Constitutional Limitations on the Bankruptcy Power

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.1442 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;1443 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.1444

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.1445 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.1446 Although it may not subject the fiscal affairs of a political subdivision of a state to the control of a federal bankruptcy court,1447 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.1448 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;1449 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.1450

Footnotes

1442
11 U.S.C. § 344. [Back to text]
1443
Louisville Bank v. Radford, 295 U.S. 555, 589, 602 (1935). [Back to text]
1444
Katchen v. Landy, 382 U.S. 323, 327–40 (1966). [Back to text]
1445
Chicago Title and Trust Co. v. Wilcox Bldg. Corp., 302 U.S. 120 (1937). [Back to text]
1446
In re Klein, 42 U.S. (1 How.) 277 (1843); Hanover National Bank v. Moyses, 186 U.S. 181 (1902). [Back to text]
1447
Ashton v. Cameron County Dist., 298 U.S. 513 (1936). See also United States v. Bekins, 304 U.S. 27 (1938). [Back to text]
1448
United States v. Bekins, 304 U.S. 27 (1938). [Back to text]
1449
Stellwagon v. Clum, 245 U.S. 605 (1918); Hanover National Bank v. Moyses, 186 U.S. 181, 190 (1902). [Back to text]
1450
Northern 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). [Back to text]