ArtI.S8.C4.3.3 Constitutional Limitations on the Bankruptcy Power

Article I, Section 8, Clause 4:

[The Congress shall have Power . . .] To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States; . . .

In the exercise of its bankruptcy powers, Congress must not transgress the Fifth and Tenth Amendments. The Bankruptcy Act provides that use immunity may be granted for persons required to submit to examination, to testify, or to provide information in a bankruptcy case. 1 Congress may not take from a creditor specific property previously acquired from a debtor, nor circumscribe the creditor's right to such an unreasonable extent as to deny him due process of law; 2 this principle, however, is subject to the Supreme Court's finding that a bankruptcy court has summary jurisdiction for ordering the surrender of voidable preferences when the trustee successfully counterclaims to a claim filed by the creditor receiving such preferences. 3

Because Congress may not supersede the power of a state to determine how a corporation shall be formed, supervised, and dissolved, a corporation that has been dissolved by a decree of a state court may not file a petition for reorganization under the Bankruptcy Act. 4 But Congress may impair the obligation of a contract and may extend the provisions of the bankruptcy laws to contracts already entered into at the time of their passage. 5 Although it may not subject the fiscal affairs of a political subdivision of a state to the control of a federal bankruptcy court, 6 Congress may empower such courts to entertain petitions by taxing agencies or instrumentalities for a composition of their indebtedness where the state has consented to the proceeding and the federal court is not authorized to interfere with the fiscal or governmental affairs of such petitioners. 7 Congress may recognize the laws of the state relating to dower, exemption, the validity of mortgages, priorities of payment and similar matters, even though such recognition leads to different results from state to state; 8 for, although bankruptcy legislation must be uniform, the uniformity required is geographic, not personal.

The power of Congress to vest the adjudication of bankruptcy claims in entities not having the constitutional status of Article III federal courts is unsettled. At least, it may not give to non-Article III courts the authority to hear state law claims made subject to federal jurisdiction only because of their relevance to a bankruptcy proceeding. 9

Footnotes

  1.  Jump to essay-111 U.S.C. § 344.
  2.  Jump to essay-2Louisville Bank v. Radford, 295 U.S. 555, 589, 602 (1935).
  3.  Jump to essay-3Katchen v. Landy, 382 U.S. 323, 327-40 (1966).
  4.  Jump to essay-4Chicago Title and Trust Co. v. Wilcox Bldg. Corp., 302 U.S. 120 (1937).
  5.  Jump to essay-5In re Klein, 42 U.S. (1 How.) 277 (1843); Hanover National Bank v. Moyses, 186 U.S. 181 (1902).
  6.  Jump to essay-6Ashton v. Cameron County Dist., 298 U.S. 513 (1936). See also United States v. Bekins, 304 U.S. 27 (1938).
  7.  Jump to essay-7United States v. Bekins, 304 U.S. 27 (1938).
  8.  Jump to essay-8Stellwagon v. Clum, 245 U.S. 605 (1918); Hanover National Bank v. Moyses, 186 U.S. 181, 190 (1902).
  9.  Jump to essay-9Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982). See also Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (Seventh Amendment right to jury trial in bankruptcy cases).