The Federalist Cost of Bankruptcy Exemption Reform

American Bankruptcy Law Journal

Volumn 74, Issue 3, 2000, Pages 227-273

  Cole, G Marcus ^a  

^a STANFORD LAW SCHOOL   (United States)

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EID: 0346299260     PISSN: 00279048     EISSN: None     Source Type: Journal    
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References (240)

1. Elizabeth Warren, The Bankruptcy Crisis, 73 IND. L.J. 1079 (1998).
2. ADMIN. OFFICE OF THE U.S. COURTS FED. COURT MANAGEMENT REP., June, 2000, at 2. The July report shows that filings for the 12 month period ending June 30, 2000 have fallen to 1,276,922, a decrease of 8% from the previous 12 month period.
3. Warren, supra note 1, at 1100.
4. REPORT OF THE NATIONAL BANKR. REVIEW COMM'N, BANKRUPTCY: THE NEXT TWENTY YEARS (1997) [hereafter the COMMISSION REPORT]. The full report is available from the United States Government Printing Office.
5. H.R. 3150 and S. 1301 passed each house in the 105th Congress; however, there was no conference committee agreement before the adjournment of that Congress.
6. See H.R. 833, 106th Cong., 1st Sess. (1999); S. 625, 106th Cong., 1st Sess. (1999).
7. See, e.g., Edith H. Jones & Todd J. Zywicki, It's Time for Means-Testing, 1999 BYU L. REV. 177 (1999); Edith H. Jones, Rough Justice in Mass Future Claims: Should Bankruptcy Courts Direct Tort Reform? 76 TEX. L. REV. 1695 (1998); Larry E. Ribstein, Partner Bankruptcy and the Federalization of Partnership Law, 33 WAKE FOREST L. REV. 795 (1998).
8. See, e.g., Edith H. Jones & Todd J. Zywicki, It's Time for Means-Testing, 1999 BYU L. REV. 177 (1999); Edith H. Jones, Rough Justice in Mass Future Claims: Should Bankruptcy Courts Direct Tort Reform? 76 TEX. L. REV. 1695 (1998); Larry E. Ribstein, Partner Bankruptcy and the Federalization of Partnership Law, 33 WAKE FOREST L. REV. 795 (1998).
9. See, e.g., Edith H. Jones & Todd J. Zywicki, It's Time for Means-Testing, 1999 BYU L. REV. 177 (1999); Edith H. Jones, Rough Justice in Mass Future Claims: Should Bankruptcy Courts Direct Tort Reform? 76 TEX. L. REV. 1695 (1998); Larry E. Ribstein, Partner Bankruptcy and the Federalization of Partnership Law, 33 WAKE FOREST L. REV. 795 (1998).
10. See COMMISSION REPORT, supra note 4, Recommendation 1.2.1, which proposed elimination of § 522(b)'s opt-out and the use of only § 522's list of exemptions in bankruptcy by consumer debtors.
11. See CHARLES JORDAN TABB, THE LAW OF BANKRUPTCY, 643-45 (1997).
12. Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 HARV. L. REV. 1393 (1985).
13. See id. at 1393.
14. In truth, the Bankruptcy Code provides a list of exempt property which the individual debtor may elect to employ if the state of filing is without its own exemption statute, or if the debtor finds the federal exemption regime more profitable and her state has not "opted out" of the federal scheme. See 11 U.S.C. § 522 (d)(1) through (11) (1994). Currently thirty-five states have opted out of § 522(d), thereby prohibiting their residents from electing the federal exemptions.
15. See, however, the Federal Debt Collection Procedure Act, 28 U.S.C. § 3014 (1990), which provides that in suits by the United States against individual defendants, those defendants may elect between the federal nonbankruptcy exemptions and those provided for under the Bankruptcy Code's § 522(d).
16. See THOMAS H. JACKSON, THE LOGIC AND LIMITS OF BANKRUPTCY LAW 17-19 (1986).
17. For a thorough description of the forum shopping problem, see id. at 21-22.
18. See D. B. Gross & N. S. Souleles, Explaining the Increase in Bankruptcy and Delinquency: Stigma versus Risk-Composition (1998) (unpublished manuscript on file with the Graduate School of Business, University of Chicago).
19. The term "deadbeats" has been used, for example, by Margaret F. Brinig & F. H. Buckley, The Market for Deadbeats, 25 J. LEGAL STUD. 201 (1996).
20. See Butner v. United States, 440 U.S. 48 (1979), and infra note 65 and accompanying text.
21. Although this Article focuses on Chapter 7, a consumer debtor might employ jurisdiction jumping in Chapter 13, and if the deadbeat debtor is a professional with business debts, the process explained here can be accomplished, in a much more complicated fashion, through Chapter 11.
22. See 11 U.S.C. § 362 (1994).
23. See Judith S. Koffler, The Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity, 58 N.Y.U. L. REV. 22 (1983); William J. Woodward, Jr., Exemptions, Opting Out, and Bankruptcy Reform, 43 OHIO ST. L.J. 335 (1982); Lawrence Ponoroff & F. Stephen Knippenberg, Debtors Who Convert Their Assets on the Eve of Bankruptcy: Villains or Victims of the Fresh Start?, 70 N.Y.U. L. REV. 235 (1995); Alan N. Resnick, Prudent Planning or Fraudulent Transfer? The Use of Non-Exempt Assets to Purchase or Improve Exempt Property on the Eve of Bankruptcy, 31 RUTGERS L. REV. 615 (1978).
24. See Judith S. Koffler, The Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity, 58 N.Y.U. L. REV. 22 (1983); William J. Woodward, Jr., Exemptions, Opting Out, and Bankruptcy Reform, 43 OHIO ST. L.J. 335 (1982); Lawrence Ponoroff & F. Stephen Knippenberg, Debtors Who Convert Their Assets on the Eve of Bankruptcy: Villains or Victims of the Fresh Start?, 70 N.Y.U. L. REV. 235 (1995); Alan N. Resnick, Prudent Planning or Fraudulent Transfer? The Use of Non-Exempt Assets to Purchase or Improve Exempt Property on the Eve of Bankruptcy, 31 RUTGERS L. REV. 615 (1978).
