The costs incurred by a firm due to bankruptcy. These costs consist of direct and indirect components::

Total bankruptcy costs = direct bankruptcy costs + indirect bankruptcy costs

Direct bankruptcy costs include fees paid to lawyers, accountants, administrators, liquidators, and investment bankers involved in bankruptcy proceedings. Indirect bankruptcy costs are not cash outlays but rather economic losses such as the loss of customers and suppliers (generally any adverse reputational effects), missed opportunities to invest in profitable ventures, loss of key employees, etc.