The bankruptcy process in many countries is lengthy and cumbersome, which prevents creditors from recovering their claims in distress. Exploiting the staggered introduction of specialized bankruptcy courts appointing professional judges in China, we find that they lead to a 7.6% reduction in the cost of debt financing, with a stronger effect for issuers of higher default risk. To establish the direction of causality, we focus on differences in court enforcement, namely bankruptcy court versus civil court, across otherwise similar bordering counties located within the same province. By analyzing manually collected bankruptcy filings, we uncover the mechanism with reductions in liquidations, shorter bankruptcy proceedings, less government interference, and higher creditor recovery rates. We further exploit the heterogeneous debt enforcement across Chinese prefectures, together with the bankruptcy reform to estimate the elasticity of bond prices to local enforcement. Improvement in court efficiency translates into significant increases in debt capacity, bond maturity, and investment by bond issuers. These results indicate that stronger court enforcement is a necessary precondition in handling the USD 120.2 billion bond defaults.