Academic journal article Washington and Lee Law Review

A Normative Theory of Bankruptcy Law: Bankruptcy as (Is) Civil Procedure

Academic journal article Washington and Lee Law Review

A Normative Theory of Bankruptcy Law: Bankruptcy as (Is) Civil Procedure

Article excerpt

I. Introduction

During the past two decades, contemporary bankruptcy scholars have engaged in extensive academic debates that have played out in many law review articles and several books.1 This Article engages important aspects of those debates. It expands on a theme that I suggested almost a decade ago.2 It describes and defends a normative theory of bankruptcy law that views the core role of bankruptcy law as the maximization of recoveries for those with nonbankruptcy legal entitlements relating to financially distressed debtors.3 Stated otherwise, bankruptcy law should exist, essentially, in order to serve the interests of the holders of nonbankruptcy legal entitlements. I call these holders "rightsholders."4 For reasons developed fully below, I refer to this normative theory as "procedure theory."

This Article focuses primarily, but not exclusively, on business bankruptcy. It is in business bankruptcies, in particular in Chapter 11, that the greatest temptations may exist to favor extraneous social goals at the expense of a debtor's rightsholders.5 It also focuses primarily on bankruptcy law in the United States, but the core insights of procedure theory should be robust in the consumer bankruptcy setting as well as under the laws of any jurisdiction.

Part II of this Article provides an overview of the principles embraced by procedure theory, including its ends and basic features. It also situates procedure theory in the ongoing normative debates about bankruptcy philosophy and policy and distinguishes procedure theory from much of the other bankruptcy scholarship that has been featured in these debates. In particular, it addresses academic critiques of the path-breaking scholarship of Douglas Baird and Thomas Jackson and identifies procedure theory's similarities to, and differences from, Baird and Jackson's theoretical work. Part III makes the normative case for procedure theory and identifies sources and bases of its normative content. It first addresses the application of procedure theory to the interests of a debtor's rightsholders versus those of nonrightsholders and then as to the rights of a debtor's rightsholders inter se. It then fashions a normative account of procedure theory based on jurisprudential and philosophical grounds, on theoretical underpinnings of civil procedure law and federal court jurisdiction, and on a public choice analysis. Part IV addresses bankruptcy law as a procedural system for maximizing recoveries and benefits for a debtor's rightsholders. It considers justifications for bankruptcy law as a special branch of procedural law. It also identifies several aspects of bankruptcy law that alter or appear to alter nonbankruptcy entitlements. It explains how some of these alterations may be coherent under, and entirely consistent with, procedure theory. Part IV also tests procedure theory against various controversial elements of bankruptcy law and identifies some aspects of current bankruptcy doctrine that offend procedure theory. In this way it explores the explanatory and instructional powers of procedure theory to suggest doctrinal reforms. Part V then concludes the Article.

A complete account of procedure theory first would address all aspects of nonbankruptcy law as affected by all aspects of bankruptcy law. second, it would identify and call for retention of only those aspects of bankruptcy law that comport with procedure theory and the elimination of those that do not. Third, it would compare and contrast procedure theory with all of the theoretical academic literature on bankruptcy during (at least) the past two-plus decades. Fully realized, that project would be not only enormously ambitious but also quite lengthy. Instead, this Article will be satisfied to examine the intersection of some of the more important aspects of nonbankruptcy law with some of the more significant aspects of bankruptcy law, and it necessarily will be selective in the breadth and depth of its consideration of the literature. …

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