I think that's undervaluing the time value of money.

How? A debt is a promise to transfer. A default is equivalent to a repayment plus a theft.

The only sense in which value is destroyed is if the money ends up in the hands of someone who less productive at invest it. But that can't really be predicted. If value is lost in a default, the value was already destroyed in the past, regardless default choice.

My point was that the only reason to take out a bond in the first place is time value of money: the auto industry needs them for its inventory and input parts. Bond markets seizing up present a problem for this kind of company, because it's possible to be profitable but bankrupt due to cashflow issues if the company cannot roll over its bonds when they fall due.

Bankruptcy causes real destruction of value as inventory is sold at liquidation prices and the concentration of knowledge and organisation that makes a firm valuable in the first place evaporates.