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The Bankruptcy Clause, the Fifth Amendment, and the Limited Rights of Secured Creditors in Bankruptcy

By Charles J. Tabb, University of Illinois College of Law

2005-tabb The received wisdom in bankruptcy jurisprudence is that the Fifth Amendment Takings Clause independently limits the exercise of the bankruptcy power under the Bankruptcy Clause. Accordingly, secured creditors in bankruptcy are assumed to enjoy a constitutional right to receive the full value of their collateral in the bankruptcy case.

The thesis of this article is that the received wisdom is wrong. Professor Tabb argues that the Takings Clause of the Fifth Amendment does not and should not constrain the powers of Congress to modify the substantive rights of secured creditors under the Bankruptcy Clause. Instead, the only meaningful limits on the modification of substantive rights of stakeholders pursuant to the bankruptcy power are those that inhere in the Bankruptcy Clause itself.

The Bankruptcy Clause has only two limitations, both of which are extremely easy to satisfy regarding the treatment of secured creditors: that the law be “uniform,” and “on the subject of bankruptcies.”

The article first explains why it matters whether we continue to subscribe to the received wisdom that the Takings Clause limits what can be done to secured creditors in bankruptcy. Then it examines in considerable detail the historical evolution of bankruptcy jurisprudence in this area. Finally, the article assesses how we might best strike a prudential and meaningful constitutional balance.

To read the full article, click here.

Written by:
Editor
Published on:
February 17, 2015

Categories: Bankruptcy Administration and JurisdictionTags: Charles Tabb

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