Bankruptcy System Research Articles

The Economic Consequences of Bankruptcy Reform

A more generous consumer bankruptcy system provides greater insurance against financial risks, but it may also raise the cost of credit to consumers. We study this trade-off using the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which raised the costs of filing for bankruptcy. We identify the effects of BAPCPA on borrowing costs by exploiting variation in the effects of the reform on bankruptcy risk across credit-score segments. Using a combination of administrative records, credit reports, and proprietary market-research data, we find that the reform reduced bankruptcy filings, and reduced the likelihood that an uninsured hospitalization received bankruptcy relief by 70 percent. BAPCPA led to a decrease in credit card interest rates, with an implied pass-through rate of 60–75 percent. Overall, BAPCPA decreased the gap in offered interest rates between prime and subprime consumers by roughly 10 percent.

Bankruptcy's Adjunct Regulator

Since its inception, the Consumer Financial Protection Bureau has regulated a broad swath of conduct relating to consumer credit. This regulatory activity has, in several distinct ways, carried over into consumer bankruptcy. The Bureau has regulated bankruptcy issues directly, for instance by adopting rules that apply to how mortgage creditors communicate with borrowers in bankruptcy. But more often, the Bureau’s impact in consumer bankruptcy is a side effect of its oversight of debt collection and credit reporting markets. Although these activities establish the Bureau as an adjunct regulator in the consumer bankruptcy system, the scholarly literature largely has failed to explore the scope of the Bureau's bankruptcy authority and the advantages and disadvantages of its bankruptcy-related activities. This Article fills that gap by providing the first comprehensive analysis of the Bureau's regulatory potential in consumer bankruptcy. It begins by cataloguing the history of Bureau's regulatory activities that directly or indirectly affect consumer bankruptcy. It then clarifies the Bureau's authority to carry out its consumer-financial-protection mission in the context of consumer bankruptcy. It argues that the bankruptcy system would benefit if the Bureau pursued an intentional, bankruptcy-focused regulatory strategy, and begins the work of sketching what such a strategy might entail. Finally, this paper explores how bankruptcy’s existing regulators could use the fruits of the Bureau's exercise of its core responsibilities, and in particular the vast body of information publicly available on the Bureau's website, to enhance their own effectiveness.

Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society

As neoliberal ideology and policies gained a foothold in the early 1980s, the social safety net for older Americans contracted. Responsibility for the risks associated with aging, namely retirement income and healthcare costs, was increasingly transferred from the state to the individual. Using data from the Consumer Bankruptcy Project, we report that since 1991, there has been more than a twofold increase in the rate at which older Americans (age 65 and over) file for consumer bankruptcy and an almost fivefold increase in the percentage of older persons in the U.S. bankruptcy system. This magnitude of growth is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect. Respondents report that inadequate income and unmanageable healthcare costs are the chief reasons for their bankruptcies. Our findings suggest that neoliberal policies that offload healthcare costs and retirement savings onto older Americans may facilitate their bankruptcy filings.

The German consumer bankruptcy law and moral hazard – the case of indebted immigrants

Purpose The purpose of this paper is to investigate to what extent the increased insolvency filings by migrants since the enactment of the consumer insolvency law in 1999 is associated with moral hazard. It describes the profile of migrant debtors and highlights the areas of moral hazard. This study aims to propose changes to the consumer bankruptcy system. Design/methodology/approach Empirical evidence for this work consists of primary data from 435 individuals mainly with immigration background, who were declared bankrupt by district courts (Amtsgericht). Both qualitative and quantitative research types were used. Interviews helped to attain an in-depth understanding of the way in which any misconduct may take place. Quantitative data were gathered to understand the debt profile of migrant debtors, types of liabilities and creditors’ reactions to write-off requests. Findings The paper provides empirical insights about the way misconduct is pursued and suggests that neither party, i.e. the debtors through debt counsellors and creditors/factoring companies or their representatives, is entirely free of unethical practice. Hence, the paper stresses the need to establish public agencies, which provide joint mediation services for private debtors and their creditors alike. Research limitations/implications Data collected for the purpose of this study may not be comprehensive because given the sensitivity of the area of study that is misconduct – including breaking the law – not all machinations may have been revealed and described in this work. Therefore, further research needs to be conducted in this field. Practical implications The paper has implications for policymakers. Consumer bankruptcy system is relatively new and needs to be amended to allow debtors and creditors to negotiate write-offs not by sending countless letters through their respective representatives, which is also carried out over a long period of time, but to try to come to terms in one agency, which is responsible for both sides. Social implications The findings in this paper may provide some valuable insights, which could also give impulses to debates on problems that may come with immigration. Originality/value To the best of the author’s knowledge, no research exists that analyzes the topic at hand with such extensive data and using both methods of research at the same time.

