Bankruptcy

Bankruptcy protects you against claims and actions by States

By David Leibowitz, Illinois and Wisconsin Bankruptcy

Bankruptcy is fundamental to American life. ?If you have any doubt, look at the Constitution. ?Congress has the exclusive right to regulate Immigration and Bankruptcy. ?It’s right there in Article I, Section 8, clause 4.

It’s kind of ironic that two of todays biggest issues are jammed together in one sentence of the Constitution.

Think back to 1789. ?We were a nation of immigrants. ?Except for the native Americans, everyone was an immigrant. ?It would make no sense for each State to regulate immigration separately. Not only that, we were a nation of debtors. ?Many people came to America to avoid debtors’ prison. James Oglethorpe founded Georgia in reaction to the excesses of English debtor’s prisons. ?Our country’s finances were weak. We had to borrow a lot of money to fund the Revolutionary War. ?Our dollar was in the tank. People said that things were “not worth a Continental” to say how little value they had. ?The Continental Dollar was very weak. ?Bankruptcy was a crazy quilt of state court insolvency regimes. ?We needed one bankruptcy regime run at the federal level. Alexander Hamilton argued for this and he was the founder of the forerunner to the Federal Reserve Bank.

What does this all have to do with Bankruptcy today? ?Remember the 11th amendment reserved all rights not given to the United States government to each of the states individually. ?But the Bankruptcy Clause gave to the United States the exclusive right to deal with bankruptcy.

Our Bankruptcy Code specifically says that the doctrine of “sovereign immunity” or states rights does not apply when it comes to the most important provisions of the Bankruptcy Code. ?A state can be sued for a preferential transfer. ?It can be forced to give you back your drivers’ license or any other license if you lost it as a result of a bankruptcy case. Your state job can’t be taken away if you filed a bankruptcy. ?And the list of protections goes on and on.

As the Supreme Court put it, this was the “Plan of the Convention” referring to the Constitutional Convention. ?At Lakelaw, we won a case for one of our clients who was forbidden to get a drivers license because his company could not pay a few hunderd dollars for license plates for its trucks when the bank bounced its checks. ?The bank repossessed the trucks. ?Never did use the license plates. Yet the State of Illinois forbade our debtor from driving for over 3 years until Lakelaw won the case. ?Click here to read this decision, Slayton v. White.

Don’t be afraid of the State if you are in financial difficulty. Bankruptcy, by the Plan of the Convention, is bigger and tougher than your State.

Full post as published by Bankruptcy Law Network on January 25, 2010 (boomark / email).