Law Geek(ing)

Actually, I spoke too soon. Justice Sotomayor's concurrence really *is* worth reading, especially on how bankruptcy law often imposes unfair (and economically inefficient) consequences on low-income drivers when their vehicles are impounded for relatively minor infractions.

— Steve Vladeck (@steve_vladeck) January 14, 2021

I still have a little of it left in me.

Bankruptcy law is, or was, such an esoteric area of the law that I remember a lawyer I was working for (now a Federal Judge, and by all accounts a very good one) remarking on the power of the Bankruptcy Court to "stay" all actions related to the bankruptcy estate. Bankruptcy was so rare that the larger firm I'd worked for (as a legal assistant) before law school had a lawyer on staff who did bankruptcy work when called on. It was rather like having a criminal defense attorney in a civil firm, except even rarer. He was an albino tiger, so to speak. Then came the oil/real estate bust of the '80's, which hit Austin (where I was at the time) especially hard.  Suddenly everybody needed to know about bankruptcy law, because suddenly everybody was involved in bankruptcy actions, as creditors or as debtors.

I was in law school and taking the course in bankruptcy at the time, my professor himself a sitting bankruptcy judge.  Bankruptcy has its own judges (not Art. III; they are appointed for a period of years, not life) who, as the professor/judge told us, have international jurisdiction.  If the bankruptcy estate has property outside the U.S., the judge has authority over that property.  It can make for interesting situations.

Anyway, as the Court points out in the opinion Professor Vladeck cites, bankruptcy creates an estate, similar to that created by a death and a probate action.  The court in probate has responsibility for seeing that the estate is treated according to the terms of the will, or intestacy laws if there is no will.  The bankruptcy court has much the same obligation.  One purpose for such an estate and such oversight, in either case, is to see that debts and obligations are discharged as if the owner were alive (bankruptcy can be akin to death, since the bankrupt loses direct control of all his/her/its property and assets).  To effect that purpose, the bankruptcy petition filing triggers an "automatic stay" which freezes all debt collection actions, all regular payments, and all suits against the bankrupt.  That latter extends to all parties in the suit, not just the bankrupt.

This was the point of my story two paragraphs up.  I was telling the lawyer that a party to a case I had gone to docket call on (where cases were assigned for hearings) had announced a bankruptcy filing which stayed all proceedings in that case.  I might as well have announced that aliens had walked into the room and declared authority over all proceedings in the Travis County courthouse.  The lawyer, a practiced civil litigator, had never heard of such a thing, and announced his skepticism by saying he was quite sure no Texas judge would stand for such interference in matters of state law.  But the Bankruptcy Code is Federal law and supersedes state law in such matters, as I tried to explain and as everyone in Austin soon found out.  Texas courts recognized, despite their reputation for independence, what the superior law in such circumstances was.

I bring this up because of this paragraph in Justice Sotomayor's concurrence brought that anecdote to mind:

I write separately to emphasize that the Court has not decided whether and when §362(a)’s other provisions may require a creditor to return a debtor’s property. Those provisions stay, among other things, “any act to create, perfect, or enforce any lien against property of the estate” and “any act to collect, assess, or recover a claim against [a] debtor” that arose prior to bankruptcy proceedings. §§362(a)(4), (6); see, e.g., In re Kuehn, 563 F. 3d 289, 294 (CA7 2009) (holding that a university’s refusal to provide a transcript to a student-debtor “was an act to collect a debt” that violated the automatic stay). Nor has the Court addressed how bankruptcy courts should go about enforcing creditors’ separate obligation to “deliver” estate property to the trustee or debtor under §542(a). The City’s conduct may very well

violate one or both of these other provisions. The Court does not decide one way or the other.

What the City did, Sotomayor argues, was screw with the bankruptcy estate by making it harder for the bankrupt to earn an income and so pay off his debts, the whole purpose of a Chapter 13 filing.  Not only could the other debtors not get paid, neither could the City.  And that, in a nutshell, is why bankruptcy courts stay all proceedings involving the estate:  so that all debtors can be treated fairly under the Code, without some having an advantage by being quicker to the courthouse, or on collection of a debt (there is a clawback provision in the Code, too, for those who get paid prior to the bankruptcy action being filed). It's also why they have the authority to do so, despite what local jurisdictions might think.