The distinctive features of women in the Australian bankruptcy system: An empirical study

AbstractAccording to data published by Australian Financial Security Authority (AFSA), Australian women and men offer strikingly similar reasons for their entry into bankruptcy. Yet a more detailed analysis of AFSA's data indicates that women and men often go bankrupt in very different social and economic circumstances. This empirical study draws upon a unique dataset, obtained from AFSA, containing the de‐identified records of more than 28,000 individuals. It also draws upon a series of focus groups with the staff of three nonprofit organisations, including financial counsellors and consumer solicitors. It finds that, in general, women in bankruptcy are likely to be economically disadvantaged, relative to men, as measured by income, access to wages, reliance on government benefits, real estate ownership and utilities debt. It also finds that women in bankruptcy are much more likely than men to be single with dependants and that these women experience a greater degree of gendered disadvantage than other women in the bankruptcy system.

The Social Costs of Dividends and Share Repurchases

A long-held view in the academy is that shareholders are residual in the sense that shareholders are paid in full only after the corporation pays its creditors. The reality on the ground is far different. Corporations give assets away to their shareholders long before they have satisfied creditors, both voluntary contract creditors and involuntary tort creditors. In particular, existing U.S. corporate and voidable transfer laws allow corporations to pay dividends and make share repurchases up to the point where the corporation is insolvent or nearly so. Voluntary creditors can limit dividends and share repurchases by contract, but involuntary creditors like tort claimants cannot and unsophisticated voluntary creditors rarely do so. I use a simple Black-Scholes model of a debtor firm to illustrate the incentive that shareholders have to take dividends and share repurchases before debts are repaid. I then present data on the huge payouts of asset value by indebted U.S. publicly-traded corporations from 2010 to 2018. While good for shareholders, the permissiveness of corporate payout rules brings with it substantial social costs. Dividends and repurchases (1) dramatically increase the riskiness of corporate debt, diverting large resources into credit monitoring and speculation, (2) require a larger bankruptcy system to process large and complex corporate failures, (3) makes firms more fragile and less resilient to financial crises, (4) unfairly shifts costs to involuntary and unsophisticated creditors in violation of the implicit social bargain of limited liability, and (5) distorts the supply of securities toward riskier debt that is publicly subsidized through tax deductibility of interest expense, simultaneously reducing the availability of safe assets that are in high demand. It would be socially beneficial to restrict dividends and share repurchases to corporations that are much safer than now is the case, with low debt and adequate insurance against harm to involuntary creditors, and which meet higher thresholds for wages and benefits. Such a rule would still allow corporations to operate without doing those things - they could still have high debt, be underinsured, and pay minimum wages with minimal benefits. But if they did so, they could not pay out assets to shareholders until they first met all their other obligations.

A Maximalist Approach to Data from India’s New Insolvency and Bankruptcy System

The Insolvency and Bankruptcy Board of India has a statutory responsibility to gather and disseminate information about India’s new insolvency and bankruptcy system. That system is still in its infancy, and the Board has a unique opportunity to design a comprehensive approach to generating, gathering, and disseminating data. Empirical research on bankruptcy in the U.S. illustrates that data are essential for assessing how insolvency and bankruptcy systems function, how they affect various stakeholders, and what economic and social impact they are having. Data generated by insolvency and bankruptcy systems can also be a uniquely valuable source of information about the broader economy and society, including macro-economic vulnerabilities and failures plaguing certain financial products. This chapter proposes that the Board and the adjudicating tribunals under the India's new Insolvency and Bankruptcy Code adopt a maximalist approach to data, limited only by institutional capacity and basic privacy norms. It describes types of data that the new insolvency and bankruptcy system can generate, challenges in gathering and disseminating it, and the comparative advantages that the Board and the tribunals have in doing so. This chapter also proposes that the Board conduct a pilot or diagnostic study of the data currently being generated by the system to determine its reliability, consistency, and usability for both internal assessment and external research.

