More on Original Understanding of the Bankruptcy Clause:

Professor Bruce Mann has taken issue with my characterization of the original understanding of the Bankruptcy Clause of the Constitution. Having re-read my post, and read his comment, I'm not sure that I understand what he says in his comment that is different from what I said in my post. Perhaps there is a difference in language or emphasis between them, but I'm not sure I see what is "historically inaccurate" about what I said versus what he said.

In my original post I said that the Bankruptcy Clause was both a pro-creditor and pro-debtor provision. My comments in the post were focused on the statement in the article that I linked. The article was about consumer bankruptcy, and it states, "The Founding Fathers believed that bankruptcy relief was every citizen's right" and then implies that this is the reason it was included in the Constitution in Article I, section 8. In my post, I focused on the pro-creditor aspects of the Bankruptcy Clause because this is the aspect of it that is most unfamiliar to modern readers (and so I thought would be most interesting to VC readers), but I also state that it had pro-debtor aspects.

To the extent that the Bankruptcy Clause was a pro-debtor provision, it is clear that it was intended for merchants, but it was unclear whether it applied to consumer debtors. I clearly note this pro-debtor purpose, especially for merchants, most expressly in the second paragraph of my excerpt from my article on the topic, but elsewhere as well. I understand Mann to be saying the same thing. He writes, "Although bankruptcy in Great Britain applied only to commercial debtors, bankruptcy statutes in the American colonies and states were mixed--some applied only to debtors in commercial occupations, others applied to all debtors." So, in other words, the British definition of the term took the narrower meaning, and some colonies followd the narrower interpretation. I noted the same thing in my post:

[Continue Reading More on Original Understanding of the Bankruptcy Clause under Hidden Text]


Related Posts (on one page):

  1. More on Original Understanding of the Bankruptcy Clause:
  2. Article on Bankruptcy Reform and Original Understanding of the Bankruptcy Clause:
Paul Gowder (mail):
I have two questions for you Mr. Zywicki:

1. Is it, or is it not, correct that the sort of "merchants" who would be possibly bankrupt even under the merchant-only definition of your "original meaning" of the clause included the sort of middle-class, professional, petit bourgeois folks who today are the very same people who are primarily employed by corporations, weighed down by student loans and credit card debt, etc?

2. Is the distinction that you maintain between "merchants" and "consumers" one that could be effortlessly evaded, should Congress pass laws in accordance, merely by purchasing personal assets or incurring personal debt through personal small businesses or shell corporations?
7.29.2005 4:14pm
Micah (mail):

It does appear that, for the most part, Professor Mann's disagreement with you is mainly over where you place your emphasis.

He does, however, challenge your assertion that the Bankruptcy Clause, in providing for a unified bankruptcy system throughout all states, was intended to help creditors collect "interstate debts." Prof. Mann notes that "virtually none of the debts proved in filings under the short-lived federal Bankruptcy Act of 1800 were interstate." Do you disagree with this assertion? If not, I'm interested to hear how you would respond (I suppose the easiest, but perhaps not so convincing, response would be to say that collecting interstate debts was indeed one purpose of the Code, although it turned out to be not so much of a concern).
7.29.2005 4:23pm
John Jenkins (mail):
Mr. Gowder,

Corporations as such did not exist at the time and Prof. Zywicki is not suggesting that today's bankruptcy laws don't apply to individuals today-- Clearly they do (in fact Ch 13 applies only to individuals). The issue is whether the founders actually intended the bankruptcy laws as favoring debtors and the evidence shows that is not clearly so. That says nothing about the laws today and to whom they apply.
7.29.2005 4:49pm
Zywicki (mail):
Paul: The distinction actually exists in current law (sec. 101(8)): "The term 'consumer debt' means debt incurred by an individual primarily for a personal, family, or household purpose." So, no, it doesn't (and didn't) include debt incurred for household purposes, as opposed to business purposes. Some credit card debt can non-consumer debt, if it is incurred for a business purposes, say to start home business or to make a movie. But, by and large, the traditional distinction between merchant and consumer debt still has conceptual value under current law, although the line often still remains blurry (although student loan debt and standard credit card debt are easily classified as "consumer debt" under the statutory definition). And the ramifications are much different too, of course, because all it controls is the chapter under which you file, not whether you can file.

