Article 1, Section 8, Clause 4 — Constitutional Limits On Bankruptcy Power

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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 exercising its bankruptcy powers, Congress is subject to certain constitutional limitations. ( “The bankruptcy power, like the other great substantive powers of Congress, is subject to the Fifth Amendment.” ); see also Northern Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 72–73 (1982) (plurality) (explaining that when the requirements of Article III of the Constitution are applicable, Congress’s Article I legislative powers—including the Bankruptcy Clause—are controlled by Article III). ") Congress may not circumscribe the creditor’s right in property to such an unreasonable extent as to deny him due process of law or effect an unconstitutional taking. ; see Wright v. Union Cent. Life Ins. Co., 304 U.S. 502, 518 (1938). ") Congress may impair the obligation of a contract or extend a federal bankruptcy law to contracts already entered into at the time Congress passed the law. 277 (1843); Hanover National Bank v. Moyses, 186 U.S. 181, 188 (1902). For information on the Contract Clause, U.S. Const. art. I, § 10, cl. 1, see . ") In 1935, the Court held that, under the Tenth Amendment , Congress was unable to subject the fiscal affairs of a political subdivision of a state to a federal bankruptcy court’s control.. ") A year later, however, the Court held that Congress may empower federal bankruptcy courts to entertain petitions by taxing agencies or instrumentalities for a composition of their indebtedness when 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. ; see Puerto Rico v. Franklin Cal. Tax-Free Trust, 579 U.S. 115, 122 (2016) ( “Critical to the Court’s constitutional analysis [in Bekins] was that the State had first authorized its instrumentality to seek relief under the federal bankruptcy laws.” ). ")

The Bankruptcy Clause provides that Congress may enact “uniform” bankruptcy laws. (emphasis added); see Perez v. Campbell, 402 U.S. 637, 656 (1971) (explaining that “to legislate in such a way that a discharge in bankruptcy means one thing in the District of Columbia and something else in the States—depending on state law—[would be to reach] a result explicitly prohibited by the uniformity requirement in the constitutional authorization to Congress to enact bankruptcy legislation” ). ") However, the Court has explained that the uniformity required is geographic, not personal.. “Personal uniformity” is the principle—rejected by the Supreme Court— “that the bankruptcy laws should apply identically to individual debtors, regardless of the state or locality in which the debtor resides.” Schultz v. United States, 529 F.3d 343, 350–51 (6th Cir. 2008). ") Thus, Congress may recognize state laws relating to dower, exemptions, the validity of mortgages, priorities of payment, and similar matters, even though such recognition leads to different results from state to state. ; Hanover National Bank, 186 U.S. at 190 ; see Wright v. Vinton Branch of Mountain Trust Bank of Roanoke, Va., 300 U.S. 440, 463 n.7 (1937) ( “The problem dealt with may present significant variations in different parts of the country.” ). ") And the Court has declared that the uniformity requirement “does not deny Congress power to take into account differences that exist between different parts of the country, and to fashion legislation to resolve geographically isolated problems.” , 419 U.S. 102, 159 (1974). ") Thus, in the Regional Rail Reorganization Act Cases, the Court denied a uniformity challenge to a railroad reorganization law that applied to railroads in one particular geographic region, because no other railroads were under reorganization at the time., 419 U.S. 102 (1974)">Id. at 159–61. ") However, in Railway Labor Executives’ Association v. Gibbons, the Court held that a railroad reorganization law that applied to only one railroad was unconstitutional where there were other railroads engaged in reorganizations that were not subject to the law.">Id. at 470; cf. Warren v. Palmer, 310 U.S. 132, 137 (1940) ( “Railroad reorganization in bankruptcy is a field completely within the ambit of the bankruptcy powers of Congress.” ) ") The Court has also held that, while a disparity between the fees charged to debtors under the U.S. Trustee Program and the Bankruptcy Administrator violates the uniformity requirement of the Bankruptcy Clause, (holding that the Bankruptcy Judgeship Act of 2017 violated the constitutional requirement of uniformity by allowing the UST and BA jurisdictions to implement the new fees differently). ") parity of the fees on a prospective basis is an appropriate remedy.. ")

Article III of the U.S. Constitution contains relevant limits on Congress’s exercise of the bankruptcy power. The Supreme Court has considered Congress’s power to vest the adjudication of claims in non-Article III bankruptcy courts in several decisions. In Northern Pipeline Construction Co. v. Marathon Pipe Line Co.,. ") the Court invalidated portions of the Bankruptcy Reform Act of 1978 that impermissibly empowered non-Article III bankruptcy courts with “jurisdiction over all ‘civil proceedings arising under [the Bankruptcy Code] or arising in or related to cases under [the Bankruptcy Code],’” such as state law breach of contract claims and other claims unrelated to “the restructuring of debtor-creditor relations.” ">Id. at 59, 71, 87 (plurality) (quoting 28 U.S.C. § 1471(b) (repealed) (emphasis omitted)); see id. at 91–92 (Rehnquist, J. concurring in the judgment). The plurality referred to the alteration of debtor-creditor relationships as “the core of the federal bankruptcy power.” Id. at 71 (plurality). ") Later, in Stern v. Marshall,. ") the Court held a provision of the Bankruptcy Amendments and Federal Judgeship Act of 1984. ") unconstitutional for authorizing bankruptcy courts to enter final judgments on certain actions whose existence are not attributable to bankruptcy proceedings—such as tortious interference counterclaims against creditors—but which are merely intended to “augment the bankruptcy estate.” "> 564 U.S. at 495, 503. …