Bankruptcy costs of debt
Within the theory of
investors holding its debt are likely to lose part or all of their investment, and therefore investors require a higher rate of return
when investing in bonds of a firm that can easily go bankrupt. This implies that an increase in debt which ends up increasing a firm's bankruptcy probability causes an increase in these bankruptcy costs of debt.
In the
marginal benefit
of debt that results from tax benefits.
In the personal bankruptcy there is a cost associated with filling the paperwork. For Chapter 13 Bankruptcy there is a fee of $281 and for Chapter 7 Bankruptcy it is $306.[1] Additionally there can be other payments required, like Lawyer's fee, Conversion fee, Credit counselling and debtor education fee.[2][3]
See also
- Corporate finance
- Trade-Off Theory
- Capital structure
- Tax benefits of debt
- Financial distress
- Financial risk management
References
- ^ "Average Cost of Filing Bankruptcy". Archived from the original on 2015-02-09. Retrieved 2015-02-09.
- ^ BLC Law Center | Bankruptcy Attorney Near Me
- ^ "Get Yourself Out Of Debt". Thursday, 1 April 2021
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