Micah: I don't have any particular disagreement with Mann on that point. When I wrote that phrase, I was thinking of the discharge problem when the debtor would move from one state to another and the ability to collect, which I reference in the second half of the sentence. But I can see where the way I wrote it could be confusing.

Also, "virtually none" is not the same thing as "none," and while interstate debt-collection was small at the time (because interest lending was small), I see in the debates here the same debates that the framers raised in the context of the Full Faith and Credit Clause about enforcing debts when debtors from one state to another. They anticipated that the problem would likely grow as the interstate economy grew, and that a failure to make interstate lending more enforceable would likely chill the development of an interstate economy. Thus, the fact that there was only a small amount of interstate debt by 1800 is only partially responsive, because I read the framers as taking a longer-run view of this.

In that sense, I read this as going hand-in-hand with the other half of the federal bankruptcy power, namely that such cases would be under the jurisdiction of federal courts, which were expected to be fairer to out-of-state creditors than state courts. In fact, some antifederalists criticized the bankruptcy power precisely on this ground, that it would remove some debt-collection from the home cooking of local state courts and put it into the hands of "distant" and "elitist" federal courts.
7.29.2005 5:11pm
Paul Gowder (mail):
Todd: But in terms of the (alleged) original understanding of the bankruptcy clause, wouldn't e.g. student loans be entirely appropriate, as they are the entry fee into a profession? Speaking constitutionally only of course (and ignoring the fact that student loan non-dischargability is an unfortunate fact of life anyway.).

In other words, if, originally, it would be appropriate to discharge debts incurred by merchants in getting into their income-generating business, today, wouldn't it be appropriate to discharge debts incurred by college students?

Indeed, why should college debt be considered personal/consumer/household debt even under current law? After all, even those credit cards that one might charge living expenses on during college are used as a substitute for income that could not be easily earned by working because the student is spending most of her time on studies to enter a profession. Hence there's a causal relationship between incurring the debt and being able to enter certain professions, professions (such as the practice of law) that were, at the time of the Founding, ordinarily done as small businesses.

As should be clear, I'm attempting to undermine the conceptual coherence of any distinction between "personal" and "merchant" debt.
7.29.2005 5:34pm
Paul Gowder (mail):
Mr. Jenkins: my point was that even under his "originalist" reading, bankruptcy laws that permitted personal debts of the sorts that are causing a lot of trouble today (i.e. the crooked credit cards that are foisted on college students by the corporate equivalent of dope pushers) would be the functional equivalent of laws that -- in an era before widespread college attendance, the rise of a managerial employee class, etc. -- protected small merchants at the time of the founding.
7.29.2005 5:58pm
John Jenkins (mail):
Seems like a straight fact question to me; the purpose for which the debt was incurred. It's similar to deciding under Article 9 whether something is inventory, equipment, or consumer goods. (of course, there are two schools on that depending on whether you think the creditor can rely on the representations of the debtor).
7.29.2005 6:02pm
John Jenkins (mail):
I think that's just factually wrong. (1) It's simply wrong to blame a company that offers credit for the spending habits of the debtor. That's why they can adjust interest rates to take account of risk. (2) There is no functional equivalence between the two. A loan for personal household use (i.e. food) would not appear to have been properly dealt with under bankruptcy. Rather, bankruptcy would have strictly dealt with what we would call today trade creditors (secured lending being illegal at the time, but for possessory secured lending). I'm afraid I don't see it as conceptually difficult as you do.
7.29.2005 6:06pm
Paul Gowder (mail):
It's simply wrong to blame a company that offers credit for the spending habits of the debtor.