El proceso concursal extrajudicial previo en el Código de Quiebras de Estados Unidos (el 'Prepackaged Chapter Eleven' del U.S. Code)

El presente trabajo estudia el Prepackaged Chapter Eleven (en adelante denominado PCE), proceso extrajudicial previo o alternativo al proceso del Chapter Eleven, el cual constituye una parte del sistema concursal de los Estados Unidos que abarca las soluciones preventivas de la quiebra en ese país, cuya finalidad es preservar y, virtualmente, salvar a la empresa de su desaparición económica y jurídica; este es conocido por el nombre de su respectivo capítulo, el Capítulo Once del Title Eleven del United States Bankruptcy Code, norma concursal federal que engloba numerosas materias en sus distintos capítulos. Los tópicos abordados en el trabajo son: el PCE en el contexto del derecho concursal estadounidense; las variables que justifican la elección entre el PCE y el tradicional proceso concursal del Chapter Eleven; las restantes vías extrajudiciales de reorganización empresarial; una descripción del PCE y su ámbito de aplicación; sus antecedentes históricos; la política legislativa de la reforma concursal de 1978; las posibilidades y ventajas de los procedimientos previos al Chapter Eleven; una comparación entre el proceso extrajudicial del PCE y el proceso judicial del Chapter Eleven; los casos en los que no es conveniente o pertinente el PCE; los tipos o variantes del PCE; técnicas para un PCE exitoso; los requisitos procesales para una solicitación de votos preconcursal; los riesgos que se corren en un PCE; algunos desarrollos recientes; los efectos de la reforma concursal de 2005, y la eficacia del PCE. En la parte conclusiva se realiza una valoración crítica de estas instituciones.

Did specialised courts affect the frequency of business bankruptcy petitions in Spain?

Spanish small businesses rarely file for bankruptcy, and Spanish bankruptcy rates are abnormally small. The historical inadequacy of the Spanish insolvency system has led most enterprises to rely on the de facto alternative mortgage system and to overinvest in fixed tangible assets: a distortion that may trigger significant adverse effects, for instance on the enabling environment of novel entrepreneurship. The reform of the bankruptcy law that took place in Spain some 10 years in order to modernise the insolvency system involved, as a main novelty, the establishment of specialised commercial courts (Juzgados de lo Mercantil). Since the net benefits of specialised judicial functions are in principle ambiguous, we study empirically whether these new bodies had any impact, over and above the economic crisis, on the use of the bankruptcy system. Exploiting the staggered timing of the new courts geography, we estimate an endogenous treatment model with a binary policy variable which allows to measure the effect of the reform on bankruptcy rates. The results support the view that the new bankruptcy law took the right path, but the size of the estimated parameters call for further policy efforts in that direction.

Debt, Bankruptcy, and the Life Course

This Essay considers the significance of credit markets and bankruptcy for life course mobility. Comparing parallel data from the 2007 Survey of Consumer Finances (SCF) and the 2007 Consumer Bankruptcy Project (CBP), it analyzes use of the bankruptcy process as a function of the distribution of unplanned events, the ability of households to use credit markets to limit the adverse effects of such events, and barriers in access to the bankruptcy system. Our findings suggest two things. One, although the financial characteristics of filers vary markedly by age and race, bankrupt households generally come from the bottom quartiles of the population in assets and income and the top quartile in debt. Two, households neither attribute their bankruptcies to the same causes nor use the same strategies to avert bankruptcy. Age- and race-based variations are consistent with disparate racial access to markets and institutions and the increased incidence of financial activity among the elderly.

Bankruptcy reforms in the midst of the Great Recession: The Spanish experience

We make use of a unique data set of corporate insolvencies in Spain to assess the effectiveness of the four reforms to the Spanish bankruptcy code implemented during the Great Recession (2008–2013). One of the reforms decreased the average duration of insolvency procedures by increasing the appeal of private workouts as an alternative to formal bankruptcy. Two of the reforms increased the percentage of reorganisations by increasing the quality of insolvency administrators and reducing the costs of financial distress. The impact was larger in firms with lower liquidation values and higher going concern values, suggesting an increase in ex-post efficiency. By contrast, two of the reforms did not achieve their goals and failed to have any robust impact on those dimensions. Our research illustrates the important role that insolvency administrators may play in the design of an efficient bankruptcy system, as well as the need for a legal framework that supports out-of-court workouts as an alternative to formal bankruptcies. More generally, our results highlight the importance of evaluating bankruptcy reforms before assessing their impact on other dimensions such as credit, firm financing and investment.

The Bankruptcy of Refusing to Hire Persons Who Have Filed Bankruptcy

In 1978, Congress made it illegal for government employers to deny employment to, terminate the employment of, or discriminate with respect to employment against a person who has filed bankruptcy. In 1984, Congress extended this prohibition to private employers by making it illegal for such employers to terminate the employment of, or discriminate with respect to employment against a person who has filed bankruptcy. Under the prevailing view of the law, private employers can refuse to hire a person who has filed bankruptcy solely because that person has filed bankruptcy. Meanwhile, employers have substantially increased their use of credit history checks as a pre-employment screening device. Credit history checks will disclose bankruptcy filings, and because blacks and Latinos are overrepresented among bankruptcy filers, those groups are disproportionately affected by bankruptcy discrimination. This disparate impact probably violates Title VII of the Civil Rights Act of 1964. Moreover, there is almost no empirical support for the proposition that creditworthiness is a reliable proxy for workplace performance or employee trustworthiness.Relying on bankruptcy status simpliciter is antithetical to a core purpose of the bankruptcy system, which is to give debtors a fresh start. Employers’ prerogatives to operate under whatever employment policies and practices that they want must be balanced against employees’ and would be employees’ right to participate in the labor market in an environment free from irrational discrimination. It is irrational to deny employment to a person who is or was a debtor if the person is otherwise qualified, and the job can be successfully performed regardless of bankruptcy status. To allow such discrimination makes the bankruptcy system’s promise of a fresh start illusory.

Terminating Tenure: Rejecting Tenure Contracts in Bankruptcy

Financially distressed entities often use the bankruptcy system to restructure their contractual obligations. This article examines whether distressed institutions of higher education can do the same with their tenured faculty, and concludes that the answer is surprisingly unclear. The answer depends primarily on two key inquiries. First, do professors have material obligations to their tenuring institution under a tenure contract, or are tenure contracts more akin to one-sided option contracts? Second, will the bankruptcy court apply the Countryman test for executory contracts, or some other test--such as Westbrook's Functional analysis? If tenure contracts are akin to option contracts, as this article argues, and a court uses the Countryman test, tenure contracts are likely not rejectable in a bankruptcy case. This is a surprising result, explored in greater detail in the body of this article. This article also considers, though largely dismisses, the argument that tenure is a protected property right under the Fifth Amendment Takings Clause. Nevertheless, such an argument might be made for strategic purposes.

Optimizing Consumer Credit Markets and Bankruptcy Policy

This article explores the relationship between consumer credit markets and bankruptcy policy. In general, I argue that the causative relationships running between borrowing and bankruptcy compel a new strategy for policing the conduct of lenders and borrowers in modern consumer credit markets. The strategy must be sensitive to the role of the credit card in lending markets and must recognize that both issuers and cardholders are well placed to respond to the increased levels of spending and indebtedness. In the latter parts of the article, I recommend mandatory minimum payment requirements, a tax on distressed credit card debt, and the subordination of payments to credit card lenders in bankruptcy. I also argue that many aspects of the American bankruptcy system, as recently reformed, are overly protective of credit card issuers.

Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society

The social safety net for older Americans has been shrinking for the past couple decades. The risks associated with aging, reduced income, and increased healthcare costs, have been off-loaded onto older individuals. At the same time, older Americans are increasingly likely to file consumer bankruptcy, and their representation among those in bankruptcy has never been higher. Using data from the Consumer Bankruptcy Project, we find more than a two-fold increase in the rate at which older Americans (age 65 and over) file for bankruptcy and an almost five-fold increase in the percentage of older persons in the U.S. bankruptcy system. The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect. In our data, older Americans report they are struggling with increased financial risks, namely inadequate income and unmanageable costs of healthcare, as they try to deal with reductions to their social safety net. As a result of these increased financial burdens, the median senior bankruptcy filer enters bankruptcy with negative wealth of $17,390 as compared to more than $250,000 for their non-bankrupt peers. For an increasing number of older Americans, their golden years are fraught with economic risks, the result of which is often bankruptcy.

Theoretical Framework and Analysis of New Bankruptcy Regulations in Saudi Arabia

This research reviews the regulations of bankruptcy system in Saudi Arabia in the light of the advanced international practices in this field, in order to identify best practices and adopt them in accordance with Shari'a and regulations and in conformity with commercial customs to apply these regulations in the Kingdom of Saudi Arabia. The aim of this step is to identify the general regulations of the new system, its philosophy and its main characteristics by conducting a general study of the legal frameworks governing bankruptcy in order to identify the most prominent features of these systems and their general policies and procedures. The aim of this research is to identify options for developing and explaining the detailed rules and approaches for each of the main policies and features agreed upon according to bankruptcy regulations in Saudi Arabia.

Financial Fragility, Medical Problems, and the Bankruptcy System

This paper, finalized in 2013, is the penultimate version of a chapter in Working and Living in the Shadow of Economic Fragility (Marion G. Crain & Michael Sherraden eds. 2014) and is relevant to claims made in current debates about health care finance. Following up on our article Managing Medical Bills on the Brink of Bankruptcy, the paper synthesizes disparate research connecting medical problems and bankruptcy filings. The paper also presents new findings on the coping mechanisms used by financially distressed households before bankruptcy – including medical provider payment plans, pawn shops and payday loans, and informal arrangements with friends and family.

A study about deposit insurance relationship and bankruptcy process of financial institution under the deposit insurance act

