Cleaning Up Bankruptcy: Limiting the Dischargeability of Environmental Cleanup Costs

Abstract

This article reconciles the joint aims of environmental and bankruptcy law. These two areas of law represent alternative means to the same end - the equitable distribution of limited resources - and share equity’s traditional emphasis of function over form. The Seventh Circuit ruled in U.S. v. Apex Oil that a cleanup order constitutes a dischargeable “claim” when styled as a legal judgment but not when styled as an equitable injunction. However, in either case the liability amounts to the same thing-payment must be made for pre-bankruptcy cleanup of environmental pollution. Although RCRA does not provide for money judgments, a RCRA cleanup order is still reducible to a “money equivalent” because there is a cost associated with compliance. The Seventh Circuit’s formalist holding simultaneously frustrated the aims of both environmental law, which seeks the most efficient cleanup at the least public expense, and bankruptcy law, which seeks to treat like creditors alike. Courts should treat environmental judgments for cleanup costs that were “fairly contemplated” at the time of filing the bankruptcy petition, whether ”legal” or “equitable” in form, as dischargeable claims in bankruptcy.

As this article argues, the onus now falls upon Congress to harmonize these areas of law. Congress should adapt the public policy of environmental claims to bankruptcy law by adding them to § 507’s list of priorities, amending Title 11. This would balance the bankruptcy logic of tiered property rights against the environmental concern about negative externalities. A federal solution would offer a single, predictable rule, lowering compliance costs for firms engaging in interstate commerce. This article’s unified model would allow environmental and bankruptcy law to complement rather than obstruct one another.

Keywords: bankruptcy, environmental law, claims, fairly contemplated, priority, Congress, Posner, Title 11, CERCLA, RCRA, CWA, BP, spill, pollution, cleanup, legal, equitable