Chapter 13 bankruptcy dismissal definition of autonomy

chapter 13 bankruptcy dismissal definition of autonomy

Property of the estate is defined more broadly in chapter 13 cases to include property and earnings acquired post-petition. See § However, if a chapter 13 case is converted to a chapter 7 case, the § definition does not apply. Upon conversion, property of the chapter 7 estate consists of property of the estate, as of the date. INTRODUCTION In , Congress amended section of title 11, United States Code ("Bankruptcy Code" or "Code") to provide for dismissal of a consumer debtor's Chapter 7 (liquidation) petition in bankruptcy if the court found that granting "relief would be a substantial abuse of the provisions" of Chapter 7.(1) This amendment was contained in section of subtitle A, entitled "Consumer. Moratorium: A moratorium is a period of time when there is a suspension of a specific activity until future events warrant a removal of the suspension, or issues regarding the activity have been.

On the contrary, the exemptions only cover various types of debtor incapacity or inaccessibility: physical, mental and geographic. The exemptions therefore predominately address debtors who deviate from the norm of autonomy presumed in the Code, not directly for the reasons for indebtedness. These uncontrollable circumstances may include, for example, loss of a job, medical expenses, death, divorce or other change in marital status, increased minimum payments on credit cards and predatory lending.

In the same year, these researchers followed up on the high medical debt response and collected data on consumer bankruptcies. The data, methods, and survey used to collect the data can be found in Appendix 1 and 2 of Melissa B.

Jacoby, et al. The survey focused on medical causes for bankruptcy and demonstrated that at least Jacoby et al.

Adviser, fig. The medical debt problem continued to grow through the s. A American Journal of Medicine study indicated that medical bankruptcies made up Because high credit balances or other borrowing may disguise medical debt and other related costs like caretaking and illness-related loss of income, this figure could be an underestimate.

Patients and their caretakers commonly resort to expensive credit because of the prevalence of insufficient insurance. For individuals facing insurmountable debt resulting from uncontrollable circumstances, prepetition credit counseling is an unnecessary and time-consuming administrative expense.

Because the most common causes of consumer bankruptcy are uncontrollable, most individuals seeking bankruptcy protection are not in a position to benefit from prepetition credit counseling. All of these causes are uncontrollable, perhaps except maintenance of unsupportable homeownership. See supra Part IV.

Jefferson L. Attorneys, supra note , at 2, 5—6 The cause of the debt and its controllability shapes societal perceptions and stigma. Society is likely to view individuals perceived to be in control of their deviant behavior with antipathy. However, when society perceives an individual is disadvantaged and unable to control the stigmatized behavior, society is more likely to show a greater degree of compassion. Control over circumstances and behavior is strongly presumed throughout bankruptcy law.

BAPCPA solidified these presumptions of autonomy, as it created new provisions explicitly intended to stigmatize debtors. However, there is clearly a gap between the perception and reality of autonomy, highlighting the need for alternatives that better address the realities for chapter 7 debtors. This Part suggests an alternative conception of the individual as fundamentally vulnerable, not autonomous. On the individual level, vulnerability refers to the ever-present possibility of harm, injury or biological impairment or limitation.

Recent scholarship questions the presumption of radical individualism, rationality, and autonomy inherent in legal structures and replaces it with a presumption of vulnerability. A vulnerability presumption provides a fruitful framework upon which to ground bankruptcy, especially in relation to stigma. A vulnerability paradigm questions the radical autonomy of individuals in relation to societal and economic institutions like bankruptcy.

Presumptions about norms subconsciously shape even rational human decisions to undercut the foundational presumption of autonomy. This Part responds to the flawed presumption of autonomy by expounding an alternative legal framework based on vulnerability.

Because behavioral stigma is based on autonomous action, the efficacy of bankruptcy stigma diminishes when debtor autonomy is called into question. To analyze autonomy in bankruptcy, we must first examine what true financial autonomy would look like. This definition indicates the financially free individual is able to plan and predict and economically capable to spend or save.

While external factors always operate to affect decisions, when they prohibit individuals from being able to control their spending decisions, they are not financially free. Institutions, with greater access to knowledge of legal provisions and resources, are more likely to be able to make rational decisions than individuals, many of whom face knowledge, resource and willpower constraints on their behavior and choices.

Individual debtors, to a greater extent than corporate debtors, face clear constraints on resources, and often cannot sufficiently plan for major debts like medical costs. Attorneys, supra note , at 5—6. Professor Schneider, in his article, The Channeling Function in Family Law , explored the effect of this phenomenon on family law. Professor Schneider noted that the channeling function is in itself neutral, but can be bent to serve various purposes.

This principle is also relevant to other institutions that shape individual behavior, like bankruptcy. Under this lens, the functions BAPCPA was designed to achieve were to increase debtor stigma Dickerson, supra note , at, —92 noting that the legislative history for BAPCPA was replete with discussion of debtor morality and the lack of debtor shame, and stating that the bankruptcy process should be a difficult, stigmatizing one.

