Bankruptcy Regulations and the New German Insolvency Law from an Economic Point of View

Some fundamental incentive effects are analyzed which result from alternative insolvency law arrangements. Thereby ex-ante effects, which refer to decisions before the occurrence of the insolvency—in particular the credit decisions and the use of credit, are distinguished from ex post effects, which refer to the time after insolvency has begun—in particular the utilisation of the seizable assets of the debtor. A brief discussion of some fundamental criticism of the former West German bankruptcy and composition regulations follows and the essential changes of the new Insolvency law which has come into effect on January 1, 1999 are presented. Finally a procedure is discussed which could contribute to the solution of some further existing incentive problems.