Law Commons^™

Rethinking Antebellum Bankruptcy, Rafael I. Pardo

Scholarship@WashULaw

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 Although Congress repealed the 1841 Act in 1843, the legislation lasted significantly longer than recognized by scholars.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 …

On Bankruptcy’S Promethean Gap: Building Enslaving Capacity Into The Antebellum Administrative State, Rafael I. Pardo

Scholarship@WashULaw

As the United States contends with the economic crisis triggered by the COVID-19 pandemic, federal bankruptcy law is one tool that can be used to resolve the financial distress suffered by individuals and businesses. When implementing this remedy, the question arises whether the law’s application should be viewed as limited to addressing private debt matters, without regard for the public interest. This Article answers the question by looking to modern U.S. bankruptcy law’s first forebear, the 1841 Bankruptcy Act, which Congress enacted in response to the depressed economic conditions following the Panic of 1837. That legislation created a judicially administered …

Racialized Bankruptcy Federalism, Rafael I. Pardo

Scholarship@WashULaw

Notwithstanding the robust national power conferred by the U.S. Constitution’s Bankruptcy Clause, the design and administration of federal bankruptcy law entails choices about the extent to which non-bankruptcy-law entitlements will remain un-displaced. When such entitlements sound in domestic nonfederal law (i.e., state or local law), displacing them triggers federalism concerns. Considerations regarding the relationship between the federal government and the nation’s smaller political subdivisions might warrant preserving nonfederal-law entitlements even though their displacement would be authorized pursuant to the bankruptcy power. But such considerations might also suggest replacing those entitlements with bankruptcy-specific ones. Some scholarship has theorized about the principles …

Financial Freedom Suits: Bankruptcy, Race, And Citizenship In Antebellum America, Rafael I. Pardo

Scholarship@WashULaw

This Article presents a new frame of reference for thinking about how the federal government facilitated citizenship claims by free people of color in the antebellum United States. While scholars have accounted for various ways in which free black litigants may have made such claims, they have not considered how the Bankruptcy Act of 1841 enabled overindebted free people of color to reconstruct their economic lives, thereby restoring the financial freedom that was and continues to be an essential component of American citizenship. Relying on a variety of primary sources, including manuscript court records, this Article shows how six free …

Federally Funded Slaving, Rafael I. Pardo

Scholarship@WashULaw

This Article presents a new frame of reference for thinking about the federal government’s complicity in supporting the domestic slave trade in the antebellum United States. While scholars have accounted for several methods of such support, they have failed to consider how federal bankruptcy legislation during the 1840s functionally created a system of direct financial grants to slave traders in the form of debt discharges. Relying on a variety of primary sources, including manuscript court records that have not been systematically analyzed by any published scholarship, this Article shows how the Bankruptcy Act of 1841 enabled severely indebted slave traders …

Limited Liability Property, Danielle D'Onfro

Scholarship@WashULaw

This Article offers a theory of secured credit that aims to answer fundamental questions that have long percolated in the bankruptcy and secured transactions literatures. Are security interests property rights, contract rights, or something else? Why do secured creditors enjoy a priority right that, in bankruptcy, requires them to be paid in full before other debt holders recover anything? Should we care that secured credit creates distributional unfairness when companies cannot pay their debts?

This Article argues that security interests are best understood as a form of “limited liability property.” Limited liability—the privilege of being legally shielded from liability that …

Limited Liability Property, Danielle D'Onfro

Scholarship@WashULaw

This Article offers a theory of secured credit that aims to answer fundamental questions that have long percolated in the bankruptcy and secured transactions literatures. Are security interests property rights, contract rights, or something else? Why do secured creditors enjoy a priority right that, in bankruptcy, requires them to be paid in full before other debt holders recover anything? Should we care that secured credit creates distributional unfairness when companies cannot pay their debts?