These two purposes work on an unconscious level to shape the behavior of individuals inside and outside bankruptcy. Individual debtors are internally constrained because their resources, knowledge, and willpower are limited by the realities of human embodiment. Social and economic institutions provide external constraints that operate on an unconscious level to channel behaviors into socially normative expressions.

This critique of the basically rational actor indicates a need for an alternative conception of social and economic decision-making that is based on vulnerability. Nussbaum , Sex and Social Justice 41—42 listing ten functional capabilities that democracies should protect, and make accessible to all individuals, irrespective or age and disability.

It questions the very reality of radically independent and autonomous actors in a moral, social, and economic sense. Because it is a fundamental condition of being human, arising out of embodiment, Id. Injury displaces those affected from the realm of vulnerability and into being vulnerated.

Fineman terms these the episodic periods of dependency. Vulnerability means that for humans, dependency is always a possibility. It is important to note, however, that whatever their remedial function, social institutions are incapable of completely eradicating vulnerability, as it is fundamental to humanity.

Professor Martha Fineman has examined the meaning of a change of presumption from the liberal legal subject, who is an independent, autonomous and self-sufficient actor, to a vulnerable legal subject in the context of the American statutory framework, especially in regard to equality and discrimination.

The vulnerable subject speaks directly to the liberal presumption of autonomy discussed as a foundation of bankruptcy law. Assuming a core vulnerability of legal actors Fineman notes that vulnerability extends to organizations, corporations, and states as well as individuals. In this model, vulnerability is something to fear; vulnerability is dealt with mainly by suppression, disengagement and denial. Respect for autonomy is, in large measure, a moral proxy for that individualistic ideal.

Because vulnerability is a universal and enduring aspect of the human experience, it provides a stronger basis for regulatory structures like bankruptcy than the accidental and fleeting autonomous and independent liberal subject. Third World L. The structural assumptions of autonomy seen throughout the Code hold up individualism and invulnerability as an ideal.

By assuming individualism, autonomy, and agency as ideals, the Code and its creators stigmatize those debtors who fail to live up to self-sufficient ideals that favor wage-earners. At its best, bankruptcy is a protective safety net providing resilience and relief for vulnerable individuals in financial distress. Unfortunately, the Code is foundationally based on the myth of the autonomous debtor, requiring remedial support to reclaim self-sufficiency during moments of dependency. She hypothesized that this standard leads to stigmatization of dependency as a failure of the ascendant ideal of autonomy.

This myth is the polar opposite of the assumption that vulnerability is universal. Universal vulnerability requires various types of assets to compensate and ameliorate vulnerability.

Combined, these physical, social and human assets create resilience for inherent vulnerability. Individuals have differing abilities when it comes to accessing these resiliency-producing assets, and thus, differing abilities to shield themselves from many of the most debilitating consequences of dependency. Vulnerability theory provides a better framework for understanding bankruptcy than do assumptions of autonomy. In re Zarnel , F. However, none of these major factors include intentional debtor abuse of the bankruptcy system.

Having the legal capacity to enter into contracts and file for bankruptcy does not shelter the debtor from vulnerability or endow her with absolute autonomy. Calling into question the conditions of autonomy and the controllability of financial situations requires a rethinking of bankruptcy stigma as it relates to the debtor. Legal capacity does not necessarily mean that an individual is in a position to make a choice that would result in fair financial transactions.

Furthermore, making complex financial decisions under conditions of financial pressure I d. The Code is also in a position to help debtors become resilient because it is an asset-conferring entity.

Doing so requires an alternative structure to reflect the root causes of indebtedness. Congress should identify areas that most often cause indebtedness for vulnerable individuals and create structures that better support resilience in these areas and in so doing will decrease the need for such a high volume of bankruptcy filings.

To incorporate an understanding of universal vulnerability and to counteract the myth of radical autonomy, See supra note 8—10 and accompanying text. Radical or root autonomy should be distinguished from relational autonomy.

Removing the credit counseling requirement would also help a majority of debtors, those who are not responsible for the circumstances that led to their bankruptcy. Because examining the cause of indebtedness does little to assist individuals who were surprised by uncontrollable events, the credit counseling requirement is of little use in changing debtor behavior and decreasing the number of bankruptcy filings.

Though there are other stigmatizing provisions in the Code that create administrative barriers to debtor relief, For instance, the time required between chapter 7 filings increased from six to eight years in BAPCPA. The Code needs to allow for flexibility to take into account the source of individual debt and the constraints attendant on individual decision-making, especially because constrained decision-making is the reality for most individuals filing bankruptcy.

Removing the intentionally stigma-inducing provisions in the Code is a small but crucial start to creating a Code that creates resiliency. Negotiating the fine line between protectionism and paternalism will remain a concern for all proposals concerning stigma in bankruptcy, especially considering that paternalism may perpetuate and reinforce stigma for debtors. Even while maintaining the overall structure of the Code, Congress could address needless stigma by considering changes in areas that assume radical autonomy.

