[{"command":"add_css","data":[{"rel":"stylesheet","media":"all","href":"\/sites\/default\/files\/css\/css_veuEhhb1658wti0_ZAig66JOyixENU-N9zhjLQSLfOQ.css?delta=0\u0026language=en\u0026theme=heritage_theme\u0026include=eJwrTi1LzdNPzkksLq7Uy8tPSQUAPMsGtA"}]},{"command":"invoke","selector":null,"method":"openEssay","args":["10000040","\n\n\u003Carticle about=\u0022\/constitution\/articles\/1\/essays\/41\/bankruptcy-clause\u0022 class=\u0022node node--type-constitution-essay node--promoted node--view-mode-embedded clearfix\u0022\u003E\n  \u003Ch1 class=\u0022title\u0022\u003E\u003Cspan\u003EBankruptcy Clause\u003C\/span\u003E\n\u003C\/h1\u003E\n\n      \u003Cdiv class=\u0022con-location\u0022\u003E\n      Article I, Section 8, Clause 4\n    \u003C\/div\u003E\n    \u003Cdiv class=\u0022con-essay-context\u0022\u003E\n      \n            \u003Cdiv\u003E\u003Cp\u003EThe Congress shall have Power To...establish...uniform Laws on the subject of Bankruptcies throughout the United States....\u003C\/p\u003E\n\u003C\/div\u003E\n      \n    \u003C\/div\u003E\n      \n  \u003Cdiv class=\u0022con-essay-body\u0022\u003E\n    \n            \u003Cdiv\u003E\u003Cp\u003EThe Bankruptcy Clause of the Constitution was one of Congress\u0027s several delegated powers in Article I, Section 8, that were designed to encourage the development of a commercial republic and to temper the excesses of pro-debtor state legislation that proliferated under the Articles of Confederation. Both state legislation and state courts tended to use debtor-creditor laws to redistribute money from out-of-state and urban creditors to rural agricultural interests. Under the Articles of Confederation, the states alone governed debtor-creditor relations, and that led to diverse and contradictory state laws. It was unclear, for instance, whether a state law that purported to discharge a debtor of a debt prohibited the creditor from trying to collect the debt in another state. Pro-debtor state laws also interfered with the reliability of contracts, and creditors confronted still further obstructions in trying to use state courts to collect their judgments, especially when debtors absconded to other states to avoid collection.\u003C\/p\u003E\n\n\u003Cp\u003EA coherent and consistent bankruptcy regime for merchants was also required for the United States to flourish as a commercial republic. The Bankruptcy Clause helped to further the goals of uniformity and predictability within the federalist system. As James Madison observed in \u003Ci\u003EThe Federalist\u003C\/i\u003E No. 42, \u0022The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds where the parties or their property may lie or be removed into different States that the expediency of it [i.e., Congress\u0027s power to regulate bankruptcy] seems not likely to be drawn into question.\u0022 The Framers were so convinced of the need for a national power over bankruptcy that, as Madison suggests, there was little debate over the issue and little opposition to the Bankruptcy Clause at the Constitutional Convention. Although state law continued to govern most routine debtor-creditor relations, Congress had the authority to override state laws dealing with insolvency.\u003C\/p\u003E\n\n\u003Cp\u003EFollowing ratification of the Constitution, the mercantile northeastern states spearheaded the movement for a national bankruptcy law. The first bankruptcy law was passed under the Federalists in 1800, but it lasted only until 1803. Other bankruptcy laws existed from 1841 to 1843 and from 1867 to 1878. The first permanent bankruptcy law was enacted in 1898 and remained in effect, with amendments, until being replaced with a comprehensive new law in 1978, the essential structure of which continues today.