Article 1, Section 8, Clause 4 — Expansion Of The Scope Of 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; . . .

Through the years, Congress has expanded the coverage of the bankruptcy laws. As a result, the scope of statutory relief afforded debtors and the rights of creditors have been correspondingly adjusted. The act of 1800,[1](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn1art1 " Act of Apr. 4, 1800, ch. 19, 2 Stat. 19 (repealed 1803). ") like its English antecedents, was designed primarily to benefit creditors.[2](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn2art1 " See Continental Bank v. Rock Island Ry., 294 U.S. 648, 670 (1935). ") Beginning with the act of 1841,[3](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn3art1 " Act of Aug. 19, 1841, ch. 9, 5 Stat. 440 (repealed 1843). ") which first permitted voluntary petitions, debtor rehabilitation has become an object of increasing importance in American bankruptcy law.[4](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn4art1 " See Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 588 (1935) ( “The discharge of the debtor has come to be an object of no less concern than the distribution of his property.” ). ") Under the act of 1867,[5](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn5art1 " Act of March 2, 1867, ch. 176, 14 Stat. 517 (repealed 1878). ") as amended in 1874,[6](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn6art1 " Act of June 22, 1874, ch. 390, 18 Stat. 178 (repealed 1878). ") the debtor was permitted, either before or after adjudication of his or her bankruptcy, to propose terms of composition that would become binding if accepted by a designated majority of his or her creditors and confirmed by a bankruptcy court.[7](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn7art1 " Id. § 17, 18 Stat. at 182–84. Under the composition procedure of the 1874 amendments, a debtor could offer a plan to retain its property and repay its creditors a portion of its obligations over a period of time. Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 Am. Bankr. Inst. L. Rev. 5, 21 (1995) (discussing Section 17 of the 1874 amendments). If a creditor did not agree to the composition agreement, the 1874 amendments provided that the creditor must obtain the same amount of value it would have obtained in liquidation proceedings. Id. at 21 (citing Act of June 22, 1874, Ch. 390, § 17, 18 Stat. at 183). ") In a decision by the United States District Court for the Southern District of New York that the Supreme Court would later cite with approval, future-Justice Samuel Blatchford held that this measure was constitutional.[8](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn8art1 " In re Reiman, 20 F. Cas. 490 (D.C.S.D.N.Y. 1874) (Blatchford, J.), cited with approval in Continental Bank, 294 U.S. at 672. ") The Supreme Court has upheld the constitutionality of laws that provided for the reorganization of corporations that were insolvent or unable to meet their debts as they matured,[9](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn9art1 " Rock Island Ry., 294 U.S. 648, 671–75 (1935). ") limitation of landlords’ claims for indemnification for rent,[10](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn10art1 " Kuehner v. Irving Trust Co., 299 U.S. 445, 450–51 (1937). ") and composition and extension of debts in proceedings for the relief of individual farmer debtors.[11](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn11art1 " Wright v. Vinton Branch, 300 U.S. 440, 466–70 (1937); Adair v. Bank of America Ass’n, 303 U.S. 350, 355–56 (1938). ") The Court also has concluded that a bankruptcy court is permitted under the Constitution to authorize sales of property free from encumbrance by state tax liens,[12](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn12art1 " Van Huffel v. Harkelrode, 284 U.S. 225, 228 (1931); see Gardner v. New Jersey, 329 U.S. 565, 578 (1947) (stating, citing Van Huffel, that “[t]he constitutional authority of Congress to grant the bankruptcy court power to deal with the lien of a State has been settled,” and holding that a “reorganization court [had] jurisdiction over” property “on which [the State of] New Jersey assert[ed] a lien, and that the power of the court to deal with liens extend[ed] to the lien which New Jersey claim[ed]” ). ") and that, because Congress “possesses supreme power in respect of bankruptcies,” a state that desires to recover assets in a bankruptcy must comply with bankruptcy court requirements regarding filing claims by a designated date.[13](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn13art1 " New York v. Irving Trust Co., 288 U.S. 329, 333 (1933). ")