By allowing greater judicial discretion in these areas, the Code would emphasize relational autonomy and the interconnectedness of individuals. Gender Soc. By paying attention to the particular needs of debtors in the midst of bankruptcy filing, the process would not presume abuse by mere income-to-debt ratio; treating cases on their individual merits will create a more personalized system that would be less stigmatizing.

Merely rolling back the stigma-promoting policies of BAPCPA will not fully address bankruptcy stigma because fundamental presumption of autonomy has always been present in bankruptcy law. It would also not address the positive function of stigma in those instances where debtors do abuse the system—such abuse could be dissuaded through social blame.

As discussed above, individuals are often in the position of needing bankruptcy relief following circumstances they could not control nor adequately plan to address. The Code does not distinguish between debtors who are in unavoidable financial situations and debtors who arguably could control their indebtedness and may be abusing the system. Because both types of debtors encounter stigma merely for filing chapter 7, stigma is not properly calibrated to deter socially unacceptable bankruptcy abuse while protecting the debtors who are not abusing the system.

For individuals without access to structures that mitigate vulnerability and provide resilience, even foreseeable events like illness can be outside their control.

One concrete example is the availability and cost of health insurance for all Americans. Individuals unable to pay for insurance, perhaps because of the high cost when not purchased through an employer and sometimes even when purchased through an employer , will face additional costs for the foreseeable event of sickness. The needs of the two types of individual debtors would be best served by filing under separate chapters of the Code. In the current Code, the stigma-inducing policies of chapter 7 apply to all debtors, even if they are only effective at channeling the behavior of those actually abusing the system.

The means test presumes abuse if income and debt thresholds are met, and credit counseling requirements suggest that better budgeting would obviate the need for bankruptcy. These policies seek to address abuse and may be effective by stigmatizing debtors who are actually abusing the bankruptcy system. However, these same policies impose unproductive and vulnerability-exacerbating stigma on debtors who are seeking relief from uncontrollable debts.

Alternative to removing the BAPCPA provisions, Congress could create a chapter that is only available to individuals whose debts are primarily the product of uncontrollable circumstances. Foreseeable circumstances like illness, job loss etc.

When there is a lack of proactive social supports to assist pre-bankruptcy and provide resilience , there should be greater reactive support in remedial structures like the Code, not greater stigma. This chapter would identify kinds of uncontrollable debt, Because foreseeable debts can lead to uncontrollable financial situations, this would also require the availability of access to physical and structural institutions that can provide resilience.

The determination of whether the debt was uncontrollable may therefore appear similar to the means test, though its purpose would be to channel debtors into a low stigma chapter if their debts were determined to be primarily uncontrollable. This chapter should be procedurally straightforward, allowing debtors to file without assistance of counsel and should discharge debts very quickly.

T imes, Mar. Similar to chapter 7, creditors or the trustee would be able to move to have the case reconsidered under a different chapter or dismissed. The Act created a repayment chapter that allowed debtors with income to repay debt in order to avoid the stigma of liquidation. Instead of distinguishing primarily based on outcome for debtors—repayment versus liquidation before discharge—this proposal would focus on the cause of debt.

Similarly, chapter 12 provides precedent for the proposed change because it distinguishes debtors based on their status as family farmers and the source of their debt.

This chapter was incorporated into the Code in to address the unique problem of debt reorganization of family farmers, not sufficiently addressed through the chapter 13 reorganization for individuals with income. While chapter 13 provided a model for the chapter 12 provisions, the two chapters are not identical; chapter 12 addresses the unique situation of an individual whose debt and income meet specific requirements, whereas chapter 13 has no such requirements.

The Code does not provide adequate relief for individuals who experience uncontrollable costly circumstances because its policies create stigma irrespective of their efficacy to modify debtor behavior. By distinguishing between debtors based on the source of their indebtedness, the Code would begin to address vulnerability by recognizing that the primary events triggering bankruptcy for many consumer debtors are uncontrollable.

It would also provide flexibility for these debtors instead of more onerous and expensive procedures. For instance, because there is little need for credit counseling when the source of the debt was uncontrollable—like medical debt—this requirement could be removed in the uncontrollable bankruptcy chapter.

On the other hand, this provision may be quite helpful for those debtors who are more directly culpable for their financial distress, and requiring it for these debtors may provide the needed remedy of greater financial education and sophistication. Post, Feb. Reconceiving vulnerability as the basic paradigm of our legal system requires a fundamental shift in the structures that provide resilience for inherent vulnerabilities.

Law functions both retrospectively and prospectively by providing remedies and channeling, respectively. State-shaped institutions like bankruptcy can function in both these capacities. The proposed new chapter would allow the Code to properly calibrate stigma and identify the other state-shaped institutions that exacerbate universal vulnerability. Structures that support resilience ahead of the crisis point of bankruptcy are necessarily external to the Code, though they would have a significant impact on outcomes in bankruptcy.

