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November 30, 2022 Introduction

A Multifaceted Look at Bankruptcy

By Judge Frank J. Bailey (Ret.)

What do Walt Disney, Henry Ford, rapper 50 Cent, Burt Reynolds, Dorothy Hamill, Donald Trump, and Abe Lincoln all have in common? The answer is that they all filed either personal or business bankruptcy. And while Abe Lincoln never filed a bankruptcy petition (because there was no U.S. bankruptcy law at the time), his carriage was seized by his creditors before he gave up as a businessman and turned to the law as a career, where it is fair to say that he had much greater success.

As I often told students who visited my courtroom, it turns out that the founding fathers were “dead beats.” Indeed, many traced their roots to families that departed Europe just ahead of their creditors. So, when it came time to draft the Constitution, they included Article I, Section 8, Clause 4, which specially gave Congress the power “to . . . establish . . . uniform Laws on the subject of Bankruptcies throughout the United States.” In fact, this is one of the only provisions of the Constitution that identifies a particular body of law that the founders thought should be enacted by the newly formed legislature. Why? Surely to stoke the entrepreneurial spirit that has defined the American dream and that caused generations of immigrants to risk life and limb to come to our shores.

This issue of The Judges’ Journal is devoted to “all things bankruptcy”: creative judges, smart lawyers, colorful debtors, Scrooge-like creditors, and even Anna Nicole Smith. I hope you will read the fascinating articles in this issue so that you will have a better understanding of bankruptcy law, bankruptcy practice, and their importance to our modern system of justice.

The bankruptcy laws of the United States are dynamic. While Congress is notoriously divided and often unable reach agreement, David A. Mawhinney’s article on the newly enacted Chapter 11 Subchapter V is an example of how resilient the restructuring process can be. Mawhinney offers a heartwarming story of how the process sometimes helps good people who have fallen on hard times for no fault of their own. Indeed, the subject of his article is an immigrant who came here for a chance at a better life and needed a creative bankruptcy lawyer to help him get back on track. Yes, I said heartwarming and bankruptcy in the same breath! And speaking of heartwarming, Judge Sandra R. Klein’s article recounts how the bankruptcy bench and bar have answered the call to ensure that the bankruptcy bench moves from the least to the most diverse federal bench. Partnering with the Just the Beginning Foundation in Chicago, the bankruptcy judges have funded internships for law students that have turned into full-time federal clerkships in the very first year of the collaboration.

This issue is packed with all you need to know to be conversant in the cutting-edge bankruptcy and insolvency issues that we are facing in America. I was not kidding when I mentioned Anna Nicole Smith, a Playmate of the Year, reality TV star, and celebrity. Smith profoundly affected bankruptcy jurisdiction (as well as that of other Article I judges). Alexandra Klindienst’s article on the Stern decision by Chief Justice John Roberts is a must-read. It addresses difficult jurisdictional questions while incorporating the unique pop culture connections of the case. Judge Eugene R. Wedoff recognized the need for high-quality pro bono counsel in important consumer bankruptcy appeals, and he decided to make that his retirement plan. And Judge Wedoff took that plan all the way to the Supreme Court! And then there is the mysterious, powerful, and often infuriating (to litigants and judges) automatic stay. Judge Stephanie Domitrovich unpacks the intersection of state and federal jurisdiction in her discussion of how she creatively worked her way through a divorce case she was adjudicating that was stayed when the automatic stay blocked her ability to require a party to meet support payments.

As judges, we know that our caseloads often reflect greater societal trends, and bankruptcy court caseloads are no exception. Leah O’Farrell finds herself in just that space in her interesting treatment of the Purdue Pharma bankruptcy where Bankruptcy Judge Robert C. Drain struggled to fairly compensate the millions of victims of opioid addiction that marred the early part of this century while encouraging the Sackler family to fund the plan. Another critical trend, the student loan crisis, is the subject of Judge Elizabeth L. Gunn and Joy D. Kleisinger’s article on the history and challenges of the treatment of student borrowers in our bankruptcy courts. After all, the promise of bankruptcy is to offer the debtor the same “fresh start” that Walt Disney and Henry Ford had nearly 100 years ago, but student borrowers who cannot get out from under the burden of their college debt have not been afforded that restart. Federally guaranteed education loans have been a political hot potato for many years, and this article carefully retraces that history and looks to future solutions.

I offer my heartfelt thanks to the talented authors of this very special edition of The Judges’ Journal, and I hope that you enjoy this multifaceted look at bankruptcy.

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By Judge Frank J. Bailey (Ret.)

Judge Frank J. Bailey (Ret.) served as a bankruptcy judge for the District of Massachusetts for over 13 years and is now president of PioneerLegal, LLC. He has taught a variety of law courses and is a past president of the National Conference of Bankruptcy Judges.