예금보험제도는보험이라는명칭을사용하고있기때문에, 보험계약자인부보금융기관은 해당 보험료를 지급해야 하며 보험사고 시 보험자 지위에 있는 예금보험공사(이하 ‘예보’라한다)는보험금지급의무를부담하게된다. 그러나예금보험은국민경제적인입장에서 국가의 정책수행을 위하여 운영되는 경제정책보험으로서 공공보험에 해당한다. 일반 민영보험과는 달리, 예금보험제도는 보험의 원리인 대수의 법칙이라든가 수지상등의 원칙이 민영보험의 영역과 동일하게 적용될 수 없다. 예금보험은 금융기관이 납부하는 보험료를 재원으로 하여 예금보험기금으로 적립한 후 금융기관이 경영부실 등의 사유로 인하여 예금자의 예금인출요구에 응할 수 없는 경우 예금보험기구가 사고 금융기관을 대신하여 예금자에게 일정한예금을보험금으로지급하게된다. 그렇게본다면, 예금보험은손해보험의성격을 가지고있고, 보험계약자와피보험자가서로다르다는점에서, 타인을위한손해보험계약일종으로 볼 수 있다. 특히 예금보험에서 보험사고는 독립적인 사고로 발생하는 것이 아니라 연쇄적인 경향을 가지고 있다는 점 역시 다른 보험과 차이가 있다. 부보금융기관의 보험자 지위를 가지고 있는 예보는 부실금융기관 파산선고 시 파산관재인으로 선임되어 해당 파산업무를 효율적이면서 신속하게 진행하여긍정적인 평가를 받았다. 약15년간의 예보의 효율적인 재단운영 및 배당 극대화 노력 및 청ㆍ파산제도에 대한 예보의 공헌은 높이 평가할만 한 것이다. 본연구는예보와부보금융기관간법정보험관계를중심으로예금보험의주요내용을검토한다. 동시에사보험의보험자지위에있는예보가담당하는핵심적인논점및파산절차에서 발생하는 법적 쟁점 등을 다루고 있다, 파산관재업무와 관련하여, 파산재단을 운영하고 관리하면서 기여한 예보의 역할 및 그 성과는 인정받을 만한 것이었다. 그럼에도 불구하고 예보의 법적 지위에 대한 다툼이 언제나 상존하고, 금융기관의 부실에 대한 예금지급이라는 전통적인 기능에 한정되는 예보가 아닌, 금융기관의 리스크를 관리하는 보다 적극적인 예보 의 기능이 요구되고 있으며, 기능별 예금체계의 도입과 예금자보호를 위하여 예금보험의 대상범위가 보다 더 확대될 필요가 있다.Since the deposit insurance system uses the name of insurance, the financial institution that is an insurance contractor has to pay the insurance premiums, and the Korea Deposit Insurance Corporation (hereinafter referred to as ‘KDIC’), which is in the status of insurer at the time of occurring an insured accident, shall be obliged to pay the sum insured. However, deposit insurance corresponds to public insurance as an economic policy insurance that is operated for national policy in the national economic aspect. Unlike general private insurance, the deposit insurance system can not be applied in the same way with the principle of the insurance or the principle of the algebraic law within it. Deposit insurance, after depositing premiums paid by financial institutions as a deposit insurance fund, if a financial institution can not comply with a deposit withdrawal request from a depositor due to reasons such as insolvency, will pay certain deposits as benefits to depositors on behalf of the accrued financial institutions. In that point of view, deposit insurance has the nature of non-life insurance, and in the point that the policyholder and the insured are different, it can be regarded as a type of non-life insurance contract for others. In particular in the case of deposit insurance, the fact that an insurance accident does not occur as an independent accident but has a tendency to chain is also not common in other insurance. The KDIC, which has the status of an insurer of a financial institution, was selected as a bankruptcy trustee at the time of the bankruptcy filling of the insolvent financial institution, and the bankruptcy work was efficiently and promptly performed and received a positive evaluation. Efforts of deposit insurance to effectively manage, maximize dividends and contribute to the bankruptcy system are highly appreciated. The study examines the main contents of deposit insurance centering on the legal insurance relationship, not the contractual relationship between the KDIC and the financial institution as well as reviews the core business contents of KDIC under insurer status of private insurance and legal issues arising from the bankruptcy process. Regarding the bankruptcy administrative affairs, the role of the KDIC contributing to the operation and management of the bankruptcy foundation and its performance were worthy of recognition. Nevertheless, a dispute over the legal status of thae KDIC is always present and the role of KDIC, which manages the risks of financial institutions more actively rather than only limited to the traditional functions of paying deposits of insolvency of financial institutions, is required. And it is necessary to further expend the scope of deposit insurance in order to introduce the functional deposit system and protect depositors.

Bonded to the State: A Network Perspective on China's Corporate Debt Market

A corporate bond market has the potential to play an important role as a supplement to bank-oriented financial systems in emerging markets—functioning in effect as a ‘spare tire’. Yet bond markets typically rely upon formal institutions that are lacking in developing economies. Despite significant institutional weaknesses, China’s corporate bond market has grown to become the third largest in the world. In this article, we use a network perspective to explore the formation, operation, and function of the Chinese corporate bond market. We explain the market’s exponential growth as a result of a network of relationships among state-owned or linked actors that has substituted for formal institutions. But the consequences of this state-centric network may undermine the spare tire function. We begin by unpacking the complexities of the market’s structure and formal regulation, which have been shaped by a surprising degree of regulatory competition. Next, we analyse China’s corporate bond market as a network of relationships that invariably lead back to the state, and explore the consequences of this network on the pricing, rating, and default of corporate bonds. The paper concludes by highlighting several important policy issues raised by our analysis, including the consequences of regulatory competition, the potential role of the bankruptcy system in handling issuer financial distress, and the linkages between the corporate bond market and China’s rapidly expanding shadow banking system. The size, and institutional fragility, of the Chinese corporate bond market illustrate both the accomplishments and limitations of state capitalism.