This project will take a great deal more analysis. I will mention briefly one area of particular current interest, mentioned in the introduction: medical debt. The Dodd-Frank Act was designed to mitigate the systemic risk of the collapse of significant financial institutions.

Governance and Fin. Under the same orderly liquidation provisions, the government can provide a loan to the failing financial institution, and such loan must be backed by the assets of the firm and recovered either in the resolution process itself or from the largest members of the financial industry.

Like tribal debtors, financial institutions cannot use the Bankruptcy Code as currently constituted. Yet, Congress provided tools to aid these struggling financial institutions. For a discussion as to why bankruptcy is inapt for banks, see, e.

Like territories and financial institutions, tribes are not contemplated as prospective debtors under the Bankruptcy Code. And just as Puerto Rico and many banks found themselves in situations where a debt restructuring was desirable, Indian nations and their businesses may encounter similar scenarios.

It is thus not inconceivable that Congress would enact structured debt relief for tribal entities. Instead, Congress can create specialized legislation for entities for whom use of the Code would be impractical.

This Part sketches out some key features of structured debt relief for tribal entities and flags potential issues to be resolved. Rather, what follows are guidelines as to what specialized bankruptcy relief for tribal debtors should look like. The previous Parts identified several major problems with allowing tribal debtors to use the Bankruptcy Code. Although tribal entities often engage in commerce as if they were ordinary commercial players, they simply cannot be treated like ordinary commercial debtors.

Specialized bankruptcy legislation for tribal entities would give tribal debtors and their creditors the same certainty afforded to other entities when they take out loans or otherwise engage in commerce. Bankruptcy laws for tribal debtors should provide these entities with access to the same basic tools afforded to other debtors under the Bankruptcy Code—namely, protection from creditor debt collection attempts via an automatic stay, and the means to allow tribal debtors to liquidate in the case of a tribal business entity and to adjust their debts without the full consent of all creditors.

These tools are the hallmarks of U. To achieve these goals, however, adjustments will have to be made to acknowledge the ways in which tribal debtors are uniquely situated. For example, although tribes are sovereign, tribal sovereignty is unlike the sovereignty of an independent nation, whose sovereignty cannot be abrogated by a higher power.

If bankruptcy law is to apply to tribal entities, it is important that bankruptcy not overly detract from tribal sovereignty. In this way, tribal debtors will not be forced into bankruptcy. Incorporating these elements into the legislation protects tribal sovereignty interests. In addition, these provisions may make tribes who are not involved in commerce feel more comfortable with the legislation, since they will not be forced into a bankruptcy filing or forced to comply with a plan imposed upon them.

The sovereign nature of Native American tribes suggests that a tribal bankruptcy law could also draw upon sovereign debt restructuring tools, for example by providing for the use of collective creditor action to modify the terms of a debt instrument.

Similar to what Congress did in PROMESA, tribal bankruptcy law could draw from a mixture of sovereign debt restructuring tools and domestic bankruptcy provisions that recognize that tribal debt might be hybrid in nature—a mix of ordinary commercial loans and loans and guarantees backed by the tribe itself.

Miller, supra note 16, at — Several other important features of the proposed law deserve consideration. As a starting point for addressing these issues, Congress might look at bankruptcy reorganizations for nonprofits, churches, and heavily regulated entities. For a discussion of tensions that arise in church bankruptcy cases, see David A. DIP lenders may be creditors the debtor has previously dealt with, or they may be entirely new lenders.

Regardless of their identity, DIP lenders typically exercise a substantial amount of power and influence over the debtor during the case. Indeed, many scholars have expressed concern about the outsize influence of DIP lenders.

Similarly, in the sovereign debt restructuring context, lenders who provide bailouts or other emergency funds to sovereign nations often attach stringent conditions to their loans and impose severe austerity measures.

It will be important for tribal bankruptcy legislation to provide a DIP lending structure that does not accord undue influence to DIP lenders or to the U. Alternatively, using its plenary powers, Congress could simply allow trust properties to be offered to creditors when a tribal debtor is in bankruptcy. In general, Congress should tread carefully when it comes to oversight of the debtor. As discussed, the oversight board in particular has been the subject of much criticism, as observers and critics note that it wields its power despite its members not being democratically elected.

As a measure of respect for tribal sovereignty, tribal bankruptcy legislation should break with this pattern of extreme external oversight and instead consider a more limited approach to interference with tribal affairs.

The protests in Puerto Rico and the backlash from the United Nations, described previously, should serve as cautionary tales about the perils of enacting changes without the consent of the governed.

Skeel, Reflections on Two Years of P. To ensure minimal interference with tribal affairs, Congress could draw upon chapter 9 of the Bankruptcy Code, which prohibits undue influence with municipal affairs, for inspiration. See Laura N. Recognition that tribal entities carry potentially weighty sovereignty concerns is important to avoid the knee-jerk imposition of significant external oversight.

