Federal statutes that allow consumers and businesses unable to meet their financial obligations to discharge their debts and start over economically. Article I, section 8, clause 4, of the U.S. Constitution stipulates that Congress shall establish “uniform Laws on the subject of Bankruptcies throughout the United States.”
Business and personal finance is beset with a degree of unpredictability. Under capitalism, private individuals, public institutions, small businesses, partnerships, and major corporations sometimes face changes in the marketplace, technology, and consumer preferences that decrease income and profits, creating financial crises. Congress, in response to economic downturns, increasingly complex commercial transactions, expanding credit, and a larger number of entrepreneurships, produced major bankruptcy legislation in 1800, 1841, 1867, and 1898.
A 1970 joint resolution of Congress created the Bankruptcy Commission, with members appointed by the president, chief justice, and Congress. In 1978 Congress passed the Bankruptcy Reform Act
Bankruptcy court, district court, bankruptcy appellate panel, and court of appeals judges may differ in their interpretations of legislative history, legislation, rules, and the plain meaning of the text. Some court watchers believe sufficient scope exists for judges to engage in policy making while ostensibly interpreting the text of bankruptcy laws. Most bankruptcy cases reach the Supreme Court because of conflicting results on substantially identical facts reached by the various courts of appeals. The Court, seeking uniformity within the federal system, usually makes narrow decisions.
The constitutionality of the 1978 bankruptcy laws was raised in Northern Pipeline Construction Co. v. Marathon Pipe Line Co.
Bankruptcy legislation, particularly chapter 11, has historically been concerned with businesses and corporations. In the twentieth century, personal consumer bankruptcies, chapter 7 and 13, became far more numerous than business cases. The Court in Local Loan Co. v. Hunt
Grogan v. Garner
The bankrupt debtor generally does not pay more for property than it is worth. Creditors dislike this and assert that mortgages in real estate should be treated differently than liens on cars, equipment, jewelry, and other consumer items. Lien stripping was the subject of Dewsnup v. Timm
In United States v. Whiting Pools
The federal system, the balance between state and federal government, increasingly protects governments from being sued without their permission. Hoffman v. Connecticut Department of Income Maintenance
The wide range of Court decisions indicates the pervasiveness of economic issues and the bankruptcy court’s role in American economic life. The Court has made decisions regarding taxes, transportation and common carriers, the absolute priority rule (an important creditor protection in devising chapter 11 reorganization plans), and family law regarding property settlements in divorces.
Public and legislative dissatisfaction with Court decisions may result in corrective legislation. In Pennsylvania Department of Public Welfare v. Davenport
Epstein, David G., et al. Bankruptcy: Twenty-First Century Debtor-Creditor Law. St. Paul, Minn.: Thomson/West, 2005. Frey, Martin, Phyllis Frey, and Sidney Swinson. 5th ed. An Introduction to Bankruptcy Law. Clifton Park: Thomson/Delmar, 2004. Gross, Karen. Failure and Forgiveness, Rebalancing the Bankruptcy System. New Haven, Conn.: Yale University Press, 1997. Skeel, David. Debt’s Dominion: A History of Bankruptcy Law in America. Princeton, N.J.: Princeton University Press, 2003.
Courts of appeals
Ogden v. Saunders
Reversals of Court decisions by Congress
Seminole Tribe v. Florida