Question

What are the direct and indirect costs of bankruptcy? Briefly explain each. Additionally, some firms have filed for bankruptcy because of actual or likely litigation-related losses. Is this proper use of the bankruptcy process? Provide real world example also if possible

Answer 1

Direct cost of bankruptcy are all such directly related fees to bankruptcy like professional fees and litigation fees.

indirect cost of bankruptcy will be indirectly impacting the overall bankruptcy as it will be leading to loss of revenue of the company and other opportunity losses which are indirectly leading into loss making

Some firms have filed for bankruptcy because of indirect bankruptcy related cost because they were not able to survive and sustain in the adverse economic situations and the had to file for bankruptcy.

This is not the proper way of use of the bankruptcy process as some firms has filed for bankruptcy because of the actual litigation related losses as it would be leading to a lack of approach on the part of the management and the company.company named Jaiprakash infrastructure in India has also filed for bankruptcy using the litigation fees reason.