Law Review: Rafael I. Pardo, Rethinking Antebellum Bankruptcy, 95 U. Colo. L. Rev. __ (2024 forthcoming)

Abstract:

Bankruptcy law has been repeatedly reinvented over time in response to changing circumstances. The Bankruptcy Act of 1841—passed by Congress to address the financial ruin caused by the Panic of 1837—constituted a revolutionary break from its immediate predecessor, the Bankruptcy Act of 1800, which was the nation’s first bankruptcy statute. Although Congress repealed the 1841 Act in 1843, the legislation lasted significantly longer than recognized by scholars. The repeal legislation permitted pending bankruptcy cases to be finally resolved pursuant to the Act’s terms. Because debtors flooded the judicially understaffed 1841 Act system with over 46,000 cases, the Act’s administration continued into the 1860s, thereby allowing further development of the law. Importantly, the system operated at a time when the role of the business of slavery in the national economy was increasingly expanding. This Article focuses on two post repeal episodes involving legal innovation under the Act to demonstrate how an expanded periodization of its duration yields fresh insights into understanding the interaction between federal bankruptcy law and slavery: (1) the judicial constitutional settlement of voluntary bankruptcy relief, part of which occurred through a case involving a bankrupt enslaver; and (2) the practice pursuant to which some federal district courts empowered assignees—the federal court officials appointed to administer property surrendered by bankrupts in 1841 Act cases—to operate a bankrupt’s business before liquidating it, as evidenced by certain cases involving plantation owners who sought relief under the Act.

Commentary:

In revisiting the question,  perhaps last current in regard to the 1841 Bankruptcy Act  but certainly settled by the time of the 1898 Act,  about whether voluntary bankruptcies were  constitutional  or as "insolvencies"  were outside the constitutional grant of authority,  this article may actually have relevance to the contemporaneous issue about whether bankruptcy cases for solvent entities,  see,  for example,  In re Best Wall (blog forthcoming) for a discussion of the Texas-Two Step often used by corporations facing mass tort litigation,  are constitutionally permissible.   See for example how in 1843,  Circuit Justice Catron emphasized the broad power enjoyed by Congress when enacting legislation pursuant to the Bankruptcy Clause: 

• In considering the question before me, I have not pretended to give a definition, but purposely avoided any attempt to define the mere word “bankruptcy.” It is employed in the constitution in the plural and as part of an expression,—‘the subject of bankruptcies.’ The ideas attached to the word in this connection are numerous and complicated. They form a subject of extensive and complicated legislation. Of this subject congress has general jurisdiction; and the true inquiry is, to what limits is that jurisdiction restricted? I hold it extends to all cases where the law causes to be distributed the property of the debtor among his creditors; this is its least limit. Its greatest is a discharge of the debtor from his contracts. And all intermediate legislation, affecting substance and form, but tending to further the great end of the subject— distribution and discharge—are in the competency and discretion of congress. With the policy of a law, letting in all classes, others as well as traders, and permitting the bankrupt to come in voluntarily, and be discharged without the consent of his creditors, the courts have no concern; it belongs to the law makers. (Emphasis added.)

As this article makes clear,  this issue never squarely reached the Supreme Court,  so this 182-year old question of whether "the subject of bankruptcies"  extends to include all debtors,  including those that have sufficient resources to pay creditors,  may remain unanswered.

To read a copy of the transcript, please see: