Toward a Federal Common Law of Bankruptcy: Judicial Lawmaking in a Statutory Regime

Adam J. Levitin, Georgetown University Law Center

Abstract

Bankruptcy is a statutory system, yet there are many modern bankruptcy practices that lack explicit statutory authorization, such as court orders to make immediate payments to certain of the debtor’s suppliers, discharges for debtor’s officers, owners, or professionals, and the consolidation of separate companies that have filed for bankruptcy. Traditionally authorization for non-statutory practices have been found in the equity powers of the bankruptcy court. Many courts are uncomfortable with what they perceive as the unfettered discretion of equity powers, however, and have hesitated to authorize non-Code practices. This Article shows that bankruptcy courts likely lack equity powers and argues that non-Code practices in bankruptcy are properly understood as authorized by federal common law. A federal common law framework allows for the development of bankruptcy law outside the Code, but its constraints of precedent and judge-made tests allow for predictable and consistent judgments. Analysis of non-Code practices as part of a federal common law of bankruptcy strikes a balance between flexibility and the predictable rule of law and would result in more sensible rulings on non-Code practices.

Publisher Statement

©2006 National Conference of Bankruptcy Judges