So if I deliberately target the clueless with a product that I know they won't be able to handle, I'm guilt-free? Next time I feel like selling drugs to schoolchildren, I'll be sure to keep that in mind.
7.29.2005 6:18pm
David M. Nieporent (www):
So if I deliberately target the clueless with a product that I know they won't be able to handle, I'm guilt-free?

Yes. But I think there's a better case for fraud against the educational institution that is admitting "clueless" people who "won't be able to handle" simple balancing of books. We are talking about college students, right? What are they doing in college if they can't even handle a credit card? Hard to imagine someone being able to handle Kant but not MBNA.
7.29.2005 6:44pm
Paul Gowder (mail):
That's why the credit card companies get 'em as freshmen: before they have the education or life experience to understand what they're getting into.

The universities do have some culpability too: they teach Kant, but they do not teach financial planning, and they get into lucrative sweetheart deals with these credit card companies.
7.29.2005 6:59pm
Paul Gowder (mail):
And lets not forget that many of these documents are deliberately designed in the most deceptive manner possible.

Getting beyond credit cards here, because they're at least semi-comprehensible (except for the big lies in huge bold print that are contradicted by footnotes in fine print buried amist huge blocks of the similar), I often can't understand mortgage documents without hours of study, and I litigate predatory lending cases on occasion. When I do, it invariably takes me several hours of close reading plus questioning the client as to what happened to figure out the details of a transaction.

Imagine someone who hasn't been to law school and doesn't have experience with this sort of document!!
7.29.2005 7:08pm
John Jenkins (mail):
You're conflating minors who suffer from legal incapacity with adults who do not, which is an untenable position. You're also conflating a legal contract and an illegal transaction (for which no contract is possible).

The students are legally able to contract. They do so. Then they overspend. No one makes them overspend. With all due respect, it takes very little in the way of intelligence not to do so, but if you *do*, then the best lesson is to suffer the consequences of it and to have to pay it back; not to put the loss onto the credit card company.

This is the logic of blaming gun companies for firearms-related deaths or blaming car companies for automobile related deaths. It just doesn't work. You are denying the agency, the personhood, of those whom you claim to be advocating for. You're declaring them mindless automatons, incapable of controlling themselves.

I reject that out of hand and hold them accountable as moral agents. Sometimes, it really *is* your fault.
7.29.2005 7:11pm
Paul Gowder (mail):
John hun, I'm not denying the agency or the personhood of anyone. (For heaven's sake, I'm something of an existentialist.)

What I am doing is pointing out the equivalent agency of the other parties to the transaction.

I'm also pointing out information disparaties. The credit card companies deliberately minimize the consequences of these contracts, and they deliberately target people who are unlikely to have the information to realize what is being minimized.

Haven't you ever been tricked into buying something by someone dishonest? I know I have. Once, for example, I bought a cellphone based on the promise of a rebate from the salesman, and only saw the fine print in the rebate paperwork after I got home, which invalidated the plan I'd purchased from the rebate. And I certainly take responsibility for not being more paranoid and demanding that the nice salesman give me said paperwork to read in the store, with everyone staring at me, for 20 minutes, before the transaction was consummated. But does the fact that I bear responsibility for that absolve him of the guilt for lying to me? Absolutely not.

The same applies, a fortiori, to deception about serious transactions like credit cards.
7.29.2005 7:22pm
Paul Gowder (mail):
Ooooh, here's a good one. Take your personal agency and apply it to two-cycle billing.

How does it work? Banks usually calculate monthly interest charges for each billing period based on the average daily balance. So let's assume that your billing cycle goes from the first to the 30th of the month, and that you had a balance of zero for the previous month or months. On July 10, you made a $1,000 purchase, your only purchase for that month. Your average daily balance for July, then, would be $666.66 ($1,000 times 20, divided by 30, since you carried that balance 20 days out of your 30-day cycle).