\u003C\/p\u003E\n\n\u003Cp\u003ESubsequent to the ratification of the Constitution, it remained unclear where the line between the state and federal power should be drawn. English law relied upon a traditional distinction between \u0022bankruptcies\u0022 on one hand and \u0022insolvency\u0022 on the other. Under English law, only merchants and traders could be declared \u0022bankrupt,\u0022 which enabled them to have their debts discharged upon the satisfaction of certain requirements. By contrast, nonmerchants had to seek refuge under \u0022insolvency\u0022 laws, which did little more than to release a debtor from debtor\u0027s prison but did not discharge the debtor from his indebtedness. Thus, many understood the Constitution\u2019s grant of power to Congress to regulate \u201cbankruptcies\u201d as creating federal power to regulate only with respect to merchants and traders and not with respect to those individuals traditionally subject to \u201cinsolvency\u201d laws, which remained under state control. Others argued that this traditional distinction had disappeared by the mid-eighteenth century, such that by the time of the Constitution, the terms became interchangeable so as to give Congress the power to regulate all insolvent debtors. In 1819, the Supreme Court held in \u003Ci\u003ESturges v. Crowninshield\u003C\/i\u003E that the use of the term bankruptcy in the Constitution did not limit Congress\u2019s jurisdiction, thereby permitting Congress to regulate both of these realms. In \u003Ci\u003EOgden v. Saunders\u003C\/i\u003E (1827), the Court further restricted the states\u2019 concurrent power, prohibiting discharge of debts owed to citizens of another state, but permitting discharge of debts owed to a citizen of the same state so long as the law operated prospectively so as not to impair contract obligations.\u003C\/p\u003E\n\n\u003Cp\u003EStill, the original understanding of the Bankruptcy Clause placed several clear constraints on Congress\u2019s authority to regulate on the subject of debtor-creditor relations. First, Congress\u2019s power under the Bankruptcy Clause is limited to the adjustment of the debts of insolvent debtors and their creditors and does not extend to the general regulation of debtor-creditor law. Previous bankruptcy laws required that the debtor be insolvent as a condition for bankruptcy, but the current Bankruptcy Code contains no such limitation. Second, Congress\u2019s bankruptcy power was limited to the adjustment of relations between a debtor and its creditors and does not extend to the protection or benefit of third parties, except to the extent that such protection is ancillary to the adjustment of the debts of an insolvent debtor. This original limitation is also ineffective today.\u003C\/p\u003E\n\n\u003Cp\u003EThe Bankruptcy Code thus represents a tenuous accommodation between federal and state law. Most of the nonbankruptcy law that governs debtor-creditor relations remains state law, and federal bankruptcy law honors these state-law substantive entitlements, unless federal law and policy expressly preempt them. Moreover, the Bankruptcy Code expressly incorporates some elements of state law into the Code itself, such as in the treatment of a debtor\u2019s property exemptions. This interaction between state and federal law guarantees that creditors and debtors will be treated differently depending on the state that determines their rights.\u003C\/p\u003E\n\n\u003Cp\u003EAt the same time, any bankruptcy legislation enacted by Congress must also be \u201cuniform\u2009.\u2009.\u2009.\u2009throughout the United States.\u201d In Hanover National Bank v. Moyses (1902), the Supreme Court held that this \u201cpersonal\u201d nonuniformity in treatment among individuals was permissible, so long as \u201cgeographical\u201d uniformity was preserved. Thus, debtors and creditors in different states may receive different treatment, so long as the debtors and creditors within the same state are treated the same. The \u201cuniformity\u201d requirement does, how-ever, forbid \u201cprivate\u201d bankruptcy laws that affect only particular debtors.