In this week’s Constitution Post, we are still in Article I, Section 8! Today, we will be discussing the Bankruptcy Clause.
As you probably remember, Section 8 of Article I enumerates Congress’s legislative or regulatory jurisdiction. The Bankruptcy Clause outlines one of these jurisdictional domains. It states:
“The Congress shall have Power To…establish…uniform Laws on the subject of Bankruptcies throughout the United States…”
So, what exactly is bankruptcy, and why would the authority to regulate it fall to Congress?
First, let’s look at a few definitions. According to Merriam-Webster, bankruptcy is “…a condition of financial failure caused by not having the money that you need to pay your debts.” Businesses, companies, families, and individuals can all be driven to bankruptcy. The way the government handles bankruptcy varies according to the type of entity claiming bankruptcy, but the state of bankruptcy is always essentially the same.
So, why would Congress, as opposed to the individual state legislatures, be tasked with regulating the methods by which the government handles bankruptcy? In answering this question, we will consider two points — the logic and the impetus.
First, it makes sense, given Congress’s authority over commerce. Here’s James Madison, in The Federalist No. 42, to address the issue:
“The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds where the parties or their property may lie or be removed into different States that the expediency of it seems not likely to be drawn into question.”
Madison’s point could be summarized by saying, simply, “This just makes sense!” Do you remember our Constitution Post “Article I, Section 8 Part II,” in which we discussed the Commerce with Foreign Nations Clause (you can read it here)? Madison is essentially saying, “Since bankruptcy is often involved in commerce, which Congress has the authority to regulate, then Congress should also have the authority to establish procedural regulations for bankruptcy.”
The impetus of this clause is similar to that of the Commerce with Foreign Nations Clause. Just as, under the Articles of Confederation, the states held the sole authority to regulate their trade, contradictory and detrimental laws were passed between by different states; the states, making regulating bankruptcy for themselves, often contradicted each other, and caused much headache for many creditors. Thus, the responsibility to ensure uniformity and fairness was delegated to the Federal government.
This post has only offered a 35,000 foot view, so to speak, but I hope you’ve found it helpful! I encourage you to research this issue more extensively, so as to develop a more thorough understanding of the Bankruptcy Clause’s importance!
Keep looking up!
Definition of the word bankruptcy:
Heritage Foundation essay on the Bankruptcy Clause and James Madison quote: