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]
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The argument is actually more complicated that that and turns to some extent on an interesting linguistic debate over the meaning of the term "bankruptcy," which may have had a very specific meaning at the time, applying only to business, not personal insolvency. For centuries, under English common law, only merchants and traders could be declared “bankrupt,” which enabled them to have their debts discharged upon the satisfaction of certain requirements. By contrast, non-merchants had to seek refuge under “insolvency” laws, which did little more than to release a debtor from debtor’s prison but did not discharge the debtor from his indebtedness. Thus, many understood the Constitution’s grant of power to Congress to regulate “bankruptcies” as creating federal power to regulate only with respect to merchants and traders and not with respect to those individuals traditionally subject to “insolvency” laws, which remained under State control. Others argued that this traditional distinction between 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.
So for originalists, the open question is whether the traditional distinction was still valid at the time of the Constitution. For the Supreme Court, by contrast, the issue was resolved in 1819 when it ruled that the term "bankruptcy" was not a term of limitation, thus Congress could regulate in both realms (although Congress chose to do so only sporadically during the 19th century, leaving debtor-creditor relations mainly to the states).
So, unless Mann is is saying that the Founding Fathers believed that "bankruptcy was every citizen's right" and created a constitutional guarantee of a fresh start for consumer debtors, then I don't see what is historically inaccurate about my statement. I said that it is an open issue as to whether the term took the narrower or broader interpretation, but that there was substantial historical evidence pointing to the narrower construction of the term, but that it was unclear whether the narrower interpretation still prevailed by the time of the Constitution.
Professor Mann also notes that the distinction between insolvency and bankruptcy was not a clear one, "Moreover, in a pre-corporation age in which even the largest merchants traded as individuals, the distinction between business and personal insolvency was hardly a clear one." This doesn't mean that the distinction did not or could not exist conceptually, which he seems to acknowledge. And, as noted, common law and state law often attempted to distinguish between them. That the line was unclear is certainly true--this ambiguity is precisely why Marshall decided in Sturges v. Crowninshield that the Court would not try to enforce the line judicially.
But Marshall clearly recognizes in Sturges that the terms are conceptually distinct, but simply permits Congress to be the one to draw the line between the two. Marshall notes that the conceptual distinction:
But the subject is divisible in its nature into bankrupt and insolvent laws; though the line of partition between them is not so distinctly marked as to enable any person to say, with positive precision, what belongs exclusively to the one, and not to the other class of laws. It is said, for example, that laws which merely liberate the person [from debtors' prison] are insolvent laws, and those which discharge the contract, are bankrupt laws. But if an act of congress should discharge the person of the bankrupt, and leave his future acquisitions liable to his creditors, we should feel much hesitation in saying, that this was an insolvent, not a bankrupt act; and therefore, unconstitutional. Another distinction has been stated, and has been uniformly observed. Insolvent laws operate at the instance of an imprisoned debtor; bankrupt laws at the instance of a creditor.
After noting that they are conceptually distinct, he observes that the difficulty lies in drawing the line between them as a practical matter:
When laws of each description may be passed by the same legislature, it is unnecessary to draw a precise line between them. The difficulty can arise only in our complex system, where the legislature of the Union possesses the power of enacting bankrupt laws; and those of the states, the power of enacting insolvent laws. If it be determined, that they are not laws of the same character, but are as distinct as bankrupt laws and laws which regulate the course of descents, [17 U.S. 122, 195] a distinct line of separation must be drawn, and the power of each government marked with precision. But all perceive that this line must be, in a great degree, arbitrary. Although the two systems have existed apart from each other, there is such a connection between them, as to render it difficult to say how far they may be blended together. The bankrupt law is said to grow out of the exigencies of commerce, and to be applicable solely to traders; but it is not easy to say, who must be excluded from, or may be included within, this description. It is, like every other part of the subject, one on which the legislature may exercise an extensive discretion.
