The Virtue in Bankruptcy

Abstract

In response to a gap in the corporate bankruptcy literature, this Article offers a new positive theory of corporate bankruptcy law based on virtue ethics. The dominant theory of corporate bankruptcy law — the creditors’ bargain model — is necessarily incomplete because it does not account for bankruptcy courts’ equitable and discretionary powers, or for bankruptcy courts’ need to consider decision-making criteria other than economic efficiency. By contrast, virtue ethics offers insights about these features of corporate bankruptcy law for at least three reasons. First, bankruptcy courts appear to give content to bankruptcy laws by using virtue ethical principles. Second, virtue ethics’ decision-making process — practical wisdom — provides insights into how bankruptcy judges balance concerns about efficiency, justice, and fairness when reaching decisions. This is particularly true when the bankruptcy court’s equitable jurisdiction or discretionary powers are implicated. Third, virtue ethics’ symbiotic consideration of means and ends parallels the process bankruptcy judges are called on to use when exercising their discretionary or equitable powers under numerous provisions of the Bankruptcy Code.