generally been believed to require either litigation or bargaining among the parties, which in turn give rise to uncertainty, delay, and deviations from parties' entitlements. This paper puts forward a new approach to valuing collateral that involves neither bargaining nor litigation. Under this approach, a market-based mechanism would determine the value of collateral in such a way that no participant in the bankruptcy would have a basis for complaining that secured creditors are either over- or under-compensated. Our approach would considerably improve the performance of business bankruptcy and could constitute an important element of any proposal for bankruptcy reform.

Notes:

Print version record

May 2001.