The Bankruptcy Trust as a Legal Person
Wake Forest Law Review, Vol. 35, Issue 2, Summer 2000
Posted: 14 Feb 2000
The purpose of this article is to show how the Bankruptcy Code authorizes the creation of the bankruptcy trust as a legal person. The filing of a petition under the Bankruptcy Code creates an "estate" consisting of enumerated property interests. The Code also provides for the appointment of a trustee-a separate bankruptcy trustee or, in chapter 11 or chapter 12 cases, the debtor in possession-with broad powers to act as the representative of the estate. The Code does not, however, expressly define the status of the estate as a legal entity. Although the Code occasionally speaks of the estate as though it were a legal person, it explicitly defines the estate as a corpus of property interests. Nevertheless, many courts and scholars have characterized the estate as a separate entity or legal person. Other courts and one scholar, however, have rejected the characterization of the estate as a separate entity or legal person.
The conflict about the status of the estate is unnecessary. The treatment by courts and scholars of the bankruptcy estate as a separate entity reflects what is implicit in the Code: The Code provides for the creation of a separate entity-the "bankruptcy trust"-upon the entry of an order for relief. This entity has the essential attributes of an artificial legal person, such as a corporation or a partnership. More particularly, the bankruptcy trust has all of the attributes-and more-of a business trust. American law recognizes the business trust as a legal person. Accordingly, the bankruptcy trust should be recognized as a legal person. Understanding that the bankruptcy trust is a legal person answers important questions. Specifically, the bankruptcy trust is a sufficient federal entity to provide a constitutional basis, as explained by Professor Ralph Brubaker, for giving federal courts jurisdiction over bankruptcy to the same extent that federal courts may constitutionally have jurisdiction over cases involving national banks. This understanding will also bring greater coherence to resolving many other bankruptcy questions. It will focus the court's attention on the most relevant issues and prevent courts from misconstruing the Code. It will also help clarify the confusion of many courts about the status of the debtor in possession as the same entity as the debtor or as a different entity. The debtor in possession is the same person as the debtor, but it serves as, and fully qualifies as, a trustee of the bankruptcy trust.
Note: This is a description of the paper and is not the actual abstract.
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