This difficulty of discriminating with any accuracy between insolvent and bankrupt laws, would lead to the opinion, that a bankrupt law may contain those regulations which are generally found in insolvent laws; and that an insolvent law may contain those which are common to a bankrupt law. If this be correct, it is obvious, that much inconvenience would result from that construction of the constitution, which should deny to the state legislatures the power of acting on this subject, in consequence of the grant to congress. It may be thought more convenient, that much of it should be regulated by state legislation, and congress may purposely omit to provide for many cases to which their power extends. It does not appear to be a violent construction of the constitution, and is certainly a convenient one, to consider the power of the states as existing over such cases as the laws of the Union may not reach. But be this as it may, the power granted to congress may be exercised [17 U.S. 122, 196] or declined, as the wisdom of that body shall decide. If, in the opinion of congress, uniform laws concerning bankruptcies ought not to be established, it does not follow, that partial laws may not exist, or that state legislation on the subject must cease. It is not the mere existence of the power, but its exercise, which is incompatible with the exercise of the same power by the states. It is not the right to establish these uniform laws, but their actual establishment, which is inconsistent with the partial acts of the states.
As I read this, Marshall is clearly acknowledging that a conceptual dividing line may exist between "bankruptcy" laws applicable to merchants on one hand, and "insolvent" laws applicable to consumer debtors on the other, but that the difficulty in defining the line makes it impracticable to enforce judicially. It is also clear that he is acknowledging that this is one originalist interpretation of the concepts. But Marshall's conclusion is based on functional, not formalist and originalist concerns, about the difficulty of drawing the dividing line. His argument here, of course, also follows the logic of many of his other opinions of the era striking the federal-state balance in functional rather than formal terms by giving the Congress fairly broad powers to define the scope of the federal government's reach.
As for the pro-creditor purpose of the bankruptcy clause and collection of interstate debts, Mann states, "The underlying issue was whether a legislative discharge obtained in one state would protect the debtor from arrest in another state." Here's what I said, "Congress's power to 'enact uniform laws on the subject of bankruptcies' was designed to enable creditors to collect interstate debts more easily and to eliminate the power of state legislatures to try to discharge the debts of their residents (as often was the case during the Articles of Confederation era)." Again, I'm not sure that what I said was "historically inaccurate" (as opposed to simply being expressed differently) when compared to what Mann says.
This problem of dealing with debts (or debtors) involving interstate commerce was precisely why the bankruptcy power was vested in the federal government under the Constitution. If the question of the enforceability of a discharge arose as the result of a debtor moving from one state to another, i.e., interstate movement by the debtor, then again I'm not sure what the big disagreement is here. If Mann's point is to make a friendly amendment to restate the point differently to say that the particular problem was primarily one of debtors who moved interstate, rather than interstate debts, then that's fine. Although I'm not sure that this changes the bottom-line conclusion.
Moreover, "virtually none" of the debts is not the same as "none" of the debts. And the Framers were clearly held a general concern about the chronic hurdles faced by out-of-state parties trying to collect debts in rural state courts, a concern that is reflected throughout the Constitution, including one reason for the creation of federal courts and contemplation of diversity jurisdiction generally. Moreover, while out-of-state bankruptcy debt was small at the time (as was interstate commerce and lending generally, of course) the Framers clearly feared that as interstate commerce grew under the Constitution, the problem of collecting interstate debts in populist local courts inevitably would grow as well. Not every state issued paper money or erected tariff barriers either, but the Framers saw fit to ban those activities as detrimental to the growth of interstate commerce. Indeed, one reason the Antifederalists criticized the Bankruptcy Clause was because it would transfer debt collection from bankrupts into "distant" and "elitist" federal courts and out of more debtor-friendly state courts. Similar concerns were one motive underlying the Antifederalist's insistence on the 7th Amendment's protection for jury trials. So unless Mann is saying that easing interstate debt-collection played no part at all in enacting the bankruptcy clause, a claim that at the least seems to be belied by his own admission that there was some (albeit small amount) in the system, and is furthered undermined by the Framers' recognition that the problem would likely grow over time as interstate commerce grew, then again, I don't see what I said that is "historically inaccurate" about what I said. Again, it seems to be at best a question of emphasis, and the Framer's anticipation as to how much this obvious problem would likely grow over time, not historical inaccuracy.
