Are Bankruptcy Professional Fees Excessively High?

Samuel Antill

The Review of Financial Studies, 2024, vol. 37, issue 12, 3595-3647

Abstract: Chapter 7 is the most popular bankruptcy system for U.S. firms and individuals. Chapter 7 professional fees are substantial. Theoretically, high fees might be an unavoidable cost of incentivizing professionals. I test this empirically. I study trustees, the most important professionals in chapter 7, who liquidate assets in exchange for legally mandated commissions. Exploiting kinks in the commission function, I estimate a structural model of moral hazard by trustees. I show that a policy change lowering trustee fees would harm trustee incentives, reducing liquidation values. Nonetheless, such a policy would dramatically improve creditor recovery, increasing small-business-lender recovery by 15.7%.

Keywords: G33; G38; K22 (search for similar items in EconPapers)
Date: 2024
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