Law Review: Persad, Govind-Bankruptcy Beyond Status Maintenance

Abstract: This Article examines the tendency of current American bankruptcy law to maintain the social and economic status of middle- and upper-class debtors while doing much less to assist poorer debtors and non-debtors. In doing so, it examines and categorizes various aspects of statutory and case law that allow debtors to preserve their prior economic status. After reconstructing and rebutting the normative arguments offered in defense of these provisions, it suggests a proposal for reforming bankruptcy law to emphasize goals other than the maintenance of economic status. Part I of the Article begins by describing ways in which current bankruptcy law serves to help debtors retain their pre-bankruptcy social and economic status, with a focus on exemptions from the bankruptcy estate. Part II then critically evaluates two types of arguments that defend the goal of helping debtors retain their prior social and economic status: one appeals to debtors' claims, while the other appeals to societal interests. Part III proposes reorienting bankruptcy law away from the preservation of debtors' past status and toward three interlocking goals: economic adequacy for debtors, economic freedom for debtors, and equal treatment for debtors and non-debtors. It also proposes some ways that this reorientation might be achieved. Commentary: The first portion of this article is a rather scathing review of exemptions, means tests and court opinions that have favor bankruptcy as “status-maintaining” system that advantages the formerly wealthy and middle class over the poor. (Many of the cases relied upon for this conclusion seem to be from another era and rather dated, however.) The second half of the article asserts that it will make the case for “reorienting bankruptcy law around three core values: economic adequacy for debtors, economic freedom for debtors, and fairness to non-debtors.” But rather than than finding ways to provide greater bankruptcy relief for the poorest debtors, these suggestions really are only “eat the rich” argument or pro-creditor positions. For example, it criticizes the discharge of both tax and medical debts as such reduced the amount of funds available “for care of ill or needy people.” It then argues, in fact, that exemptions make “little normative sense” for individuals or small firms, but should actually be extended to large, private sector firms because of all the good that corporations do.  I trust my disdain for that argument comes through. For a copy of the Article, please see: Bankruptcy Beyond Status Maintenance