Also, for what its worth, I did not invoke this argument as part of a modern policy debate. I invoked it as a purely historical point regarding the DC Bar article. It seems an obvious point that to say this would be the correct originalist understanding is different from saying that it is the interpretation that the Supreme Court should adopt and enforce judicially, but apparently it is not always obvious enough.
So my impression is that the disagreement may lie in Professor Mann misreading of my post, or ascribing to it things that I didn't say, rather than any historical inaccuracies supposedly contained there. As far as I can tell, we seem to be saying the same thing in all substantive ways. Perhaps he doesn't like my emphasis or phraseology or he thinks that I have expressed myself poorly--if so, so be it, but that is different from saying that my post is "historically inaccurate." If the problem was some ambiguity in my presentation, as opposed to simply failing to read it carefully and accurately before commenting, then I apologize. But if so, then it seems that the polite response would be to try to clarify the point, rather than misreading what I said and then criticizing arguments that I didn't make. There is only a limited amount of time and space for readers' attention, so ambiguities are bound to creep in in this format. When dealing with ambiguities, I have tried to interpret Professor Mann's arguments in the best light possible, rather than the alternative. Professor Mann is a leading legal historian on this subject, and I appreciate that he took the time to comment on my short post. I certainly admire his book as a valuable intellectual contribution to this question. But I don't believe that gives him license to misrepresent or mischaracterize my arguments, especially in that from what I can tell, they are substantively identical to his (and were formed in part by reading his book, as well as many, many other sources).
And unless Professor Mann is agreeing with the DC Bar magazine article by saying that the bankruptcy clause of the federal constitution was designed to guarantee a fresh start for consumers (and I don't read him as saying that), then I don't see that the central point of my post was historically inaccurate. If he is agreeing with the historical argument made in the magazine article that the Founding Fathers believed that banrkuptcy relief was every citizen's right, then that is surely a contestable proposition.
Update:
I should have added a link to the materials in The Founder's Constitution on the Bankruptcy Clause. See especially Blackstone's and William Rawle's comments. Blackstone writes about English law, for instance:
The laws of England, more wisely, have steered in the middle between both extremes: providing at once against the inhumanity of the creditor, who is not suffered to confine an honest bankrupt after his effects are delivered up; and at the same time taking care that all his just debts shall be paid, so far as the effects will extend. But still they are cautious of encouraging prodigality and extravagance by this indulgence to debtors; and therefore they allow the benefit of the laws of bankruptcy to none but actual traders; since that set of men are, generally speaking, the only persons liable to accidental losses, and to an inability of paying their debts, without any fault of their own. If persons in other situations of life run in debt without the power of payment, they must take the consequences of their own indiscretion, even though they meet with sudden accidents that may reduce their fortunes: for the law holds it to be an unjustifiable practice, for any person but a tradesman to encumber himself with debts of any considerable value.
To emphasize again, this is not the modern understanding of the Bankruptcy Clause. The distinction between merchant and non-merchant filers only goes to what chapter applies to an entity or person seeking bankruptcy relief (corporations versus consumers), not their eligibility to file.
Update:
Added new paragraph on interstate debt collection in response to point raised in the Comments that I hadn't fully recognized originally.
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Related Posts (on one page):
- More on Original Understanding of the Bankruptcy Clause:
- Article on Bankruptcy Reform and Original Understanding of the Bankruptcy Clause:
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?
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).
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.
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.
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.
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.
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.
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.
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!!
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.
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.
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.
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.
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.
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.
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...
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.
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.
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.