Abstract:
The concept of the judgment-proof or collection-proof debtor is fundamental to our understanding of civil law and of what distinguishes it from criminal law. But when civil creditors can threaten unduly harsh or cruel debt collection measures (whether legally or not), they extend their reach into the pockets of those whom this Article calls “redeemers,” third parties with a familial or quasi-familial relationship to civil debtors who have reason to pay on their behalf. This Article examines four such measures—imprisonment, homelessness, destitution, and deportation—remedies that sound like they come from another time and place, but which are threatened by some creditors in the United States today.
Such “remedies” are problematic because (among other reasons) they undermine a core pillar of civil law: that liability—absent a guarantee—is limited to the defendant. Because harsh creditor remedies can affect third‑party redeemers, they also provide a classic example of an externality that justifies nonparentalistic intervention. We should think of this field not as “the law of debtors and creditors,” but as “the law of debtors, creditors, and redeemers.”
The role that redeemers play in debt collection law is one of many instances in which legal institutions display a myopic view of communities: redeemers too often stand outside the field of vision of courts and legislatures. Even so, this theory provides a powerful tool for explaining and reinforcing legal rules ranging from the law of unconscionability to exemption statutes to consumer protection. This Article also recommends several measures to cabin this “spillover” effect, including an argument that imprisonment for civil debt violates not only state bans on debtors’ prisons, but also the federal Due Process Clause (even after Dobbs).
Commentary:
With all of the discussion and case law regarding third-party releases for basically despicable people like the Sacklers in the Purdue Pharma bankruptcy, rarely do any of the judges or commentators on those cases contrast the relief sought there on the cheap, both in terms of dollars, scrutiny or shame, with how in consumer bankruptcy cases the co-debtor stay of 11 U.S.C. § 1301 is often unnecessarily co-joined with 11 U.S.C. § 1322(b)(1) to condition that protection on payment of the claim in full and with contract interest.
Further compounding this harsh treatment of redeemers in consumer bankruptcies, overzealous Trustees often seek to apply the Means Test to force a debtor's spouse and other household members to provide redemption funds on debts for which they are not liable. (Whether directly or through the overwrought "sugar daddy" argument that the debtor should not be allowed to underwrite the expenses of the other household members, in effect forcing them to be redeemers.)
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