Justice in Bankruptcy: What Does it Mean?

This article is part of my bankruptcy alphabet series.

Justice in America has taken different paths over time.  In the days of  Justice of the Peace Roy Bean (portrayed by the late, great Paul Newman), wild west justice was often harsh, decisive and often at the whim of the sheriff or judge serving it up.

Justice is one of those words that gets different definitions from different people.  One person’s justice, is another person’s crime.

In bankruptcy court, justice takes the form of a balancing of competing interests.   Bankruptcy courts are “courts of equity”, which means that they are not designed to merely determine if someone has followed the law or violated it; their purpose is to issue orders to achieve a desired result.

As with everything, the concept of justice seems to have different meanings to different parties.    Creditors feel justice would be served if they get paid 100%.  Debtors seem to believe justice would be served if they don’t have to pay anything (including to their attorneys it often seems).

In bankruptcy, this purpose is to balance the needs of the debtor (filing the bankruptcy case) to get a fresh start and eliminate the obligation to repay certain debts,  with the rights of the creditors (those owed money) to get paid.   The Bankruptcy Code is designed to achieve this result “simply” by analyzing the ability of the debtor to repay his/her/its debts, and the so-called “means test” introduced in 2005 supplemented this goal.

To further these goals, for example, the  bankruptcy laws allow a bankruptcy trustee to sue creditors who have received payments from the bankrupt debtor within a certain period prior to the bankruptcy case being filed (90 days for regular creditors, and 12 months for relatives and insiders) to recover those funds as being “preferential” and they are then paid back to all creditors pro rata for a more equitable distribution.

There are many other ways in which the bankruptcy laws try to achieve this balance, and bankruptcy judges are called upon to make decisions in interpreting the laws that try to maintain this delicate balance because, on the whole, the bankruptcy laws benefit us all as a society.  They give “honest, but unfortunate” debtors the fresh start they need so they can return to being productive members of society (or businesses the chance to reorganize their debts to return to profitability), but also try to maximize the amount creditors will receive.

Does this meet with your definitions of justice?     The bankruptcy laws are evolving even today, but overall I think justice is served.

Others blogging about the Letter “J” in the bankruptcy alphabet:

Joint Bankruptcy Filing    Downriver, Michigan Bankrutpcy Lawyer, Christopher McAvoy
Joint Debts    Hawaii Bankruptcy Attorney, Stuart T. Ing
Joint Filing    Marin County Bankruptcy Attorney, Catherine Eranthe
Judgment    Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Judgment Liens    Colorado Springs Bankruptcy Attorney Bob Doig
Judgment Liens    Philadelphia Suburban Bankruptcy Lawyer, Chris Carr
Judicial Lien    Cleveland Area Bankruptcy Lawyer, Bill Balena
Jurisdiction    Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein
Justify    Northern California Bankruptcy Lawyer, Cathy Moran
J is for Jay Fleischman    New York Bankruptcy Lawyer, Jay S. Fleischman
Judgment Debtor    San Francisco Bankruptcy Attorney, Jeena Cho
Jail Wisconsin Bankruptcy Lawyer, Bret Nason

Joint Bankruptcy, Peter Behrmann

Image courtesy of Marion Doss

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