Congress’s bankruptcy power is not limited to adjusting creditor rights. The Supreme Court has ruled that Congress’s bankruptcy power extends to a purchaser’s rights at a judicial sale of a debtor’s property, and Congress may modify such rights by reasonably extending the period for redemption from such sale.[14](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn14art1 " Wright v. Union Cent. Life Ins. Co., 304 U.S. 502, 514–15 (1938). A right of redemption is “the right of the borrower to redeem the property by paying off the entire balance of the mortgage” and a “redemption period is a period during which the borrower has redemption rights.” Andra Ghent, How Do Case Law and Statute Differ? Lessons from the Evolution of Mortgage Law, 57 J. Law & Econ. 1085, 1090 (2014). ") The Court has also held that a federal law permitting reorganization courts to stay pending bankruptcy court proceedings “was within the power of Congress,” [15](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn15art1 " Duggan v. Sansberry, 327 U.S. 499, 510 (1946). ") and that a statute enacted under Congress’s bankruptcy power deprived a state court of power to proceed with pending foreclosure proceedings after a farmer-debtor filed a petition in federal bankruptcy court for a composition or extension of time to pay his debts.[16](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn16art1 " Kalb v. Feuerstein, 308 U.S. 433, 439–40 (1940). The Court has upheld or opined on other statutory provisions as within the scope of Congress’s bankruptcy power. See Reconstruction Fin. Corp. v. Denver & R. G. W. R. Co., 328 U.S. 495, 509 (1946) (holding that Congress’s delegation of “authority to the [Interstate Commerce] Commission to eliminate valueless claims from participation in reorganization is a valid exercise of the federal bankruptcy power,” and stating that this conclusion is a restatement of the Court’s decisions in Group of Institutional Investors v. Chicago, M., S. P. & P. R. Co., 318 U.S. 523 (1943), and Ecker v. Western P. R. Corp., 318 U.S. 448 (1943)); see also BFP v. Resolution Trust Corp., 511 U.S. 531, 543 (1994) ( “Surely Congress has the power pursuant to its constitutional grant of authority over bankruptcy . . . to disrupt the ancient harmony that foreclosure law and fraudulent conveyance law, those two pillars of debtor-creditor jurisprudence, have heretofore enjoyed. But absent clearer textual guidance . . . we will not presume such a radical departure.” ); Butner v. United States, 440 U.S. 48, 54 (1979) (opining that, although Congress had not elected to do so, “[t]he constitutional authority of Congress to establish ‘uniform Laws on the subject of Bankruptcies throughout the United States’ would clearly encompass a federal statute defining the mortgagee’s interest in the rents and profits earned by property in a bankrupt estate” ) (quoting U.S. Const. art. I, § 8, cl. 4); Schumacher v. Beeler, 293 U.S. 367, 374 (1934) (explaining that “Congress, by virtue of its constitutional authority over bankruptcies, could confer or withhold jurisdiction to entertain . . . suits” by the bankruptcy trustee against an adverse claimant “and could prescribe the conditions upon which the federal courts should have jurisdiction.” ); United States v. Fox, 95 U.S. 670, 672 (1877) (explaining that statutory provisions designed to prevent fraud concerning the distribution of proceeds to creditors or the debtor’s discharge “would seem to be within the competency of Congress” ). ") All of these developments demonstrate the Supreme Court’s broad view of “the subject of Bankruptcies.” [17](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn17art1 " U.S. Const. art. I, § 8, cl. 4 (Congress is empowered “[t]o establish . . . uniform Laws on the subject of Bankruptcies throughout the United States” (emphasis added)). ") In Wright v. Union Central Life Insurance Co.,[18](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn18art1 " 304 U.S. 502 (1938). ") the Court explained that, while “incapable of final definition,” “[t]he subject of bankruptcies is nothing less than the subject of the relations between an insolvent or nonpaying or fraudulent debtor and his creditors, extending to his and their relief.” [19](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn19art1 " Id. at 513–14 (citation and internal quotation marks omitted). ")

The Court considered the relationship between the Bankruptcy Clause and the Eleventh Amendment [20](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn20art1 " U.S. Const. amend. XI. For more information about the Eleventh Amendment, see to . ") in Central Virginia Community College v. Katz.[21](https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-4/expansion-of-the-scope-of-bankruptcy-power#fn21art1 " 546 U.S. 356 (2006). ") In Katz, the