We develop a tractable general equilibrium model that captures the interplay be- tween nominal long term corporate debt, in ation, and real aggregates. We show that unanticipated in ation changes the real burden of debt and, more signicantly, leads to a debt overhang that distorts future investment and production decisions. For these eects to be both large and very persistent it is essential that debt maturity exceeds one period. Finally we also show that interest rate rules can help stabilize our economy. (Key words: Debt de ation, debt overhang, monetary non-neutrality).