Balancing Bankruptcy and Environmental Law: Midlantic National Bank v. New Jersey Department of Environmental Protection

Balancing Bankruptcy and Environmental Law: Midlantic National Bank v. New Jersey Department of Environmental Protection RONALD MANN Introduction Congress’s 1978 adoption of the Bank­ ruptcy Code was a legislative landmark, the culmination of a decade of attention to a woefully antiquated bankruptcy system largely left intact since the nineteenth century. Senate hearings in 1968 led to the appointment of a prestigious bipartisan Bankruptcy Commission, which produced a massive report, which served in turn as a template for a statute that brought wholesale change to almost every aspect of the bankruptcy system.' So what would the Supreme Court do with this new statute? The Court’s persistent doubts about the constitutionality of the Code’s broad alloca­ tion of authority to bankruptcy courts led to an extended series of decisions trimming back the Code’s jurisdictional grant, starting with Northern Pipeline Construction Co. v. Marathon Pipe Line Co.2 and continuing with Granfinanciera v. Nordberg3 and Stern v. Marshall.4 Less well known, by comparison, is the persistently narrow interpretation ofthe Code in the Court’s statutory cases, which routinely subordinate the needs ofa broad and effective bankruptcy process to the policies of other federal and state legal regimes.5 The roots ofthe Court’s narrow interpre­ tive frame lie in one of the earliest of the Court’s decisions under the Code, Midlantic National Bank v. New Jersey Department of Environmental Protection.6 Midlantic presented a classic problem of statutory interpretation, in which the Code’s provisions 102 JOURNAL OF SUPREME COURT HISTORY for the protection of the estate conflicted directly with developing rules for environ­ mental law. More broadly, the case offered the Court its first chance to assess Congress’s broadening of the bankruptcy regime: case law under the old Bankruptcy Act had limited the bankrupt’s ability to ignore environmen­ tal law, but language in the Code suggested that Congress contemplated a much broader freedom of action going forward. The result was a considered refusal to credit the broadened language of the new Code. Justice Lewis F. Powell’s opinion for the Court adopted a clear-statement rule under which it would presume that provisions of the Bankruptcy Code have the same meaning as predecessor provisions of the Bankruptcy Act. What is most surprising about the decision, though, is not apparent on its face—how close the Court came to ruling in favor of the bankrupt. As the internal papers of the Justices show, Justice Powell “stole” a Court in this case. The decision at Conference favored the bankrupt; it was only a changed vote by Justice John Paul Stevens that led to the Court’s adoption ofMidiantic's Code-narrowing clear-statement rule.7 Political Background Midlantic came to the Court in the mid1980s , just as state and federal efforts to curtail pollution reached their zenith. Envi­ ronmental disasters in the post-World War II era, including the Cuyahoga River fire in 1969 and Three Mile Island in 1979, convinced much of the public that stricter measures were necessary to control industrial pollution.8 State pollution programs began in earnest in the 1960s, but the federal government became involved in the 1970s with the creation of the Environmental Protection Agency, major amendments to the Clean Air Act, and the passage of the Clean Water Act.9 Most important was the 1980 adoption of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The rise of federal activity in this period led to an uneasy tension with state efforts to combat environmental pollution. Although the premise of federal environmental inter­ vention was that the federal government’s efforts would complement state laws,10 federal programs often preempted more aggressive state programs. Scholars routinely explain that the passage of federal environ­ mental laws reflected rent-seeking by pol­ luters who sought lax federal regulations to preempt the increasingly effective regulation at state and local levels.11 Those critics often point to the 1965 enactment of the Motor Vehicle Pollution Control Act, which stymied state efforts to place harsh limits on automo­ bile exhaust emissions. It surprised no one that major economic interests, sensing that some form of environmental regulation was inevitable, sought standardized (lower) fed­ eral pollution...