Another key consideration will be the individual or panel running the proceedings. Entities restructuring their debts under the Bankruptcy Code do so primarily under the auspices of bankruptcy judges.

Additionally, in sovereign debt restructurings, there is a growing practice of using arbitration to resolve claims. Thus, it need not be a given that a bankruptcy judge oversee the case. Instead, the merits and drawbacks of various options, including bankruptcy and district court judges and arbitrators, should be discussed to determine the best fit.

Among other factors, expertise, the desired role for a judge or arbitrator, and the ability of the parties to play a role in choosing the judges or arbitrators may be relevant to the ultimate decision. For example, bankruptcy judges have specialized expertise in restructuring debt, something that may be valuable in the context of a potentially complex tribal case. On the other hand, giving the parties the ability to choose an arbitrator or panel of arbitrators to oversee the case may provide both specialized expertise and reassurance to tribal debtors that they will have a role in selecting their adjudicator.

There may also be efficiencies in the arbitration process that are harder to match in a more traditional courtroom setting. The process for creating this specialized tribal bankruptcy law is as important as the substance of the law itself. Although this Article has set forth recommended features, the exact contours of the legislation should be defined in consultation with the parties that the legislation is designed to impact—namely, tribes, tribal businesses, and non-tribal entities that play a significant role in tribal commerce.

A collaborative process for drafting the proposed legislation minimizes the risk of the new law being perceived as forced upon tribal entities without their input or consent. By building legislation from the ground up, Congress could accommodate the unique needs of these quasi-sovereign, heavily regulated entities—needs not currently contemplated anywhere in the Bankruptcy Code.

Creation of a new law requires significant time and effort—and complying with that new law may also require time and money.

Yet, Congress need not start completely from scratch. Legislators can and should draw upon existing bankruptcy law, tribal law, and sovereign debt restructuring practices to create structured debt relief for tribes, much in the way Congress drew from multiple restructuring techniques when it drafted PROMESA.

In addition, by putting effort in to enact a law before a crisis hits and immediate action becomes necessary, Congress can ensure that affected parties have time to react to the effects of the legislation before dire need for relief is demonstrated. Encouraging action before a crisis is one of the primary challenges in bankruptcy law. See David A.

Taylor eds. Acting now, before a wave of tribal bankruptcies creates uncertainty and instability for Indian nations and the entities that do business with them, can help ensure that when tribal debtors seek bankruptcy relief, adequate, timely relief will be available to them. In addition, Congress can avoid possible negative effects of hastily-enacted legislation. Developing unique legislation tailored to tribal debtors may work well for several additional reasons.

First, as previously discussed, reconciling the Bankruptcy Code with other laws governing tribes would be a complex and difficult task. As complex and difficult as enacting new legislation would be, a specialized bankruptcy law would likely be a better fit given potential multiple layers of debt for tribal entities.

Further, as discussed, merely amending the Bankruptcy Code to make tribal debtors eligible for bankruptcy would not resolve the numerous conflicts with the IGRA, tribal law and customs, and other federal laws and policies applicable to tribes. Yet, observers have expressed concern that Congress, in imposing extensive external oversight as a condition of debt relief, has gone a step too far.

Seeking input from critical potential players in a tribal bankruptcy may help address this concern in the context of a tribal bankruptcy law. Notably, involving Indian nations in the deliberative process may help tribal entities accept the new law and be more willing to use it in times of distress.

Jacoby, Corporate Bankruptcy Hybridity , U. Specialized bankruptcy legislation for tribal entities comes with its share of trade-offs. Yet, if tribal entities are to have access to structured debt relief, the process of providing that relief will be a difficult one no matter the route that is taken. Amending the Bankruptcy Code to accommodate tribal debtors would require sorting out and resolving the various conflicts between the Code and other laws and policies that apply to tribes.

By contrast, creating new legislation allows Congress to avoid conflicts at the outset and signals that tribal entities are distinct, in many ways, from other debtors. Although creating and implementing a new system is costly, leaving tribal debtors to navigate an ill-fitting bankruptcy system imposes its own significant costs. In the long run, having a system that works for tribal debtors and that addresses the concerns and needs of those affected will ideally provide more efficient results than the status quo.

Furthermore, in Hanover National Bank v. Moyses , the Supreme Court stated that laws passed on the subject of bankruptcy must be uniform throughout the United States, but that uniformity is geographical rather than personal. Bank v. Moyses, U. This means that the general operation of bankruptcy law must be uniform even though it may result in particular differences in different states. Thus, while diversity in local law inevitably produces non-uniform results in bankruptcy cases in different states, this outcome does not contravene the uniformity requirement.

Aspen Legal arguments notwithstanding, uniformity is also valuable from a policy perspective. Generally applicable laws, whereby debtors and creditors receive the same treatment, create predictability and certainty and contribute to a perception of overall fairness in the bankruptcy system.

Special legislation, as suggested above for tribal debtors, pushes against the policy benefits of uniformity.