This Article argues that security interests are best understood as a form of “limited liability property.” Limited liability—the privilege of being legally shielded from liability that …

Bankrupted Slaves, Rafael I. Pardo

Scholarship@WashULaw

Responsible societies reckon with the pernicious and ugly chapters in their histories. Wherever we look, there exist ever-present reminders of how we failed as a society in permitting the enslavement of millions of black men, women, and children during the first century of this nation’s history. No corner of society remains unstained. As such, it is incumbent on institutions to confront their involvement in this horrific past to fully comprehend the kaleidoscopic nature of institutional complicity in legitimating and entrenching slavery. Only by doing so can we properly continue the march of progress, finding ways to improve society, not letting …

Documenting Bankrupted Slaves, Rafael I. Pardo

Scholarship@WashULaw

Bankrupted Slaves tells a story about institutional complicity in antebellum slavery — that is, the story of how the federal government in the 1840s and 1850s became the owner and seller of thousands of slaves belonging to financially distressed slaveowners who sought forgiveness of debt through the federal bankruptcy process. Relying on archival court records that have not been systematically analyzed by other scholars, Bankrupted Slaves analyzes how the Bankruptcy Act of 1841 and the domestic slave trade inevitably collided to create the bankruptcy slave trade, focusing the analysis through a case study of the Eastern District of Louisiana, which …

Taking Bankruptcy Rights Seriously, Rafael I. Pardo

Scholarship@WashULaw

Perhaps more so than any other area of law affecting individuals of low-to-moderate means, bankruptcy poignantly presents an affordability paradox: The system’s purpose is to relieve individuals from financial distress, yet it simultaneously demands a significant commitment of resources to obtain such relief. To date, no one has undertaken a comprehensive study of the complexities and costs of the litigation burden that Congress has imposed on self-represented debtors who seek a fresh start in bankruptcy. In order to explore the problems inherent in a system that sometimes necessitates litigation as the path for vindicating a debtor’s statutory right to a …

Rethinking The Principal-Agent Theory Of Judging, Rafael I. Pardo, Jonathan Remy Nash

Scholarship@WashULaw

This Essay offers new insights into understanding the relationship between higher and lower courts and responds to the extant literature that has characterized the relationship as one involving a principal and an agent. We challenge the underpinnings of the principal-agent understanding of judicial hierarchies and identify problems with the theory’s applicability in this context. While principals ordinarily select their agents, higher court judges usually do not select lower court judges. Moreover, while lower court judges may cast votes with an eye to the possibility of elevation to a higher court, the higher court judges who review the lower court’s decisions …

The Structural Exceptionalism Of Bankruptcy Administration, Rafael I. Pardo, Kathryn A. Watts

Scholarship@WashULaw

The current system of administration of the Bankruptcy Code is highly anomalous. It stands as one of the few major federal civil statutory regimes administered almost exclusively through adjudication in the courts, not through a federal regulatory agency. This means that rather than fitting bankruptcy into a regulatory model, Congress has chosen to give the courts primary interpretive authority in the field of bankruptcy, delegating to courts the power to engage in residual policymaking. Although scholars have noted some narrow aspects of the structural exceptionalism of bankruptcy administration, Congress’s decision to locate responsibility for bankruptcy policymaking almost exclusively with the …

Does Ideology Matter In Bankruptcy? Voting Behavior On The Courts Of Appeals, Rafael I. Pardo, Jonathan Remy Nash

Scholarship@WashULaw

This Article empirically examines the question of whether courts of appeals judges cast ideological votes in the context of bankruptcy. The empirical study is unique insofar as it is the first to specifically examine the voting behavior of circuit court judges in bankruptcy cases. More importantly, it focuses on a particular type of dispute that arises in bankruptcy - debt-dischargeability determinations. The study implements this focused approach in order to reduce heterogeneity in result. We find, contrary to our hypotheses, no evidence that circuit court judges engage in ideological voting in bankruptcy cases. We do find, however, non-ideological factors - …

Reconceptualizing Present-Value Analysis In Consumer Bankruptcy, Rafael I. Pardo

Scholarship@WashULaw

During the three decades following the enactment of the Bankruptcy Code, courts and commentators have been vexed by the problem of determining the present value of future payments to creditors proposed in a debtor’s repayment plan. The central issue to this problem has been the discount rate to be applied when conducting present-value analysis. While the Code unmistakably requires the discounting of future payments as part of the process for confirming a repayment plan, the Code does not explicitly specify the rate itself or the manner in which the rate should be calculated. No uniform rule of decision has emerged …

An Empirical Investigation Into Appellate Structure And The Perceived Quality Of Appellate Review, Rafael I. Pardo, Jonathan Remy Nash

