Fake and Real People in Bankruptcy

Abstract

This essay explores the bankruptcy system’s structural bias in favor of artificial persons—for-profit companies, non-profit enterprises, and municipalities given independent life by law—relative to humans. The favorable treatment extends to foundational issues such as the scope and timing of debt relief, the conditions to receiving any bankruptcy protections, and the flexibility to depart from the Bankruptcy Code by asserting that doing so will maximize economic value. The system’s bias also contributes to the “bad-apple-ing” of serious policy problems, running counter to other areas of law that have deemed harms like discrimination to be larger institutional phenomena rather than the product of individual wrongdoing. The bankruptcy system cannot fully internalize the consequences of these choices. These factors make bankruptcy a less effective partner in the broader policy project of deterring, remedying, and punishing enterprise misconduct.

Keywords: bankruptcy, mass tort, Texas Two-Step, consumer bankruptcy, corporate restructuring, legal personhood, The Weinstein Company, J&J, Boy Scouts of America, products liability, sexual harassment

JEL Classification: G33, G34, K35