Michael writes: >> David, you surely know more about this than I do, but I thought that >> bankruptcy law developed very politically. My understanding was that >> political pressures first allowed individuals to declare bankruptcy as >> an alternative to debtor's prison. Modern bankruptcy law developed in >> the course of the search of railroad failures in the late 19th century, >> when the courts were trying to accommodate bondholders. >> >> The ranking of debts in bankruptcy court seems rather arbitrary rather >> than a matter of justice. Why should a worker who earned a pension after >> 30 years of hard labor on an assembly line have fewer rights than a >> speculator who buys a depressed bond in the hopes of making a profit?
We have discussed this many times. No doubt the bankruptcy system has developed very politically. That being said, the meat of the present Code was passed in 1978 remarkably free of political pressure in the sense that the Code was drafted by a well-balanced bipartisan commission headed by academics and bankruptcy professionals and adopted almost in its entirety. While the special interests have worked their way over the past 30 years, the core is still their and bankruptcy lawyers are very proud of the Code as compared to say, for example, the tax code, which has no cohernece because Congress loves tampering with it as a favor to constituents. Comparatively, Congress hates tampering with the Bankruptcy Code and getting changes made is like pulling teeth. My point was not that the Code is apolitical. My point is that the Code has generally been applied apolitically by judges, in the sense that Judges generally follow the rules, even if the result is distasteful. For instance, bankruptcy judges spend a lot of their time granting mortgage companies the ability to foreclose homes. While each case is tragic in its own way and the homeowner is usually more symphathetic than the mortgage company, the fact that judges generally do what the (concededly political developed) law requires is why we have had a generally robust mortgage market. More generally, institutionally and generally, US courts enforce contracts, laws, rules without regard to who the parties are. This is true even if the government is a party to the litigation. This fact is a primary, if not the primary, reason for the economic success of the United States. The auto bankruptcies are going to test this. It is apparent that the government has pressured some of the largest lenders, who are TARP recipients, to play along. There is going to be incredible pressure on the Office of the United States Trustee, which is a unit of the Department of Justice and oversees the administration of bankruptcy cases, to play along. And there is going to be incredible pressure on the Bankruptcy Judge, to play along. This IS the test of our judcial system. As to Chrysler, the bond speculator is a party to a contract that is secured by Chrysler's assets. The retired union worker is a party to a contract that is not secured by collateral and is simply an unsecured claim. As a matter of fundamental bankruptcy principles manifested in the Code (as well as the takings and due process clauses of the Constitution), secured creditors must be paid in full from their collateral before unsecured creditors can share in the collateral. Further, unsecured creditors should receive equal treatment, so there should be no favoritisem between different classes of unsecured creditors. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