A card with an average daily billing cycle method of computing finance charges wouldn't charge you any interest on that amount for July, since you started the period with a $0 balance. But a card with two-cycle billing would, since it calculates your average daily balance for the last two billing cycles. In effect, a two-cycle billing card will assess interest for the 20 days in January after you made the purchase, namely on $666.66.

Just how much interest you'll pay depends on your interest rate and purchase amounts. In our example, if we assume your annual percentage rate is 18% (meaning you're charged 1.5% a month), your interest charges for January would be an extra $10. But what if your purchase was $10,000 — say you paid a medical bill or bought new furniture? Two-cycle billing would cost you an extra $100.

I defy anyone here to tell me that you knew that before, or that you recognized any such term in any credit card offer. In fact, I'll bet you, John, can't tell me whether or not your credit cards (if you have any) do that.

I defy you to tell me that any company who sneaks this into a contract is really disclosing anything to even a very well-educated consumer.
7.29.2005 7:28pm
John Jenkins (mail):
I don't use credit cards. I buy what I can pay cash for (but for house, car &student loans).

Two words for those terms caveat emptor. Don't sign it if you don't know what it means. Of course, I am (1) a cynic and (2) very conscientious about what I sign (law school does that to you, as you know).

Fraud is case-specific. Given that there are already a mountain of disclosure rules, charging fraud in a transaction is different from saying that all transactions are suspect.

If you're going to use the convenience of credit cards, you're going to have to pay for it. It's really that simple.
7.29.2005 7:55pm
What kind of sick world do we live in when intelligent people no longer think it's wrong to selfishly and deliberately tempt weak people into doing the wrong thing?
7.29.2005 7:59pm
Paul Gowder (mail):
Caveat emptor is a ruthlessly unethical and laughably unrealistic notion that absolves, under the guide of "responsibility," the responsibility of sellers not to deliberately engage in trickery. At the same time, marketplace realities do not permit the buyers to similarly lie.

If I'm in a store about to buy a tv on an installment plan, I have no immediate resources to verify the seller's claim that "this is a good tv" whereas the seller has immediate resources to verify my claim "I have good credit." It follows that the responsibility should be placed on the party who is in the best position to check. This is so as a simple efficiency principle.
7.29.2005 8:15pm
Ciarand Denlane (mail) (www):
Paul: I sort of like credit cards. The card company gives me interest-free loans for (on average) 45-days, a 1% rebate, the convenience of not having to carry around cash or checks, and (as you just alluded to) a readily verifiable vouching for my good credit.

I'm not sure, however, what either credit cards or student loans have to do with what I took to be the main points of Todd's posts (which, however, I may not be correctly reading). If Todd is correctly reporting what Justice Marshall's decision said, it seems clearly to support (1) his central point that, around the time of the founding, "bankruptcy" and "insolvency" laws were viewed by at least many people as having the two different meanings that he sets forth, and (2) the point I take Todd to concede that there are line drawing difficulties in trying to distinguish between the two kinds of laws. Todd's post, or perhaps his general philosophy, suggests that, compared to many people, he would give more weight in interpreting or applying the bankruptcy clause today to whatever we can learn about what people living at the time of its drafting would have understood as its meaning and also that he would give less weight to functional difficulties of line drawing. But that's not the main point of the post.

It's not clear to me how either credit cards or student loans make the line-drawing difficulties (that I took Todd to concede in any event) substantially more difficult than those that already existed in Marshall's time. But even if it were otherwise, would it still not be interesting -- and for originalists, instrumental -- to learn what the words the framers used meant at the time? I know very little about the First Amendment, but if I wanted to learn, I wouldn't think that just because the framers didn't know about blogs or Scientology, it would be unnecessary for me to think about how they might have understood "press" or "religion."

