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Debt and Democracy: Towards a Constitutional Theory of Bankruptcy


Jonathan C. Lipson


Temple University - James E. Beasley School of Law


Temple University Legal Studies Research Paper No. 2007-02
Notre Dame Law Review, Vol. 83

Abstract:     
This Article explores certain important constitutional challenges presented by bankruptcy. Article I, Section 8, Clause 4 of the Constitution provides that Congress shall have the power to make uniform Laws on the subject of Bankruptcies. While there are many good social, political, and economic theories of bankruptcy, there has been comparatively little effort to address broadly what it means to have constitutionalized financial distress. This Article is a first step in that direction.
Constitutional problems with bankruptcy are not new, but present three underappreciated puzzles: First, why did the Framers put a bankruptcy power in the Constitution, and how broadly should we construe its peculiar language today? Second, how should this power interact with structural features of our constitutional system, whether vertical (vis-à-vis states) or horizontal (vis-à-vis other branches)? Third, how should we resolve competitions between this power and substantive protections involving, for example, property, due process, and religious liberties? Recent Supreme Court decisions broadly interpreting the Bankruptcy Clause, the 2005 amendments to the Bankruptcy Code, and the continuing spate of Catholic diocese bankruptcies, among other things, give these puzzles some urgency.
This Article identifies an important, and thus far undeveloped, theme in the constitutional implications of bankruptcy: bankruptcy exceptionalism. Bankruptcy exceptionalism is an operating principle that helps to explain why we have a Bankruptcy Clause and how it has sometimes permitted or compelled exceptions to constitutional rules, standards, norms, and values in order to accommodate the exigencies of financial distress. The Article argues that the bankruptcy power gives Congress broad discretion to legislate in response to financial distress, subject to certain important democratic and countermajoritarian protections

Number of Pages in PDF File: 92

Keywords: bankruptcy law, commercial law, constitutional law, courts, jurisdiction, religion, secured transactions, bankruptcy exceptionalism, Bankruptcy Clause, financial distress, constitutional theory of bankruptcy, religious liberty, due process, sovereign immunity, bankruptcy reform

JEL Classification: G33, K40

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Date posted: March 31, 2007 ; Last revised: June 12, 2008

Suggested Citation

Lipson, Jonathan C., Debt and Democracy: Towards a Constitutional Theory of Bankruptcy. Temple University Legal Studies Research Paper No. 2007-02; Notre Dame Law Review, Vol. 83. Available at SSRN: http://ssrn.com/abstract=975978

Contact Information

Jonathan C. Lipson (Contact Author)
Temple University - James E. Beasley School of Law ( email )
1719 N. Broad Street
Philadelphia, PA 19122
United States
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