The Bankruptcy Clause, the Fifth Amendment, and the Limited Rights of Secured Creditors in Bankruptcy

It is a commonly held belief that the Fifth Amendment’s Takings Clause limits the Bankruptcy Clause and that secured creditors have a constitutional right to receive the full value of their collateral when a debtor declares bankruptcy. This Article rejects this received wisdom: the Fifth Amendment does not—and should not—constrain Congress’s ability to define the contours of the Bankruptcy Clause. As revealed by a close examination of the historical evolution of bankruptcyjurisprudence, the Fifth Amendment is not even helpful or relevant in considering the constitutional rights of secured creditors in bankruptcy. As such, the only meaningful limitation on Congress is the Bankruptcy Clause itself. This Article deconstructs this established paradigm and offers a nuanced account of Congress’s capacity for reform through its broad authority to modify secured creditors’ rights.

The full text of this Article is available to download as a PDF.