The Yale Law Journal

VOLUME
131
2021
NUMBER
1
October 2021
1-369

Reconstructing the Bankruptcy Power: An Originalist Approach

Bankruptcy

abstract. This Note responds to two distinct difficulties in the constitutional law of bankruptcy. First, many bankruptcy scholars and practitioners intuit that the Thirteenth Amendment places important limitations on the law of personal bankruptcy, but this intuition is difficult to cash out in a convincing legal argument. Second, modern bankruptcy law requires an expansive construction of the bankruptcy power, but such a construction is difficult to ground in the meaning of the Bankruptcy Clause in 1789. This Note resolves both difficulties by showing how the proper legal construction of the bankruptcy power changed during Reconstruction with the ratification of the Thirteenth Amendment in 1865. Before Reconstruction, the bankruptcy power was limited to the creation of collective-creditor remedies against merchants who committed acts of insolvency. The Thirteenth Amendment both granted Congress new powers to legislate against relations of economic domination, including relations between creditors and insolvent debtors, and altered the function that the bankruptcy power plays within the Constitution. These changes amounted to a reconstruction of the bankruptcy power, such that bankruptcy law now has as its primary purpose the provision of a “fresh start” to the honest unfortunate debtor. This argument helps ground the constitutionality of both voluntary bankruptcy and corporate bankruptcy, but its most important implications are for consumer bankruptcy law, particularly the status of the debtor’s fresh start and the grounds on which it can be denied.

author. Joseph E. Simmons, Yale Law School, J.D. expected 2022; Ph.D., University of Chicago, Commit-tee on Social Thought; B.A., University of Dallas. The author is indebted to Professors Akhil Reed Amar, G. Eric Brunstad Jr., Steven G. Calabresi, and John Fabian Witt for their guidance and help on this project. The author also thanks Tyler Dobbs, Nathaniel Helms, Holden Tanner, and Derek Weiss for insightful comments and conversation, and Max Jesse Goldberg and the rest of the Yale Law Journal’s editorial board for helpful revisions.

Introduction

From the New Deal through the turn of the twenty-first century, congressional deliberations about bankruptcy reform followed a familiar pattern. Creditor lobbyists pushed for amendments requiring at least some debtors to complete multiyear partial repayment plans before receiving the debt-forgiving “bankruptcy discharge.”1 Bankruptcy professionals and progressive scholars countered that such requirements were “alien to our jurisprudence,”2 akin to “involuntary servitude,”3 and “inconsistent with the policy and traditions of a country which has abolished involuntary servitude by the Thirteenth Amendment.”4 Time after time, Congress sided with the latter, sometimes on explicitly constitutional grounds.5

Then came the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).6 Despite a moderately sized literature articulating the Thirteenth Amendment case against it,7 Congress adopted a means-testing requirement: bankruptcies filed by debtors whose income fell above a certain threshold could be converted from Chapter 7 (immediate discharge) to Chapter 11 or 13 (conditional discharge, requiring completion of a repayment plan).8 Debtors have occasionally argued that this conversion is unconstitutional, but courts are highly skeptical.9

The basic problem that courts have with debtors’ constitutional arguments is that bankruptcy courts never actually compel any labor. Repayment plans are involuntary only in a conditional sense: the debtor mustcomplete the repayment plan if and only if she is to receive a debt discharge.10 As one bankruptcy court tersely explained, so long as “a party has no constitutional right to a discharge of its debts” then “[r]efusing to allow the [d]ebtor a discharge under Chapter 7 is not involuntary servitude.”11 And the Supreme Court rejected a constitutional right to a bankruptcy discharge in United States v. Kras, concluding that a bankruptcy discharge was “obviously . . . a legislatively created benefit.”12 Following the courts’ reasoning, the Thirteenth Amendment no more prohibits conditioning the bankruptcy discharge on future labor than it prohibits conditioning unemployment benefits on a search for employment.13 Or—the specific issue in Kras—conditioning access to bankruptcy on payment of filing fees. Or—as in the present Bankruptcy Code—conditioning discharge on completion of a financial literacy course14 or prohibiting discharge of certain kinds of debt, such as student loans.15

But is it really “obvious[]”16 that the bankruptcy discharge—what bankruptcy jurisprudence for well over a century has referred to as the “fresh start”17—is merely a legislative creation? Unlike many federal programs, bankruptcy law finds its constitutional grounding not in the Commerce Clause or the Spending Clause, but in a specially tailored congressional power “[t]o establish . . . uniform Laws on the subject of Bankruptcies.”18 Any law enacted under the authority of the Bankruptcy Clause must possess the features of a bankruptcy law, making it a constitutional question what those features are. The argument of this Note is that, ever since the Thirteenth Amendment, a law cannot be a bankruptcy law in the constitutional sense without making adequate provision for access to a fresh start by honest unfortunate debtors. This argument somewhat resembles that made by earlier commentators who intuited a kinship between denying a fresh start and imposing involuntary servitude. But its legal logic is quite different: it does not find in the Thirteenth Amendment an external constraint on bankruptcy law, but rather an essential alteration to it.

To assert such an essential alteration may sound quixotic. If the bankruptcy power really had been “reconstructed” in this way by the Thirteenth Amendment, surely someone would have noticed. But while the Thirteenth Amendment connection is novel, commentators have long recognized that bankruptcy law changed dramatically in the final third of the nineteenth century.19 In 1789, “the subject of Bankruptcies” encompassed only collective-creditor remedies against merchant debtors,20 and the first federal bankruptcy law confined itself accordingly.21 A century later, bankruptcy laws had begun to do much more.22 By 1935, the Supreme Court was prepared to hold that the New Deal bankruptcy laws, “far-reaching though they be, have not gone beyond the limit of congressional power; but rather have constituted extensions into a field whose boundaries may not yet be fully revealed.”23 In practice, the field seems to have no boundaries at all, with the scope of the bankruptcy power being determined entirely by the scope of Congress’s desire to legislate.24 The expanding-field theory is convenient for legitimating congressional enactments, but useless for constraining its agenda when it has been coopted by private interests.25A return to the bankruptcy power of 1789, on the other hand, would require a radical rejection of much of the modern bankruptcy system. This Note offers an alternative preferable to both: it accounts for how the bankruptcy power has changed since 1789, while attributing that change to a constitutional amendment rather than Congress’s imagination.

This Note proceeds in five Parts. Part I describes this Note’s approach to constitutional interpretation, construction, and reconstruction. Part II identifies a narrow and a broad reading of “the subject of Bankruptcies,” both of which were linguistically possible in 1789. Part III demonstrates that the narrow reading is the most plausible construction of the bankruptcy power under the original Constitution and tended to be recognized as the appropriate construction throughout the first half of the nineteenth century. Part IV argues that the Thirteenth Amendment’s prohibition on involuntary servitude required a reconstruction of the bankruptcy power, such that bankruptcy law today is necessarily concerned with the servitude inherent in insolvency. And Part V surveys the implications of this reconstruction for bankruptcy law today. A brief Conclusion follows.