Abstract:
Most individual debtors file for bankruptcy relief with honest intentions. Nonetheless, there is also an underside to the American bankruptcy law system that often goes unreported and ignored in the scholarly literature, namely, the commission of fraud by debtors who seek protection under the Bankruptcy Code. One of the ways in which fraud upon the bankruptcy system occurs is when debtors intentionally conceal assets from the bankruptcy process. Indeed, reported bankruptcy court decisions are rife with examples of debtors attempting to hide or shield assets from their creditors. Debtors who are discovered concealing assets are subject to certain civil remedies, such as the dismissal of their bankruptcy case or the denial of the discharge of their preexisting indebtedness. One of the ways to combat suspected fraud is to authorize a bankruptcy trustee to conduct a search of a debtor's residence to ensure compliance with the disclosure requirements of the Bankruptcy Code. The issue of a bankruptcy trustee 's search of a debtor's home, and more particularly the intersection between the Bankruptcy Code and the Fourth Amendment to the U.S. Constitution, has been addressed in two prior court decisions. On these occasions, the courts permitted a bankruptcy trustee to search a debtor's home, albeit after the trustee first obtained a "search order."
Incredulously, the two courts failed to address whether they in fact had the authority to order such a remedy. The issue is not free from doubt. Unlike other federal statutes that specifically authorize an administrative search, the Bankruptcy Code does not provide a statutory scheme authorizing a search of a debtor's home to uncover concealed assets. Consequently, there is presently a casus omissus, or an "unprovided-for case," in federal bankruptcy law. Thus, the purpose of this Article is to address this gap by answering whether a bankruptcy court has the requisite authority to issue what is in effect a search warrant for a debtor's residence. The author answers this question in the affirmative, and contend that a bankruptcy court can utilize two sources of authority to issue a search order of a debtor's home, namely, the Federal All Writs Act and § 105 of the Bankruptcy Code. While admittedly counterarguments exist for the reliance upon these two sources of authority, which are addressed herein, they do provide a reasonable basis for a bankruptcy court to order a search of a debtor's home.
Commentary:
In support of a rather glib minimization of the 4th Amendment "right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures" coupled with an apparent desire to maximize the "punitive ring" for bankruptcy, this article seems to start from the presumption that bankruptcy cases are "rife with examples of debtors attempting to hide or shield assets from their creditors." The author then cites to eleven reported cases, stretching back to 1845, as illustration of this. This is hardly evidence that bankruptcies are "rife" with fraud. And while it would be committing the same sin (perhaps in converse) to argue that only eleven cases over a period of nearly 170 years shows the absence of fraud, especially as there are certainly many more cases of hidden assets, reported, unreported and, admittedly, undiscovered, there are also certainly better metrics the author could use for gauging and establishing whether this is an actual problem, in the more than 1 million bankruptcies filed a year, that would justify the draconian step of home inspection. This seems particularly true since the author, in recognizing that "one way to obviate the issue of a bankruptcy trustee's ability to seek a search order would be for the trustee to refer the matter to a federal law enforcement officer or to the appropriate U.S. Attorney's Office who in turn would request a search warrant on the trustee's behalf." That, as the author again points out, U.S. Attorneys "have been reluctant to devote scarce resources for the prosecution of bankruptcy crimes", tends to indicate that this is an academic argument in search of a real problem.
Additionally, in examining the justifications and bases for a bankruptcy court issuing an "inspection order" or otherwise allowing a search of a debtor's residence, this article does not seem to recognize the reticence and caution that many bankruptcy courts currently labor under in the wake of Stern v. Marshall. For example, in addressing whether the bankruptcy court can issue a search order under the "inherent powers" doctrine, the article states that "once Congress has created an Article III court, the Constitution vests certain powers thereto into which the other branches of government may not interfere." (Emphasis added.) Unexamined is that bankruptcy, "as units of the federal district courts" are nonetheless Article I courts, with judges serving without life tenure, both factors that surely implicates whether such courts and judges should be granted the authority to authorize searches under the 4th Amendment.
For a copy of the opinion, please see:
http://moritzlaw.osu.edu/students/groups/oslj/files/2012/05/73.1.Sousa_.pdf
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