Scholarship@WashULaw

Commentators have theorized that several factors may improve the process, and thus perhaps the accuracy, of appellate review: (1) review by a panel of judges, (2) subject-matter expertise in the area of the appeal, (3) other law-finding ability, (4) adherence to traditional notions of appellate hierarchy, and (5) the judicial independence of appellate judges. The considerable discussion that has expounded upon these theories has occurred in a vacuum of abstract generalization. This Paper adds a new dimension by presenting results from an empirical study of bankruptcy appellate opinions issued over a three-year period. The federal bankruptcy appellate structure provides certain …

Illness And Inability To Repay: The Role Of Debtor Health In The Discharge Of Educational Debt, Rafael I. Pardo

Scholarship@WashULaw

For a debtor to obtain a discharge of student loans in bankruptcy, the debtor must establish that their repayment would impose an undue hardship. This Article presents the results of an empirical study of bankruptcy court doctrine over a ten-year period that involved undue hardship discharge proceedings where the court reported information on the debtor's health status, monthly household income, and monthly household expenses. The data show that a medical condition increased a debtor's odds of being granted a discharge by 140% but that household income and expense levels did not have a statistically significant association with legal outcome. These …

Eliminating The Judicial Function In Consumer Bankruptcy, Rafael I. Pardo

Scholarship@WashULaw

The centerpiece of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has been the means test, a formulaic statutory directive pursuant to which courts are to presume abuse of the bankruptcy system by Chapter 7 debtors who have an ability to repay past debts with future income. This Essay provides a new insight into means testing by arguing that, more than anything else, it has brought about a significant change in the institutional design of bankruptcy courts: namely, the increased blurring of administrative and judicial functions. The Essay concludes that this development should be cause for concern as …

Undue Hardship In The Bankruptcy Courts: An Empirical Assessment Of The Discharge Of Educational Debt, Rafael I. Pardo, Michelle R. Lacey

Scholarship@WashULaw

The discharge in bankruptcy embodies the policy that relief should be granted to an individual who has ceased to be economically productive by virtue of burdensome debt obligations (the fresh start policy). Once the debtor has been deemed eligible for discharge, forgiveness of debt is automatic, accomplished through legislative rule and its judicial enforcement. With regard to the discharge of educational debt, however, Congress has devolved the exercise of debt relief to courts. An obligation to repay such debt will be discharged if a debtor establishes that undue hardship would be suffered in the absence of its discharge. A court …

On Proof Of Preferential Effect, Rafael I. Pardo

Scholarship@WashULaw

This Article presents a comprehensive analysis of the manner in which the trustee of a debtor's estate may satisfy his burden of proof to demonstrate the preferential effect of a prebankruptcy transfer from a debtor to a creditor. The proposed framework, if adhered to by courts, will create a uniformity that gives preference law its proper reach and thereby reinforces its primary goal: equal treatment of similarly situated creditors (the equality principle). After examining the historical developments that have made a trustee's evidentiary burden administratively less complex, the Article discusses the Ninth Circuit's decision in Batlan v. TransAmerica Commercial Finance …

Bankruptcy Court Jurisdiction And Agency Action: Resolving The Nextwave Of Conflict, Rafael I. Pardo

Scholarship@WashULaw

This Comment criticizes a pair of decisions by the United States Court of Appeals for the Second Circuit, FCC v. NextWave Personal Communications, Inc. (In re NextWave Personal Communications, Inc.) and In re FCC, which held that a bankruptcy court lacks jurisdiction to determine whether the Federal Communications Commission is stayed from revoking a debtor's licenses. The Comment argues that the Second Circuit interpreted the bankruptcy court's jurisdiction too narrowly because it failed to distinguish properly between an agency's action as a creditor and as a regulator. It concludes that bankruptcy courts and courts of appeals have concurrent jurisdiction to …

Beyond The Limits Of Equity Jurisprudence: No-Fault Equitable Subordination, Rafael I. Pardo

Scholarship@WashULaw

In two 1996 decisions involving equitable subordination of claims in bankruptcy cases, United States v. Noland and United States v. Reorganized CF&I Fabricators of Utah, Inc., the Supreme Court did not answer the question of whether a bankruptcy court must find creditor misconduct before it equitably subordinates a creditor's claim. This Note argues that the Court should have established a bright-line rule that requires such a finding, using prepetition, nonpecuniary loss tax penalty claims of the IRS as a model. After showing that, as codified in the Bankruptcy Code, the doctrine of equitable subordination requires a finding of creditor misconduct, …