In the context of tribal entities, however, uniformity with other types of debtors seems inapt. As discussed above, tribes are sovereign entities that seem to fall outside of the scope of the Bankruptcy Code. In addition, Article I, Section 8 of the U. This indicates that Indian nations were and should be considered separate from the federal government, the states, and foreign nations—they are, essentially, in a class by themselves. Indeed, as Part I illustrates, tribal entities are often given special treatment outside of the bankruptcy context to encourage business development.

This warrants separate legislation—legislation that would apply uniformly to Indian nations as a class of debtor. If Congress does not act pursuant to its Bankruptcy Clause authority, it could perhaps draw upon other sources of authority to enact the proposed legislation. The Plenary Power Doctrine gives Congress ultimate authority with regard to matters affecting Indian tribes.

New Mexico, U. Lara, U. Hitchcock, U. This in turn implies the necessary legislative and executive authorities to effectuate that duty. Labor Exec. Gibbons, U. Accordingly, any bankruptcy-related law that Congress enacts should deal only with situations in which debt problems extend beyond the tribe itself.

Thus, it is likely that Congress has the authority to enact specialized bankruptcy legislation for tribal entities, given their unique status under U. Separate, specialized legislation for tribes would not impact the uniformity requirement because the same law would be applied equally to all tribal entities. Legal Hist. It is also important to recognize that tribes and tribal businesses are distinct, not just from non-tribal entities, but from each other.

The collaborative process this Article proposes for creating the legislation should seek input from a wide range of tribal entities and creditors, as well as experts, legislators, and other policymakers. But involving so many entities in the creation of legislation risks fostering disagreement that could slow down or halt the process.

C, supra. Some amount of compromise will be inevitable in this process, but a collaborative product will help to ensure that tribal entities are not coerced into becoming debtors in a system they do not want or need. Allowing the parties affected by the legislation to have a say in the drafting process, while democratic, may have other significant downsides.

Despite these potential drawbacks, history has demonstrated that it is possible for a collaborative, inclusive drafting process to achieve satisfactory results. The Bankruptcy Code itself is the result of an extensive, collaborative effort involving multiple parties with diverse viewpoints. Mann , Bankruptcy And The U. Although the resulting legislation was not perfect, it received substantial support on both sides of the political aisle.

Myers, Letter to Rep. Whether through the development of a coalition interested in bankruptcy issues for tribal debtors, or through some other means, it is possible for the pitfalls of the drafting process to be minimized.

There may be also concerns that treating tribal debtors differently may disadvantage Indian nations and their citizens by subjecting them to different standards than non-tribal entities. These concerns have arisen in other contexts where special legislation has been passed that uniquely applies to tribes. Critics of the ICWA have asserted that it violates the equal protection rights of parents of Indian children by treating them differently from other parents.

Experience with the ICWA thus demonstrates both the benefits of special legislation in the sense that it can address unique needs and situations, as well as the drawbacks, in the sense that the effects of different treatment may bring disadvantages. For this reason, care should be taken to ensure, as much as possible, that bankruptcy legislation for tribes does not result in inherently unequal treatment or put Indian nations, their citizens, or their creditors at a disadvantage solely because of the fact that the debtor is a tribal entity.

Involving tribal entities, creditors, and other representatives in the drafting process, as described above, and ensuring that drafters are given the time necessary to solicit feedback and input on the legislation will be critical to ensuring that the proposed legislation does not have overly adverse results. Ultimately, this proposal does treat tribal entities differently than other debtors.

However, as described in Part I, tribal entities are given different treatment in nearly every other commercial respect, and there is a long history in U. Mancari, U. District Court of Sixteenth Jud. Of Mont. Antelope, U. More specifically, the fact that a tribal debtor experiences financial distress—even the same type of distress as a non-tribal debtor—does not mean that tribal debtors should be expected to conform to the same bankruptcy laws as non-tribal entities when those bankruptcy laws are an ill fit.

In recent years, Congress has taken the unusual step of creating bankruptcy-like laws tailored to address the unique, complex difficulties of special types of prospective debtors. This Article suggests that Congress could do the same for Native American tribal entities, which are distinctly situated and have effectively been barred from traditional bankruptcy relief.

This Article thus reinforces the notion that, in certain circumstances, access to key debt restructuring tools does not have to come through the Bankruptcy Code itself. If Congress provides tribal entities with their own debt restructuring legislation, it could represent a broadening of U. Gox, a bitcoin exchange, filed for bankruptcy in Japan in For other examples of new debtor types, including high-technology companies and organizations that exist entirely online, as well as a discussion of the difficulty of the Code accommodating these entities, see Laura N.

Seen in this light, the Bankruptcy Code is not a static set of tools but rather a launching pad for new ideas. Although this Article does not seek to resolve these issues in a conclusory fashion, it does shed some light on their answers. When an entity, be it an Indian tribe, a bank, or a U. If there are ways to replicate the pattern of providing tailored bankruptcy relief to nontraditional debtor entities, there are likely many prospective debtors that would benefit.

