Article I, Section 8, Clause 4:

[The Congress shall have Power . . . ] To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States; . . .

Prior to 1898, Congress exercised its authority “[t]o establish . . . uniform Laws on the subject of Bankruptcies” only intermittently.1 It did not enact the first national bankruptcy law until 1800, twelve years after the Constitution’s ratification. This first national bankruptcy law was soon after repealed in 1803.2 Congress then passed the second national bankruptcy law in 1841, only to repeal it two years later.3 And Congress enacted the third federal bankruptcy law in 1867, which it subsequently rescinded in 1878.4 Thus, during the country’s first eighty-nine years under the Constitution, a national bankruptcy law was in existence for only sixteen years altogether.5 Consequently, a key issue of interpretation that arose during that period concerned the effect of the Bankruptcy Clause on state bankruptcy and insolvency laws.

The Supreme Court ruled at an early date that, in the absence of congressional action, states may enact bankruptcy and insolvency laws because it is not the mere existence of the federal bankruptcy power, but rather the power’s actual exercise by Congress that is incompatible with states exercising bankruptcy power.6 Thus, the Court has held that a state statute regulating the distribution of an insolvent’s property was suspended by the then-governing national bankruptcy law.7 Further, the Court held that a state law governing fraudulent transfers was compatible with federal law.8 But while a state insolvency or bankruptcy law is inoperative to the extent it conflicts with a national bankruptcy law in effect,9 the Court has held that Congress’s enactment of a national bankruptcy law does not invalidate conflicting state laws; it merely suspends them. Upon repeal of the national statute, the conflicting state laws again come into operation without the need for re-enactment.10

Footnotes

1

U.S. Const. art. I, § 8, cl. 4.

2

See Act of April 4, 1800, ch. 19, 2 Stat. 19 (repealed 1803).

3

See Act of Aug. 19, 1841, ch. 9, 5 Stat. 440 (repealed 1843).

4

See Act of March 2, 1867, ch. 176, 14 Stat. 517 (repealed 1878); Hanover National Bank v. Moyses, 186 U.S. 181, 184 (1902).

5

Congress did not establish a new federal bankruptcy law again until 1898. See Act of July 1, 1898, ch. 541, 30 Stat. 544 (repealed 1978). Congress replaced the 1898 Act with the current Bankruptcy Code in 1978. See Bankruptcy Reform Act of 1978, Pub. L. 95-598, 92 Stat. 2549 (Nov. 6, 1978) (codified, as amended, at 11 U.S.C. §§ 101 et seq.).

6

Sturges v. Crowninshield, 17 U.S. (4 Wheat.) 122, 199 (1819); Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 368 (1827).

7

Int’l Shoe Co. v. Pinkus, 278 U.S. 261, 265 (1929).

8

Stellwagon v. Clum, 245 U.S. 605, 615 (1918).

9

Butner v. United States, 440 U.S. 48, 54 n.9 (1979); see Pinkus, 278 U.S. at 264; Stellwagon v. Clum, 245 U.S. 605, 613 (1918); In re Watts and Sachs, 190 U.S. 1, 27 (1903); Boese v. King, 108 U.S. 379, 385–87 (1883).

A state’s bankruptcy law also may not extend to persons or property outside its jurisdiction, see Ogden, 25 U.S. at 368; Denny v. Bennett, 128 U.S. 489, 498 (1888); Brown v. Smart, 145 U.S. 454 (1892), or impair the obligation of contracts, see Crowninshield, 17 U.S. at 199. For information on the Contract Clause, U.S. Const. art. I, § 10, cl. 1, see ArtI.S10.C1.6.1 Overview of Contract Clause.

10

Tua v. Carriere, 117 U.S. 201, 210 (1886) ; Butler v. Goreley, 146 U.S. 303, 314 (1892).