The Enumerated Powers Series: Bankruptcy

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"...To establish...uniform Laws on the subject of Bankruptcies throughout the United States". Article 1, Section 8, Clause 4B

There’s something so tangibly relatable about this legislative bankruptcy power. How many people don’t know what it’s like to be in debt or owe somebody something? It’s one of those parts of life–that most Americans at least–are far too familiar with.

Being in debt to someone is not a new thing… what is a relatively new “thing” though is not having to go to prison for being in debt and being unable to pay off that debt.

Look through Western European history and you’ll see a slew of examples of people rotting away in debtor’s prison for debts they couldn’t pay. Read Charles Dickens’ Little Dorritt for a sad narrative of life as a debtor in England.

Which leads to the age old question: how should someone be punished for failing to pay a debt they owe?

Further, who should do the punishing?

roll of american dollar banknotes tightened with band

Naturally, if someone loans money or property or whatever it may be to another based on the promise of future repayment (usually with interest), it’s not cruel, undesired or unwarranted to require some sort of punishment should the debtor never repay the creditor. If there were no consequences for financial delinquency, there would be unfettered financial delinquency.

However, in the same vain, it’s a little absurd to imprison someone from being unable to repay a loan. How then can the debtor ever pay off the debt?

So, while debtor’s prison was a common thing in Europe and a few other countries for centuries, it has become almost obsolete in modern times.

The framers of the U.S. Constitution were well aware of the problems facing debtors in Europe, as well as in America–the idea of debtor’s prisons rolled over into America from Europe.

Therefore, they empowered Congress to write laws that can protect debtors from creditors, while also protecting creditors from delinquent debtors. In other words, Congress possesses the power to write laws about how the federal government ought to handle bankruptcy–the inability of a debtor to pay off his debts.

The underlying principle behind this power was simple: in the United States, you should be free to fail and claw your way back out of failure, rather than go to debtors prison.

Thus, in order for citizens to have the ability to fail and try again, Congress would need to make sure that bankruptcy laws were and are fairly and uniformly applied throughout the United States. If bankruptcy laws were left exclusively to the state governments to write, there would be no uniformity and debtors may end up being grossly mistreated and unprotected in one state compared to another. Further, if Congress is to be adequately equipped to regulate interstate commerce, possessing the ability to regulate bankruptcies was a given.

The very concept of bankruptcy is built on the assumption that the debtor should be able to face his or her creditors with some governmental protections. Since the founders believed these protections ought to be equal protections no matter what state the citizen would be in, they decided to make sure the protections would be federal protections. In other words, when dealing with bankruptcy law in the United States, this means the citizen is dealing with federal law, usually in a federal district court.

It wasn’t until 1833 that Congress used their power to write a law eliminating the practice of imprisonment for unpaid debts in the United States. Most states followed suit.

However, there is still much debate surrounding the powers that states have over debtors and creditors vs how much power the federal government has. And while imprisonment for failing to pay off private debt is all but obsolete in America, imprisonment for failing to pay off court debt or legal fees is actually increasing in the United States, via a slew of every growing state and local laws that state and local government’s are using to pay out their ever increasing debts.

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I’m going to have to devote an entirely separate post to this topic since it’s rich with controversy and content, but, in the mean time, do your own research about the punishments that exist for failure to pay legal fees or respond to a court order to pay legal fees. There is an ever growing number of incarcerated Americans who are incarcerated simply because they didn’t have the financial means to pay off a city tax, fine or court fee.

This topic is far richer than I’d ever have imagined and I’m just starting to scratch the surface.

The Liberty belle

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