I agree with you that it would make sense and be a good idea for Congress to have power to regulate the discharge of consumer debt. Whether it does have that power as a matter of constitutional law is a different question. Whether the framers meant it to have that power is also a different question (for some originalists, perhaps, the same different question, though I'm too ignorant of meta-constitutional theory to be sure of that).

I'm sorry if this sounds like a rant. I didn't mean it to.
7.30.2005 9:19am
Paul Gowder (mail):
Ciarand: we have to look at the ways that business was conducted back then, compared to the way that business is conducted now, and determine whether some kinds of debt serve the same function now that other kinds of debt served then to take a crack at what the framers meant.

Hence, if at the time of the framing, the brunt of economic production in this country was either small business/artisan or small farm, and if we believe that the bankruptcy clause was meant to address the problems of those people, then we have a basis for translating the original meaning of the clause into terms that are meaningful today by applying them to the same people. And if the same people are the student-loan and credit card debt burdened student/managerial/professional/technical class, then it would seem entirely consistent with the relationship that the founders wanted to establish between those people and the government to permit Congress, should it choose (which alas, it seems less and less inclined to do so), to provide those "individuals" with bankruptcy protection. That is where I differ with Todd.

Of course, I'm varying from the Originalist Bible which says that we can't take account of social changes, but I'm doing so because originalism as currently constructed is nonsense. The constitution established a government and a relationship between the people and their government, not specific provisions. If we fetishize the specific provisions over the fundamental nature of the relationship, we eviscerate the intent of the founders.

Oh, by the way... are you sure that you get 1% back? Or that you really get 45 days? Check out this article...
7.30.2005 12:34pm
Ciarand Denlane (mail) (www):
Thank you for the link, Mr. Gowder. The answer is yes.

I gather that you believe that at least some debtors should be treated relatively more favorably in bankruptcy than they are. I gather that Professor Zywicki has advocated more creditor-friendly policies. But he says that in this post he is not trying to make a point about any current policy debates.

But even if we do not take that disclaimer at face value or if we consider whether the historical points he makes have present-day policy implications (whether or not Professor Zywicki intended to connect the dots), I'm not sure why you are disagreeing with Professor Zywicki on these points. He says that the bankruptcy clause was intended to be pro-creditor as well as pro-debtor? And the coinage clause probably anticipated both heads and tails. I doubt that Professor Zywicki believes (and I don't read him in this post to argue) that any particular degree of pro-creditor substantive content is required in federal bankruptcy laws. He does say that, in giving Congress bankruptcy power, the framers may have expected that Congress would be relatively more pro-creditor than the States (but [I have just supposed] they did not require any particular pro-creditor position) or at least that Congress would be less susceptible to unfair favoritism to local interests (which is not the same thing as being pro-creditor). If Professor Zywicki's further point that such federal jurisdiction over "bankruptcy" extended only to some kinds of what we now view as bankruptcy, then perhaps (at least for some kinds of originalists), there is an implication that today such bankruptcy proceedings (or insolvency proceedings, as I guess we should have to call them) should again (or still) be subject to State rather than federal regulation. Since you are unhappy with a Congress that "alas" seems "less and less inclined" to reach substantive results you agree with, why would you not welcome letting the States regulate consumer debt instead and praise the vision of the founders in limiting to merchant bankruptcies the reach of a Congress prone to pro-creditor tendencies and allowing States (which have moved beyond debtors' prisons to some extent) to regulate consumer insolvencies and protect consumer debtors?

My impression (I'm not an expert in anything about bankruptcy) is that Justice Marshall made some good points about the difficulties in drawing a non-blurry line about what kinds of bankruptcies (in the broader sense that includes what Professor Zywicki says some people in the framers' era may have called insolvencies instead) that Congress may address, and I think the home-towning problem is important enough that federal jurisdiction sounds like a good idea to me [this is an inter-creditor problem as much as a pro- or anti-creditor one, no?]. Whether it is what the framers intended, I don't know.
7.30.2005 2:03pm
Mary Katherine Day-Petrano (mail):
LLL thought I was a kidder. I tend to agree with Paul regarding the difficulty of classifying the kind of debt as merchant or consumer. Bankruptcy has gotten ever more complicated as our economy has, and there are many present problems with our bankruptcy system.

