• Business failure that occurs when a firm's liabilities exceed the fair market value of its assets.
• State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from the stockholders to the bondholders.
| ||Embedded terms in definition|
| ||Referenced Terms|
| ||Absolute priority: Rule in Bankruptcy proceedings whereby senior creditors are required to be paid in full before junior creditors receive any payment.|
| ||Automatic stay: The restricting of liability holders from collection efforts of collateral seizure, which is automatically imposed when a firm files for Bankruptcy under Chapter 11.|
| ||Bankruptcy cost view: The argument that expected indirect and direct Bankruptcy costs offset the other benefits from leverage so that the optimal amount of leverage is less than 100% debt financing.|
| ||Bankruptcy prediction models: Bankruptcy Prediction Models refer to the quantitative models that estimate the probability of bankruptcy for a given firm or a bank.|
| ||Bankruptcy view: The argument that expected Bankruptcy costs preclude firms from being financed entirely with debt.|
| ||Related Terms|
| ||Bankruptcy cost view|
Bankruptcy prediction models