Adler, Barry E. --- "Bankruptcy as Property Law" [2011] ELECD 154; in Ayotte, Kenneth; Smith, E. Henry (eds), "Research Handbook on the Economics of Property Law" (Edward Elgar Publishing, 2011)

Book Title: Research Handbook on the Economics of Property Law

Editor(s): Ayotte, Kenneth; Smith, E. Henry

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847209795

Section: Chapter 10

Section Title: Bankruptcy as Property Law

Author(s): Adler, Barry E.

Number of pages: 15

Extract:

10 Bankruptcy as property law
Barry E. Adler


What must bankruptcy law be? As it turns out this question has a simple answer. There is
exactly one function bankruptcy law must serve. It must govern mutually insupportable
obligations. Or, one might say, any law that governs mutually insupportable obligations
is bankruptcy law. That is, bankruptcy law is property law.
To understand this claim, consider first what almost anyone would see as a typical
bankruptcy setting. A borrower arrives on hard times, unable to repay her debts in full
and with liabilities that exceed her assets. Her creditors seek to collect, but cannot get
blood from a stone, so not all of them will succeed; i.e., the debtor is insolvent. There are
many things that bankruptcy law could do in response to this debtor's financial crisis.
The law could, for example, stay the creditors' individual collection efforts in favor of
a collective process and discharge the debtor from her obligations, in whole or in part.
Indeed American bankruptcy law does each of these things for individual and corporate
debtors. But the law needn't do either. There is only one thing bankruptcy law must do,
if there is to be law at all in this situation: it must decide which of the creditors, if any,
gets the debtor's assets. Put another way, because creditors of an insolvent debtor have
conflicting claims against assets, bankruptcy law must establish which of the creditors
has a superior interest in those assets. ...