Maybe I have a different perspective on this having been for so long a member of the culture of the disabled. I know there are other categories of people who experience some of the same problems, but I will focus on the disabled since that is what I know best. Disabled people have something like a 72% unemployment rate Nationwide. They are at the bottom of people who get the "good" type of credit. Because of this extremly high unemployment rate and the lack of serious teeth in laws like Title I Americans With Disabilities Act employment enforcement, many disabled people are encouraged by State social service, disability, and rehabilitation agencies to take on credit card debt to finance their own small business ventures in order to employ themselves where they can accommodate their own disabilities (since Title I employer won't) and/or they are encouraged to take on enormous sums of student loans to achieve a professional degree (dr., accountant, lawyer, etc) again to self-employ and provide their own means of accommodations necessary to work. Further, many times, the colleges (and law schools) encourage students to take on credit card debt to finance parts of their educations. Moreover, many disabled people are owed child support they cannot collect, and they "mitigate" for this, so to speak, by taking on the student loans and credit card debt to become self-sufficient in a profession. It is a folly to think in this class of people that the credit card and student loan debt are for anything other than business-professional merchant type work. In addition, this class of people comprise the majority of those bankruptcy filers who are now becoming known as "major medical bankruptcies." Our present bankruptcy system does not deal well with this class of debtor.

Looking at the originalist view, people with mental disabilities at the time of the founding of our Country were taken care of by other people, so they were not usually merchants or consumers. Credit cards and student loans were unheard of. So how does this class fit into the system?

Presently, there is an enormous penalty built into the bankruptcy system punishing the disabled class for all efforts they have to make through substandard credit (since they are not top rated credit risks, they tend to use credit cards and student loans and owe many hospital emergency room medical bills for disability treatment due to lacking medical insurance) to enter into a merchant profession to gain their independenc and economic self-sufficiency. A disabled person can do everything right, follow the prescribed formula to their best efforts, and, I know many disabled people this has happened to, get hung up at the licensing part of entry to their merchant professions by the State's bar examiners. It is a system that is completely uncoordinated and broken. Bankruptcy Reform has done nothing to fix it.

The bankruptcy exemptions are already in many opt-out States, based on State law, but for disabled people these exemptions presently do not provide the full measure necessary for a fresh start including medical and health needs, equipment for the disability, etc. (a customized assistive device for an autistic's necessary facilitated communication would be considered an asset subject to trustee sale). Title II of the Americans With Disabilties Act supposedly requires the States to "self-evaluate" all of their laws, including their exemption laws and to fund the unfunded federal mandates of the ADA to provide "independent living" and "economic self-sufficiency" to the disabled. This has not happened, and bankruptcy presently is a disaster for disabled people, especially those with student loans.

The new Credit Counseling is a joke for this class of people, and I know this first hand, because the debtor will have to pay money she does not have for this service, which can serve to deny access to the court, and even if money can be found to pay for the service (SSI in Florida is only $400 a month), the CCCs tell these disabled student loan debtors there is nothing they can do to help because the loans are so large, increasing so fast, and not dischargeable -- in other words, there is nothing a CCC can do to stabilize the debt situation of this class, and bankruptcy is really the only option. Yet, it is a broken system.

States used to try to protect these disabled student loan debtors by the ordinary 7 year debt statutes of limitation on collection applicable to most debts, but Congress overrode that under the Higher Education Act by enacting a federal lifetime abolition of all statutes of limitation on collection of student loans. Congress also encouraged wild student loan speculation among the creditor class by selling the student loans to the disabled as "low interest" while in fine print under the higher Education Act trading student loan paper security interests. Secured in what? When you get to the bottom of it, the virtual inability of anyone to obtain a student loan discharge.

