ArtI.S8.C4.2.3 Scope of Federal Bankruptcy Clause

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 an 1817 opinion issued while riding circuit, Justice Henry Livingston suggested that because the English statutes on the subject of bankruptcy from the time of Henry VIII down had applied only to traders, it might “well be doubted, whether an act of Congress subjecting to such a law every description of persons within the United States, would comport with the spirit of the powers vested in them in relation to this subject.” 1 Neither Congress nor the Supreme Court has ever accepted this limited view. The first bankruptcy law, passed in 1800, departed from the English practice by including bankers, brokers, factors, and underwriters as well as traders.2 Justice Joseph Story argued that the narrow scope of the English bankruptcy statutes merely reflected Parliament’s policy judgment about how far bankruptcy relief should extend, but that this policy judgment was not an immutable part of the nature of bankruptcy laws.3 Justice Story defined bankruptcy legislation, in a constitutional sense, as lawmaking provisions for persons who failed to pay their debts.4

This interpretation has been ratified by the Supreme Court. In Hanover National Bank v. Moyses,5 the Court upheld the Bankruptcy Act of 1898,6 which provided that persons other than traders might become bankrupts and that this might be done on voluntary petition.7 Over the years, the Court has given tacit approval to extending bankruptcy laws to cover a variety of classes of persons and corporations,8 including municipal corporations9 and wage-earning individuals.10 In its 1935 decision in Continental Illinois National Bank & Trust Co. v. Chicago, Rock Island & Pacific Ry.,11 the Court wrote that “as far reaching” as the federal bankruptcy laws up to that point had been, they “have not gone beyond the limit of Congressional power; but rather have constituted extensions into a field whose boundaries may not yet be fully revealed.” 12

Congress repealed and replaced the 1898 act with the Bankruptcy Reform Act of 1978.13 The 1978 act, as amended, is the current national bankruptcy law. It is commonly referred to as the Bankruptcy Code.

Adams v. Storey, 1 F. Cas. 141, 142 (C.C.D.N.Y. 1817). back
Act of April 4, 1800, ch. 19, 2 Stat. 19 (1800) (repealed 1803). back
2 Joseph Story, Commentaries on the Constitution of the United States § 1113 (1833). back
Id. back
186 U.S. 181 (1902). back
Act of July 1, 1898, ch. 541, 30 Stat. 544 (repealed 1978). back
Hanover Nat’l Bank v. Moyses, 186 U.S. 181, 187 (1902). back
Continental Bank v. Rock Island Ry., 294 U.S. 648, 670 (1935) back
United States v. Bekins, 304 U.S. 27 (1938). back
See Perry v. Commerce Loan Co., 383 U.S. 392, 394–95 (1966). back
294 U.S. 648 (1935). back
Id. at 671. The Court has emphasized the breadth of Congress’s bankruptcy power by acknowledging that the Constitution’s framers “understood that laws ‘on the subject of Bankruptcies’ included laws providing, in certain limited respects, for more than simple adjudications of rights in the res,” such as those granting courts “the power to issue ancillary orders enforcing their in rem adjudications.” Cent. Va. Cmty. College v. Katz, 546 U.S. 356, 370 (2006); cf. Thomas E. Plank, The Constitutional Limits of Bankruptcy, 63 Tenn. L. Rev. 487, 499 (1996) (writing that the development of federal bankruptcy laws led “courts and scholars [to conclude] that the boundaries of the Bankruptcy Clause are constantly expanding to meet the new demands and forms of commercial and business development” ). back
Pub. L. 95-598, 92 Stat. 2549 (Nov. 6, 1978) (codified at 11 U.S.C. §§ 101 et seq.). back