Challenge To The Constitutionality Of The New Bankruptcy Law

By Douglas Jacobs, California Bankruptcy Attorney

The current bankruptcy law, which went into affect in October 2005, is being challenged based on its constitutionality in the 6th Circuit Court of Appeals. The basis of that attack is, in simple terms, that the law lacks uniformity, and therefore violates the Bankruptcy clause of the Constitution.

Article I, Section 8, paragraph 4 of the Constitution grants Congress the power to create uniform Laws on the subject of Bankruptcy throughout the United States. The new law bases the relief available to a potential debtor on whether or not he or she is above or below median income. This number varies greatly from state to state, does not differentiate for urban or rural living, and was not calculated on the cost of living in the state.

Thus, the challenge to the law is because it is not uniform, as required. Earlier versions of the bankruptcy law were attacked for similar reasons. There, however, the objectionable clauses were always issues left by the bankruptcy law to the individual states, such as different exemptions or dissimilar treatment of certain classes of creditors. Here, the congressionally passed law doesn’t give the states the right to determine median income, but mandates what is to be used. Since the Constitution grants to Congress the right to pass uniform laws on Bankruptcy, passing a law, which, on its face, is not uniform, is Unconstitutional.

But will the court agree? Who knows? It’s likely that the 6th Circuit will hear argument in the spring of 2008, and issue a decision several months later. It’s also likely that the decision, regardless of who wins, will be appealed to the United States Supreme Court. Once there, it will probably take at least a year to be heard. So, don’t expect a resolution anytime soon: maybe by June 2009 at the earliest. For now, we’re stuck with BAPCPA (the new law) and the means test.

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