The student loan lenders, like the credit card companies, apparently have not heard that Title III of the Americans With Disabilities Act requries them to use large print font and simple language in their loan contracts as an anti-discirmination requirement. So it would be another folly to say, even if educated (through large print accommodations provided in college), these people are able to understand these predatory loan contracts designed to trick the disabled. To say the disabled should "be responsible" for being prey to these lenders is not to uphold current federal anti-discrimination law. Of course, the new Bankruptcy Reform does not consider this problem in the race to saddle disabled people with credit card or student loan debt for which they received no "effective communication" "auxiliary aids and services" to explain exactly what they are getting into and the exact terms with examples to undstand how it works. Non-Article III bankruptcy courts are very myopic when it comes to interpreting two applicable federal laws.

When a disabled credit card/student loan debtor files a bankruptcy, the post-Northern Pipeline automatic orders of reference of all cases and proceedings to the Article I bankruptcy courts entered by virtually every district court in this Country, serves to thrust the disabled credit card/student loan/major medical debtor into an Article I forum. This class is supposedly more deserving of student loan discharge the more severe the "undue hardship," which arises from both poverty and the need for reasonable accommodations in all walks of life. A prime example of this trap is demonstrated in the student loan case In re Mayer, where the debtor was obviously so psychiatrically substantially limited as well as impoverished that she could not navigate the bankruptcy system. The Judge had to help her at the risk of a recusal motion by the student loan creditor for 'favoring one side.'

By putting this class of debtor into the current bankruptcy system with a virtually inescapable bar to discharge; abolition on all statutes of limitation to allow lifetime collection; no remedy under the Rehabilitation Act of 1973 to compel the Department of Education to cross-claim a State Bar Examiner to expedite professional licensing which is the basis for the student "loan repayment;" no requirement to provide reasonable accommodations in the bankruptcy court itself; with 10-day too short time periods for many types of bankruptcy relief most disabled people requiring accommodations simply cannot nagivate; and the non-Article III bankruptcy courts (in most Circuits) lacking power to enter fee waivers to enable (1) mandatory withdrawal of reference or (2) appellate review, this bankruptcy structure deprives this particular class of debtor meaningful access to the courts for fundamental Article III and Fifth Amendment rights. They are vulnerable prey for these creditors bankruptcy court free-for-alls. This application of the bankruptcy system would seem to have resurrected exactly the jurisdictional structure struck down in Northern Pipeline (vesting the essential attributes of the judicial power in the non-Article III tribunal).

Moreover, if the reason the disabled person is bankrupt is the inability to get reasonable accommodations from employers or from State licensing agencies, it is beyond belief the Nations' bankruptcy judges would not be required to conduct a Title I ADA type disability/reasonable accommodation functional analysis under the Brunner test of maximizing income and minimizing expenses to determine "undue hardship." But this just does not happen. The "undue hardship" provision is extremely vague if yoou look at the plain meaning of the statute, and it would appear for years now to serve the perfect example of judicial activism in rewriting of this statute with such inconsistent results for so long. It is a ship without the rudder of the Americans With Disabilities Act guidelines on what it takes for disabled people to work to earn the money to repay the student loans.

In this entire discussion, the credit card/student loan debt is (when you get down to it) of the merchant category, and would supposedly would protected by the bankruptcy courts under originalists. Yet, it would appear the State insolvency laws, precisely because they are subject to the anti-discrimination provisions of Title II of the Americans With Disabilities Act would--or could--offer much more protection for this class of disabled debtor.

