Law Review: Judge Rebecca B. Connelly- Voluntary Bankruptcy for the Solvent Debtor: A Constitutional Defense

By Ed Boltz, 30 October, 2026

Available at: https://www.ablj.org/voluntary-bankruptcy-for-the-solvent-debtor-a-constitutional-defense-volume-100-issue-2/

Abstract:

In 2025, more than 200,000 Americans chose chapter 13 bankruptcy because they could pay their debts, not because they couldn’t. They used it to cure mortgage defaults and address obligations that could not be discharged in any other proceeding. If a recent dissent from the Fourth Circuit is correct, every one of those cases was unconstitutional.

This article examines the dissent’s claim and rejects it. The article looks at the meaning of the Bankruptcy Clause of the Constitution (“Bankruptcy Clause”) and concludes it authorizes Congress to enact bankruptcy laws that may be used by solvent debtors. First, the article considers the history of the Bankruptcy Clause and its application to federal bankruptcy laws from 1800 to 1978 with respect to a solvent debtor. In particular, the article focuses on individual debtors and the development of chapter 13, an option designed for solvent individuals. Next, the article provides a review of the statutory developments culminating in chapter 13. Also, the article surveys important Supreme Court interpretations of the Bankruptcy Clause with an eye to whether bankruptcy laws open to solvent individuals are constitutional. Finally, the article defends the current structure of the Bankruptcy Code allowing a choice for solvent individual debtors.

The article clarifies the original meaning of the Bankruptcy Clause by looking to the words of its drafters, The Federalist Papers, the commentaries of Justice Joseph Story, and the expressions of the Supreme Court. The article warns that if the Bankruptcy Clause is a limitation on Congress’s authority to draft laws on the subject of bankruptcies to be used by solvent persons, then chapter 13 (and, by extension, individual chapter 11 provisions) are unconstitutional.

Summary:

In Voluntary Bankruptcy for the Solvent Debtor: A Constitutional Defense, Judge Rebecca B. Connelly of the Bankruptcy Court for the Western District of Virginia offers a historical and constitutional defense of voluntary bankruptcy for debtors who have the ability to pay their creditors.

Her immediate concern is the dissent by Judge King in Bestwall LLC v. Official Committee of Asbestos Claimants, 148 F.4th 233 (4th Cir. 2025), in which he argued that the Bankruptcy Clause of Article I, Section 8 limits bankruptcy jurisdiction to insolvent debtors.

Although Bestwall involved Georgia-Pacific's controversial Texas Two-Step restructuring and asbestos liabilities, Judge Connelly identifies a much broader consequence: If solvency constitutionally disqualifies a debtor from bankruptcy, Chapter 13 itself could be unconstitutional.

After all, Chapter 13 affirmatively requires debtors to have sufficiently regular income to make payments under a plan. Section 1325(a)(6) requires a finding that debtors can make those payments. Many debtors file Chapter 13 not because they have no assets or income, but precisely because they have something worth protecting and the financial ability to repay creditors over time.

Judge Connelly traces the Bankruptcy Clause from the Constitutional Convention through The Federalist Papers, Justice Joseph Story's commentaries, and two centuries of Supreme Court decisions and bankruptcy legislation.

Her central historical argument is that the Bankruptcy Clause was intended primarily to establish uniform federal bankruptcy laws and prevent competing state laws from undermining interstate commerce, rather than to constitutionally restrict bankruptcy relief to insolvent debtors.

She relies particularly on Chief Justice Marshall's discussion in Sturges v. Crowninshield, 17 U.S. 122 (1819), recognizing Congress's broad discretion to determine the scope of bankruptcy legislation, including laws permitting debtors themselves to initiate proceedings.

The article also traces the development of voluntary bankruptcy, from the punitive and largely creditor-controlled bankruptcy proceedings of the early nineteenth century through the Bankruptcy Act of 1898, the Chandler Act of 1938, and ultimately Chapter 13 under the Bankruptcy Code of 1978.

An important theme is that voluntary repayment arrangements were not merely a concession to debtors. They frequently produced better recoveries for creditors than involuntary liquidation.

Judge Connelly notes that Chapter 13 trustees distributed more than $4.2 billion to creditors in 2025, illustrating the substantial economic benefits of permitting individuals to retain property and repay debts through court-supervised plans.

She also rejects the confusion between constitutional jurisdiction and statutory eligibility. Congress may establish eligibility requirements, and bankruptcy courts may dismiss cases for bad faith, abuse, or failure to satisfy statutory requirements. But those are different questions from whether Congress possesses constitutional authority to enact bankruptcy laws available to solvent debtors.

Ultimately, Judge Connelly concludes that whether solvent debtors should qualify for bankruptcy is a policy question for Congress, not a constitutional prohibition for courts to invent.

Commentary:

Judge Connelly's article is an important and timely reminder that the constitutional arguments being advanced against solvent corporate debtors do not stop with Chapter 11.

As I discussed in my earlier posts on Bestwall:

Judge King's concerns about the manipulation of bankruptcy by large, profitable corporations to delay and potentially diminish recovery for asbestos victims are entirely understandable.

But a constitutional rule designed to prevent that abuse could sweep away legitimate and essential consumer bankruptcy protections.

Chapter 13 Is Often for Debtors Who Can Pay

Consumer bankruptcy attorneys regularly represent people who are technically solvent but nevertheless face serious financial distress.

