Credit Contracts, Collateral-Based Security Agreements, and Bankruptcy

Abstract

This paper aims at analyzing the economic functions of collateral-based security agreements within the creditor-debtor-relation and the functions of bankruptcy or reorganization proceedings. I intend to show first the considerable advantages of contracts for creditors and debtors, giving creditors the conditional right to claim pre-determined assets or rights, if the debtor does not fulfill his obligations. Second, I analyse the functions which bankruptcy proceedings and the projected reorganization proceedings in West Germany should assume. Third, the conflicts between the functions of collateral-based security agreements within the creditor-debtor-relation and the functions of bankruptcy and/or reorganization provisions will become evident.