The bankruptcy system in the areas of credit cards and student loans involving disabled people, where the underlying transaction involves application of ADA anti-discrimination requirements, would seem to pose the problem of an Article I bankruptcy court never having constitutional jurisdiction over these cases and proceedings involving the disabled under Article III since they involve underlying State law matters as well as Title 11 and non-bankruptcy federal law substantial interpretations (the Americans With Disabilities Act involves interstate commmerce).

Complicating this conundrum further, is the fact the Americans With Disabilities Act has a unique federal conflict preemption statute, 42 USC 12201(b) subjecting not only State laws -- but also "other federal laws" to conflict preemption (i.e, amendment/repeal) to the extent they conflict with the rights, remedies, and procedures of the ADA. That would, under statutory interpretation, include the Bankruptcy Code.

So, LLL thinks I kid, but the fact is it could make a great deal of difference how one defines the scope of the Bankruptcy Clause, whether "bankruptcy" is a limiting term, and whether you have to look at the underlying nature of the debt, not just how the creditor wishes to coat it on the outside.

My prediction is, and I am only the longest struggling disabled bar applicant in this Country short of Virgil Hawkins so what do I know, that it will be a student loan case that tears down the jurisdictional structure of the present bankrupcy system, notwithstanding that it has been thought impervious to challenge sine BAFJA 1984. And the flaw? The slippery slope of hybrid debts placed in the 523 nondischarge statute, the unconstitutionally infirm 28 USC 157 classification system, and the above flaws pointed out in the context of student loans and automatic reference orders.

On this subject, it should be noted that the student loan nondischarge provision was initially enacted under the Higher Education Act (Spending Clause), cut and pasted verbatim into the Bankruptcy Code, yet remains regulated under the Higher Education Act and its implementing regulations even while it operates under the Bankruptcy Code. It would appear the student loan discharge provision remains a Spending Clause provision masquerading as Bankruptcy Reform. Is this unconstitutional? So this results in State law underlying the student loan transaction, with three federal laws having substantial interpretation -- Title 11, the HEA, and the ADA. How does a non-Article III bankruptcy court, rather than an Article III district court, get to decide these type of debts involving the disabled class? Or has no one bothered to really study the situation critically outside the mypoia of Title 11?

I hope his discussion continues, as I am learning much new food for thought from all participants, and I am very interested in Paul's angle on this subject. I woudl also like to hear more of what others think.
7.31.2005 12:34am
Zywicki (mail):
Ciarand, Paul:
Not much turns today on the original understanding of the bankruptcy clause, because of Sturges and many, many other cases. There are still places where it may matter--such as the ongoing question as to whether a solvent corporate debtor can legally file bankruptcy--but this is not one of them. As John Jenkins and I noted, the only real difference today is whether a particular debtor is eligible to file in chapter 13, for which his or her debts must be primarily consumer debts. Because of Sturges, the distinction between seeking bankruptcy relief under federal law or release from debtors' prison under a state insolvent law is largely irrelevant (not the least of which is because we no longer have debtors' prisons).

As Ciarand suggests, a good analogy is the Coinage Clause. It is pretty clear from the historical record that the issuance of paper money by the government is probably illegal under an originalist reading, and laws declaring paper money to be legal tender are even more dubious. Yet, as far as I know, nobody is saying that we should abolish paper money on that basis. I remember this hypothetical came up during Bork's confirmation hearings and he chuckled at it.

So regardless of the originalist understanding was of any clause, what flows from that is an entirely different question. And the history can be interesting in how we frame our thinking about an issue or simply interesting in and of itself.
7.31.2005 4:48pm
Paul Gowder (mail):
The next question, I guess, is whether this casts doubt on the whole originalist project. Why aren't the conservative legal foundations challenging paper money as unconstitutional? (Of course, the nutcases in the "constitution party" probably are, in between making frivolous claims of personal absolute sovereignty and filing false UCC documents of one sort or another, but they're really more trouble than they're worth!) Do conservatives want to pick and choose the constitutional provisions they enforce just like the rest of us?
8.1.2005 5:50pm