Toggle navigation Navigation. Learn More. Learn more. Emory Bankruptcy Developments Journal. Download as PDF. Abstract Native American tribes and tribal businesses play an important role in U. Introduction In a crisis, uncertainty is dangerous and terrifying. Yet other bankruptcy decisions have held that a conversion of nonexempt property to exempt property for the purpose of placing such property out of reach of creditors will not alone deprive the debtor of the exemption see, e.

Exemption is an integral part of bankruptcy law but a difficult area to navigate. Courts and legislatures must constantly determine whether exemptions constitute fair and just vehicles by which debtors can achieve a fresh start without getting a head start at the expense of creditors.

Unfortunately for attorneys, debtors, creditors, and trustees, the laws regarding exemptions are inconsistent. Attempting to maximize the benefits granted by bankruptcy exemptions can be more of a gamble than a science. Epstein, David G. Bankruptcy and Related Law in a Nutshell. Paul, Minn. When the debtor is an individual, once the liquidation and distribution are complete, the bankruptcy court may discharge any remaining debt. When the debtor is a corporation, upon liquidation and distribution, the corporation becomes defunct.

Remaining corporate debts are not formally discharged, as they are with individuals. Instead, creditors face the impossibility of pursuing debts against a corporation that no longer exists, making formal discharge unnecessary. Rehabilitation, or reorganization, of debt is an option that courts usually favor because it provides creditors with a better opportunity to recoup what is owed to them.

Rehabilitative bankruptcies are governed most often by chapter 11 or chapter 13 of the Bankruptcy Code. Chapter 11 typically applies to individuals with excessive or complex debts, or to large commercial entities such as corporations. Chapter 13 typically applies to individual consumers with smaller debts. Unlike liquidation, rehabilitation provides the debtor with an opportunity to retain nonexempt assets. In return, the debtor must agree to pay debts in strict accordance with a Reorganization Plan approved by the bankruptcy court.

During this repayment period, creditors are unable to pursue debts beyond the provisions of the reorganization plan. This gives the debtor the chance to restructure affairs in the effort to meet financial obligations. To be eligible for rehabilitative bankruptcy, the debtor must have sufficient income to make a reorganization plan feasible. If the debtor fails to comply with the reorganization plan, the bankruptcy court may order liquidation.

A debtor who successfully completes the reorganization plan is entitled to a discharge of remaining debts. In keeping with the general preference for bankruptcy rehabilitation rather than liquidation, the goal of this policy is to reward the conscientious debtor who works to help creditors by resolving his or her debts. Farmers and municipalities may seek reorganization through the Bankruptcy Code's special chapters.

Chapter 12 assists debt-ridden family farmers, who also may be entitled to relief under chapters 11 or When a local government seeks bankruptcy protection, it must turn to the debt reorganization provisions of chapter 9.

Orange County Bankruptcy and Chapter 9 Seldom used, chapter 9 attained notoriety in late following the bankruptcy of Orange County, California, the largest municipal bankruptcy in history.

A county of 2. The problem was made worse because the county had borrowed the money it was investing. When interest rates began to climb in , Orange County's leveraged investments drained the investment fund's value, prompting lenders to require additional collateral. The only way to raise the collateral was to sell the investments at the worst possible time.

After consulting with finance experts and reviewing alternatives, county officials filed for chapter 9 protection on December 6, Residents of the affluent county faced immediate repercussions. Close to 10 percent of the fifteen thousand Orange County employees lost their jobs. School budgets were slashed, infrastructure improvements were put on hold, and experts predicted that property values in Orange County would decline. Legal fees involved in a bankruptcy of this complexity are extensive, and officials did not expect Orange County to emerge from bankruptcy for several years.

Critics of current bankruptcy law argue that irresponsible debtors too frequently receive protection at the expense of noncreditors, such as the residents of Orange County. Victims who allege corporate Negligence and sue for injuries from dangerous products also become unwilling creditors when a corporation files for bankruptcy. But negligent or not, corporations battling multiple lawsuits often rely on the traditional rationale supporting bankruptcy: that it offers an opportunity to pay debts that otherwise might go unpaid.

Dow Corning Corporation and Chapter 11 Dow Corning Corporation was a major manufacturer of silicone breast implants used in reconstructive and plastic surgeries. In , after receiving thousands of complaints of health problems from women with silicone implants, the U. Food and Drug Administration banned the devices from widespread use. Women who had obtained the silicone implants in breast reconstruction or breast enlargement surgeries complained that the implants leaked, causing a variety of adverse conditions such as crippling pain, memory loss, lupus, and connective tissue disease.

Dow Corning soon became a defendant in a worldwide product liability class action suit as well as at least nineteen thousand individual lawsuits. The bankruptcy move halted new lawsuits and enabled the company to consolidate existing claims while preserving business operations. As a result of the filing, Dow Corning stalled its obligation to contribute to the settlement fund.

