When Does Some Federal Interest Require a Different Result?: An Essay on the Use and Misuse of Butner v. United States

Abstract

Thousands of judges and scholars have relied on the statement in the 1979 Supreme Court opinion in Butner v. United States that “property interests are created and defined by state law...unless some federal interest requires a different result.” Often, they cite to the statement as a policy constraint that elevates state property law over federal bankruptcy law. This Essay, written for the American Bankruptcy Institute – University of Illinois Symposium on Chapter 11 Reform, posits that the Butner rule is not as broadly applicable as commonly believed. To do so, the Essay surveys some notable uses and misuses of the Butner rule in the 35 years since the case was decided and concludes that so long as Congress clearly states a federal purpose for modifying a party’s state law property rights at the moment a bankruptcy case is filed, such a modification is permissible.

Keywords: Butner, property, property law, property rights, federal bankruptcy law, land use, real estate law, contracts, commercial law, reorganization, creditors

JEL Classification: K11, K12