\u003C\/p\u003E\n\n\u003Cp\u003ECourts have also had to consider the contours of this power to make uniform bankruptcy legislation in light of the Eleventh Amendment\u2019s protection of states against private suit. In Central Virginia Community College v. Katz (2006), the Supreme Court found that a bankruptcy trustee\u2019s proceeding to set aside the debtor\u2019s preferential transfers to state agencies is not barred by sovereign immunity. This implies that the power of Congress to enact bankruptcy legislation gives them the power to abrogate state sovereign immunity protected by the Eleventh Amendment. In dissent, Justice Clarence Thomas argued this was inconsistent with the Constitution\u2019s \u201ctext, structure, or history.\u201d\u003C\/p\u003E\n\n\u003Cp\u003EIn administering the bankruptcy system there are additional restraints placed on bankruptcy courts by the separation of powers and the nature of the judicial power under Article III. As currently designed, bankruptcy courts are units of the United States District Court and bankruptcy judges are so-called \u201cArticle I\u201d judges, appointed for a term of years rather than for good behavior and lacking many of the formal protections for judicial independence under Article III. In Granfinanciera, S. A. v. Nordberg (1989), the Supreme Court held that Seventh Amendment jury trial rights are preserved in bankruptcy. In Stern v. Marshall (2011), the Court addressed the related question of when a party is entitled to have its case heard by an Article III district court judge rather than a bankruptcy judge. The case involved a state law counterclaim to a proof of claim filed in a bankruptcy case. That counterclaim was a \u201ccore\u201d proceeding under the Bankruptcy Code, which authorized the bankruptcy court to render a final judgment. However, that statutory grant was unconstitutional, the Court found, and a bankruptcy judge lacked the power to enter a final judgment because it violated the right to have the claim heard by an Article III judge.\u003C\/p\u003E\n\u003C\/div\u003E\n      \n  \u003C\/div\u003E\n\n      \u003Cdiv class=\u0022con-essay-author\u0022\u003E\n      \u003Cdiv class=\u0022con-essay-author--media\u0022\u003E\n              \u003Cdiv class=\u0022con-essay-author--photo\u0022 style=\u0022background-image: url(\/sites\/default\/files\/Todd_Zywicki.jpg)\u0022\u003E\u003C\/div\u003E\n            \u003C\/div\u003E\n      \u003Cdiv class=\u0022con-essay-author--info\u0022\u003E\n              \u003Ch4 class=\u0022con-essay-author--name\u0022\u003E\n                      \u003Ca href=\u0022http:\/\/www.law.gmu.edu\/faculty\/directory\/fulltime\/zywicki_todd\u0022\u003ETodd Zywicki\u003C\/a\u003E\n                  \u003C\/h4\u003E\n                  \u003Cdiv class=\u0022con-essay-author--job\u0022\u003E\n         University Foundation Professor of Law, George Mason University School of Law\n      \u003C\/div\u003E\n            \u003C\/div\u003E\n    \u003C\/div\u003E\n\n    \u003Cdiv class=\u0022con-essay-tabs\u0022\u003E\n      \u003Cul data-tabs class=\u0022tabs\u0022\u003E\n        \u003Cli class=\u0022button-more thirds\u0022\u003E\u003Ca data-tab href=\u0022#node-10000040-taba\u0022\u003EFurther Reading\u003C\/a\u003E\u003C\/li\u003E\n        \u003Cli class=\u0022button-more thirds\u0022\u003E\u003Ca data-tab href=\u0022#node-10000040-tabb\u0022\u003ECase Law\u003C\/a\u003E\u003C\/li\u003E\n        \u003Cli class=\u0022button-more thirds\u0022\u003E\u003Ca data-tab href=\u0022#node-10000040-tabc\u0022\u003ERelated Essays\u003C\/a\u003E\u003C\/li\u003E\n      \u003C\/ul\u003E\n\n      \u003Cdiv data-tabs-content\u003E\n        \u003Cdiv