This article examines the relationship between bankruptcy and constitutional law. Article I, § 8, cl. 4 of the Constitution provides that Congress shall have the power to make “uniform laws on the subject of bankruptcies.” While there are many good social, political and economic theories of bankruptcy, there has been surprisingly little effort to explore what it means to have constitutionalized financial distress. This article is a first step in that direction. Constitutional problems with bankruptcy are not new, but present three under-appreciated puzzles: First, why have we put a bankruptcy power in the Constitution, and what does its “peculiar” language mean? Second, how should this power interact with structural features of our constitutional system, whether vertical (vis-à-vis states) or horizontal (vis-à-vis other branches)? Third, how should we resolve competitions between this power and substantive protections involving, for example, property, due process, and religious and informational (speech) liberties? Recent Supreme Court decisions broadly interpreting the Bankruptcy Clause, the 2005 amendments to the Bankruptcy Code, and the continuing spate of Catholic diocese bankruptcies, among other things, give these puzzles some urgency. This article cannot solve all of these puzzles. It does, however, identify an important, and thus far unnoticed, theme in the constitutional implications of bankruptcy: “Bankruptcy exceptionalism.” Bankruptcy exceptionalism is an operating principle that helps to explain why we have a Bankruptcy Clause and how it permits and sometimes compels exceptions to constitutional rules, standards, norms and values in order to accommodate the exigencies of financial distress. The article argues that bankruptcy exceptionalism should be limited by the core aspiration of the Bankruptcy Clause: to provide relief for the “honest but unfortunate debtor,” subject to certain important democratic and countermajoritarian protections for creditors.
bankruptcy exceptionalism, Bankruptcy Clause, financial distress, constitutional theory of bankruptcy, religious liberty, due process, bankruptcy reform, sovereign immunity
Notre Dame Law Review
Lipson, Jonathan C., "Debt and Democracy: Towards a Constitutional Theory of Bankruptcy" (2008). Faculty Scholarship at Penn Carey Law. 143.