The Dow Corning strategy was similar to that employed in the mid—s by A. Like Dow Corning, A. Robins faced financial ruin owing to thousands of product liability lawsuits filed at the same time. Also like Dow Corning, A. Robins sought relief under chapter 11 of the Bankruptcy Code, which allowed the company time to formulate a plan to pay the many outstanding claims.

A reorganization plan approved by the courts involved the merger of A. Robins Co. On May 22, , Dow Corning filed a request to stay all litigation against its parent companies, Dow Chemical Company and Corning Incorporated, so that company lawyers could concentrate on the bankruptcy reorganization.

That move further threatened the chance of recovery for the plaintiffs seeking compensation for injury. Congress passed the law to help farmers attain a financial fresh start through reorganization rather than liquidation. Before chapter 12's existence, family farmers found it difficult to meet the prerequisites of bankruptcy reorganization under chapters 11 or 13, often because they were unable to demonstrate sufficient income to make a reorganization plan feasible.

Chapter 12 eased some requirements for qualifying farmers. Congress created chapter 12 as an experiment, and scheduled its automatic repeal for Determining that additional time was necessary to evaluate the effectiveness of the law, Congress in voted to extend it until It was either extended or allowed to expire—then restored—eight times between November and January 1, , when it expired again. Regardless of the type of bankruptcy and the parties involved, basic key jurisdictional and procedural issues affect every bankruptcy case.

Procedural uniformity makes bankruptcies more consistent, predictable, efficient, and fair. Judges and Trustees Pursuant to federal statute, U. Courts of Appeals appoint bankruptcy judges to preside over bankruptcy cases 28 U.

Bankruptcy judges make up a unit of the federal district courts called bankruptcy court. Actual jurisdiction over bankruptcy matters lies with the district court judges, who then refer the matters to the bankruptcy court unit and to the bankruptcy judges. A trustee is appointed to conduct an impartial administration of the bankrupt's nonexempt assets, known as the bankruptcy estate. The trustee represents the bankruptcy estate, which upon the filing of bankruptcy becomes a legal entity separate from the debtor.

The trustee may sue or be sued on behalf of the estate. Other trustee powers vary depending on the type of bankruptcy, and can include challenging transfers of estate assets, selling or liquidating assets, objecting to the claims of creditors, and objecting to the discharge of debts. All bankruptcy cases except chapter 11 cases require trustees, who are most commonly private citizens elected by creditors or appointed by the U.

The office of the U. The U. Attorney General appoints a U. It is the job of the U. Procedures Today, debtors file the vast majority of bankruptcy cases. A bankruptcy filing by a debtor is known as voluntary bankruptcy. The mere filing of a voluntary petition for bankruptcy operates as a judicial order for relief, and allows the debtor immediate protection from creditors without the necessity of a hearing or other formal adjudication.

Chapters 7 and 11 of the Bankruptcy Code allow creditors the option of filing for relief against the debtor, also known as involuntary bankruptcy. The law requires that before a debtor can be subjected to involuntary bankruptcy, there must be a minimum number of creditors or a minimum amount of debt. Further protecting the debtor is the right to file a response, or answer, to the allegations in the creditors' petition for involuntary bankruptcy.

Unlike voluntary bankruptcies, which allow relief immediately upon the filing of the petition, involuntary bankruptcies do not provide creditors with relief until the debtor has had an opportunity to respond and the court has determined that relief is appropriate. When the debtor timely responds to an involuntary bankruptcy filing, the court will grant relief to the creditors and formally place the debtor in bankruptcy only under certain circumstances, such as when the debtor generally is failing to pay debts on time.

When, after litigation, the court dismisses an involuntary bankruptcy filing, it may order the creditors to pay the debtor's attorney fees, Compensatory Damages for loss of property or loss of business, or Punitive Damages. This reduces the likelihood that creditors will file involuntary bankruptcy petitions frivolously or abusively. One of the most important rights that a debtor in bankruptcy receives is called the automatic stay.

The automatic stay essentially freezes all debt-collection activity, forcing creditors and other interested parties to wait for the bankruptcy court to resolve the case equitably and evenhandedly. The relief is automatic, taking effect as soon as a party files a bankruptcy petition.

In a voluntary chapter 7 case, the automatic stay gives the trustee time to collect, and then distribute to creditors, property in the bankruptcy estate. In voluntary chapter 11 and chapter 13 cases, the automatic stay gives the debtor time to establish a plan of financial reorganization.

In involuntary bankruptcy cases, the automatic stay gives the debtor time to respond to the petition. The automatic stay terminates once the bankruptcy court dismisses, discharges, or otherwise terminates the bankruptcy case, but a party in interest a party with a valid claim against the bankruptcy estate may petition the court for relief from the automatic stay by showing good cause. The Bankruptcy Code allows bankruptcy judges to dismiss bankruptcy cases when certain conditions exist.

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