These numbers from a recent Matt Levine column on how much money the Lehman bank creditors got back from bankruptcy are intriguing benchmarks:
Creditors got back 31 cents on the dollar in nominal terms (about 21 to 26 cents accounting for the time value of taking 10 years to get paid). At the high end, the costs of bankruptcy came to 21 cents on the dollar, meaning that if bankruptcy could have somehow magically been free and instantaneous, creditors would have gotten back about 52 cents on the dollar. The rest of the loss was due to Lehman, not bankruptcy.
The direct cost of the bankruptcy (fees and costs for advisors and lawyers) appears to have been around $7.28 billion. But then you have to account for the 10-years between the bankruptcy filing and the actually getting your money back.
Bankruptcy is widely regarded as a positive legal mechanism: intelligently carve up what’s left to maximize value to creditors and minimize the chance that knee caps get busted. But it’s striking to consider the costs of the bankruptcy proceeding itself, here about half of the value of what was left when accounting for the time delay.
Levine notes that the Madoff victims got back about 70 cents on the dollar (hooray!), so your mileage may vary.