data-tabs-pane class=\u0022tabs-pane\u0022 id=\u0022node-10000040-taba\u0022\u003E\n          \n      \u003Cdiv\u003E\n              \u003Cdiv\u003E\u003Cp\u003EPeter J. Coleman, Debtors and Creditors in America: Insolvency, Imprisonment for Debt, and Bankruptcy, 1607\u20131900 (1999)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003EFrank R. Kennedy, \u003Ci\u003EBankruptcy and the Constitution\u003C\/i\u003E, \u003Ci\u003Ein\u003C\/i\u003E Blessings of Liberty: The Constitution and the Practice of Law, 131\u2013174 (1988)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003EJudith Schenck Koffler, \u003Ci\u003EThe Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity\u003C\/i\u003E, 58 N.Y.U. L. Rev. 22 (1983)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003EKurt H. Nadelmann, \u003Ci\u003EOn the Origin of the Bankruptcy Clause\u003C\/i\u003E, 1 Am. J. Legal Hist. 215 (1957)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003EThomas E. Plank, \u003Ci\u003EThe Constitutional Limits of Bankruptcy\u003C\/i\u003E, 63 Tenn. L. Rev. 487 (1996)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003EDavid A. Skeel, Jr., Debt\u0027s Dominion: A History of Bankruptcy Law in America (2001)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003ECharles Jordan Tabb, \u003Ci\u003EThe History of the Bankruptcy Laws in the United States\u003C\/i\u003E, 3 Am. Bankr. Inst. L. Rev. 5 (1995)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003ECharles Warren, Bankruptcy in United States History (1935)\u003C\/p\u003E\n\u003C\/div\u003E\n          \u003C\/div\u003E\n  \n        \u003C\/div\u003E\n        \u003Cdiv data-tabs-pane class=\u0022tabs-pane\u0022 id=\u0022node-10000040-tabb\u0022\u003E\n          \n      \u003Cdiv\u003E\n              \u003Cdiv\u003E\u003Cp\u003ESturges v. Crowninshield, 17 U.S. (4 Wheat.) 122 (1819)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003EOgden v. Saunders, 25 U.S. (12 Wheat.) 213 (1827)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003EHanover National Bank v. Moyses, 186 U.S. 181 (1902)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003ELouisville Joint Stock Land Bank v. Radford, 295 U.S. 555 (1935)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003ENorthern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003EGranfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989)\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003ECentral Virginia Community College v. Katz, 546\u003Cbr\u003E\nU.S. 356 (2006)\u003Cbr\u003E\n\u0026nbsp;\u003C\/p\u003E\n\u003C\/div\u003E\n              \u003Cdiv\u003E\u003Cp\u003EStern v. Marshall, 131 S. Ct. 2594 (2011)\u003C\/p\u003E\n\u003C\/div\u003E\n          \u003C\/div\u003E\n  \n        \u003C\/div\u003E\n        \u003Cdiv data-tabs-pane class=\u0022tabs-pane\u0022 id=\u0022node-10000040-tabc\u0022\u003E\n                      \u003Ca href=\u0022\/essay_controller\/10000037\u0022 class=\u0022use-ajax\u0022\u003ECommerce Among the States\u003C\/a\u003E\n                      \u003Ca href=\u0022\/essay_controller\/10000071\u0022 class=\u0022use-ajax\u0022\u003EObligation of Contract\u003C\/a\u003E\n                      \u003Ca href=\u0022\/essay_controller\/10000120\u0022 class=\u0022use-ajax\u0022\u003EFull Faith and Credit Clause\u003C\/a\u003E\n                      \u003Ca href=\u0022\/essay_controller\/10000150\u0022 class=\u0022use-ajax\u0022\u003ETakings Clause\u003C\/a\u003E\n                      \u003Ca href=\u0022\/essay_controller\/10000158\u0022 class=\u0022use-ajax\u0022\u003ERight to Jury in Civil Cases\u003C\/a\u003E\n                      \u003Ca href=\u0022\/essay_controller\/10000163\u0022 class=\u0022use-ajax\u0022\u003ESuits Against a State\u003C\/a\u003E\n                  \u003C\/div\u003E\n      \u003C\/div\u003E\n    \u003C\/div\u003E\n  \n\u003C\/article\u003E\n"]}]