Consider a homeowner with $250,000 in home equity, $100,000 in protected retirement savings, $40,000 in credit-card debt, and a $20,000 mortgage arrearage.

That debtor may be balance-sheet solvent, but unable to immediately cure the mortgage default, facing foreclosure, and unable to refinance.

Chapter 13 permits that debtor to retain the home, cure arrearages over three to five years, and pay creditors through a supervised plan.

Similarly, debtors may use Chapter 13 to address tax obligations, domestic support arrearages, student loans, and other debts that cannot readily be discharged or resolved through Chapter 7.

Indeed, the Chapter 13 liquidation test under § 1325(a)(4) expressly recognizes that debtors with substantial nonexempt assets may retain those assets by paying unsecured creditors at least as much as they would receive in Chapter 7.

The debtor's ability to pay is not a reason to deny bankruptcy relief. In Chapter 13, it is often the very reason that relief works.

A Constitutional Debate with Professor Hampson

Judge Connelly's article is particularly interesting when considered alongside Professor Christopher Hampson's forthcoming scholarship, The Bankruptcy Power and the Meaning of Insolvency.

Hampson also begins with Bestwall, but reaches a somewhat different constitutional conclusion.

Based on his examination of approximately 350 years of American insolvency and bankruptcy history, Hampson proposes what he calls the FIN requirement: the constitutional Bankruptcy Power historically concerns debtors who are Fraudulent, Insolvent, or Nonpaying.

Importantly, these are alternatives, not cumulative requirements.

Hampson also distinguishes among several forms of insolvency:

Cashflow insolvency: Inability to pay obligations as they come due.
Balance-sheet insolvency: Liabilities exceeding assets.
Unreasonably small assets: Inadequate capitalization or resources to meet reasonably anticipated obligations.

His argument is more nuanced than a requirement that every debtor prove balance-sheet insolvency. For involuntary bankruptcy, he considers cashflow insolvency the historical constitutional touchstone. For voluntary bankruptcy, he would allow debtors to seek protection before default when they are balance-sheet insolvent or have unreasonably small assets.

Nevertheless, Hampson would recognize some constitutional boundary on access to bankruptcy based on financial condition, while Judge Connelly rejects the proposition that solvency itself imposes such a constitutional limit.

That distinction matters enormously.

Under Hampson's approach, courts might eventually need to determine whether a debtor has sufficient financial distress to satisfy the Constitution, even if the debtor otherwise meets every eligibility requirement Congress established.

Judge Connelly would leave those determinations to Congress and the existing statutory requirements of the Bankruptcy Code.

I will be discussing Hampson's article separately in a post next Wednesday, October 28, with this review of Judge Connelly's article following on Friday, October 30.

The Danger of Conflating Solvency with Financial Health

For consumer debtors, the distinction between solvency and financial distress is particularly important.

Substantial home equity does not necessarily produce income. Retirement savings generally should not have to be liquidated to satisfy current unsecured creditors. A debtor may have assets exceeding liabilities while lacking the liquidity necessary to prevent foreclosure or garnishment.

Indeed, the Bankruptcy Code already contains numerous provisions addressing debtors' ability to pay and potential abuse, including:

The Chapter 7 means test under § 707(b);
Chapter 13's disposable income requirements under § 1325(b);
The best-interest-of-creditors test under § 1325(a)(4);
Good-faith requirements for filing and plan confirmation; and
Dismissal for cause and relief from the automatic stay.

Congress has repeatedly chosen to regulate what relief debtors may obtain, rather than requiring that they demonstrate insolvency before entering bankruptcy.

That legislative choice should not be displaced by a constitutional insolvency requirement judicially imposed without a clear constitutional command.

Bestwall May Be the Wrong Case for Making Consumer Bankruptcy Law

There is something deeply troubling about solvent, multibillion-dollar corporations restructuring themselves to isolate tort liabilities and then seeking bankruptcy protection while victims are prevented from pursuing their claims.

But it would be equally troubling if the judicial response to that strategy deprived ordinary families of the ability to cure mortgage defaults, protect retirement savings, restructure debts, and repay creditors through Chapter 13.

Judge Connelly's historical analysis demonstrates that allowing people with the financial means to pay creditors to use bankruptcy is not an aberration from the American bankruptcy tradition. It is one of that tradition's most important developments.

The real question in Bestwall should be whether that particular use of bankruptcy constitutes bad faith, abuse, or otherwise violates the requirements of the Bankruptcy Code—not whether the Constitution forbids solvent persons from seeking bankruptcy protection at all.

Judge Connelly and Professor Hampson offer two carefully developed, historically grounded perspectives on the limits of the Bankruptcy Power. Their disagreement deserves attention, particularly from consumer bankruptcy attorneys who might otherwise consider the debate over the Texas Two-Step a distant corporate bankruptcy concern.

The essential point is that a constitutional restriction crafted to exclude solvent corporations cannot easily be confined to those corporations.

If the Supreme Court eventually addresses the issue, its ruling will affect more than asbestos trusts and corporate restructuring. It could determine whether the homeowner with substantial equity but insufficient cashflow, the worker with protected retirement savings, or the family seeking to cure a mortgage default has a constitutional right to the bankruptcy relief Congress has made available.

Judge Connelly makes a compelling case that the Constitution does not require bankruptcy courts to turn those debtors away.