Racialized Bankruptcy Federalism
48 Pages Posted: 1 Feb 2022 Last revised: 15 Sep 2022
Date Written: January 28, 2022
Notwithstanding the robust national power conferred by the U.S. Constitution’s Bankruptcy Clause, the design and administration of federal bankruptcy law entails choices about the extent to which nonbankruptcy-law entitlements will remain undisplaced. When such entitlements sound in domestic nonfederal law (i.e., state or local law), displacing them triggers federalism concerns. Considerations regarding the relationship between the federal government and the nation’s smaller political subdivisions might warrant preserving nonfederal-law entitlements even though their displacement would be authorized pursuant to the bankruptcy power. But such considerations might also suggest replacing those entitlements with bankruptcy-specific ones. Some scholarship has theorized about the principles that should govern the balancing of bankruptcy federalism concerns, though without considering the implications of race. Other scholarship has critically examined how federal bankruptcy law, which is facially neutral, has nevertheless been designed and administered in ways that are racially biased, though without considering the implications of federalism.
This Article offers a preliminary exploration of the origins of racialized bankruptcy federalism—that is, federalism policymaking in bankruptcy with racially harmful effects. Looking back to modern bankruptcy law’s first forebear, the 1841 Bankruptcy Act, the Article analyzes how the U.S. District Court for the Eastern District of Louisiana promulgated a rule that replaced creditors’ state-law entitlements to enslaved collateral with federal public control of the enslaved in cases under the Act. Not only did this rule routinely impose on enslaved Black Americans the trauma of forced sale by the federal government, it also frequently enriched federal officials without providing any pecuniary benefit to a bankrupt’s general unsecured creditors. This Article concludes with a brief commentary on the Supreme Court’s January 2021 decision in City of Chicago v. Fulton, arguing that, especially when viewed from a historical perspective, race matters in determining how bankruptcy federalism ought to be operationalized.
Keywords: bankruptcy, Bankruptcy Act of 1841, business history, federalism, legal history, race and the law, slavery
Suggested Citation: Suggested Citation