25. See Judith S. Koffler, The Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity, 58 N.Y.U. L. REV. 22 (1983); William J. Woodward, Jr., Exemptions, Opting Out, and Bankruptcy Reform, 43 OHIO ST. L.J. 335 (1982); Lawrence Ponoroff & F. Stephen Knippenberg, Debtors Who Convert Their Assets on the Eve of Bankruptcy: Villains or Victims of the Fresh Start?, 70 N.Y.U. L. REV. 235 (1995); Alan N. Resnick, Prudent Planning or Fraudulent Transfer? The Use of Non-Exempt Assets to Purchase or Improve Exempt Property on the Eve of Bankruptcy, 31 RUTGERS L. REV. 615 (1978).
26. See Judith S. Koffler, The Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity, 58 N.Y.U. L. REV. 22 (1983); William J. Woodward, Jr., Exemptions, Opting Out, and Bankruptcy Reform, 43 OHIO ST. L.J. 335 (1982); Lawrence Ponoroff & F. Stephen Knippenberg, Debtors Who Convert Their Assets on the Eve of Bankruptcy: Villains or Victims of the Fresh Start?, 70 N.Y.U. L. REV. 235 (1995); Alan N. Resnick, Prudent Planning or Fraudulent Transfer? The Use of Non-Exempt Assets to Purchase or Improve Exempt Property on the Eve of Bankruptcy, 31 RUTGERS L. REV. 615 (1978).
27. See, e.g., Ian Domowitz & R. L. Sartain, Determinants of the Consumer Bankruptcy Decision, 54 J. FIN. 403 (1999) (concluding that property exemption levels are among the determinants of the bankruptcy decision and chapter choice); Michelle J. White, Why Don't More Households File for Bankruptcy?, 14 J.L. ECON. & ORG. 205 (1998) (demonstrating that, through state exemption laws and federal bankruptcy discharge, as many as 15% of American households would benefit financially from filing for bankruptcy relief); Erik Hurst, Scott Fay & Michelle J. White, The Bankruptcy Decision: Does Stigma Matter? (1998)(unpublished working paper, on file with The Department of Economics, University of Michigan) (concluding that social factors such as shame prevent debtors from taking advantage of exemption laws).
28. See, e.g., Ian Domowitz & R. L. Sartain, Determinants of the Consumer Bankruptcy Decision, 54 J. FIN. 403 (1999) (concluding that property exemption levels are among the determinants of the bankruptcy decision and chapter choice); Michelle J. White, Why Don't More Households File for Bankruptcy?, 14 J.L. ECON. & ORG. 205 (1998) (demonstrating that, through state exemption laws and federal bankruptcy discharge, as many as 15% of American households would benefit financially from filing for bankruptcy relief); Erik Hurst, Scott Fay & Michelle J. White, The Bankruptcy Decision: Does Stigma Matter? (1998)(unpublished working paper, on file with The Department of Economics, University of Michigan) (concluding that social factors such as shame prevent debtors from taking advantage of exemption laws).
29. See, e.g., Ian Domowitz & R. L. Sartain, Determinants of the Consumer Bankruptcy Decision, 54 J. FIN. 403 (1999) (concluding that property exemption levels are among the determinants of the bankruptcy decision and chapter choice); Michelle J. White, Why Don't More Households File for Bankruptcy?, 14 J.L. ECON. & ORG. 205 (1998) (demonstrating that, through state exemption laws and federal bankruptcy discharge, as many as 15% of American households would benefit financially from filing for bankruptcy relief); Erik Hurst, Scott Fay & Michelle J. White, The Bankruptcy Decision: Does Stigma Matter? (1998)(unpublished working paper, on file with The Department of Economics, University of Michigan) (concluding that social factors such as shame prevent debtors from taking advantage of exemption laws).
30. See Brinig & Buckley, supra note 17, at 201.
31. Id. at 206.
32. Id.
33. Ronel Elul & Naranyan Subramian, Forum Shopping and Personal Bankruptcy: Evidence from the PSID, (June 1999) (unpublished working paper series 99-1 on file with Brown University).
34. Id. at 11-12.
35. Id. at 12.
36. Id. at 18.
37. Reint Gropp, John Karl, and Michelle White, Personal Bankruptcy and Credit Supply and Demand, 112 QUARTERLY J. ECON. 217 (1997).
38. Id. at 218.
39. Id.
40. See, e.g., Tanya Albert, How Bankruptcy Finds Fertile Ground-Wage Garnishment Laws a Key Factor, USA TODAY, June 10, 1997, at 1B (reporting the results of a poll showing that bankruptcy filing rates are location dependent); The Key to a Cozier Bankruptcy: Location, Location, Location, N.Y. TIMES, January 7, 1998 (reporting that location is a key consideration in prebankruptcy planning); Jones & Zywicki, supra note 7; Ponoroff & Knippenberg, supra note 7 (criticizing the inequities created by debtor forum shopping).
41. See, e.g., Tanya Albert, How Bankruptcy Finds Fertile Ground-Wage Garnishment Laws a Key Factor, USA TODAY, June 10, 1997, at 1B (reporting the results of a poll showing that bankruptcy filing rates are location dependent); The Key to a Cozier Bankruptcy: Location, Location, Location, N.Y. TIMES, January 7, 1998 (reporting that location is a key consideration in prebankruptcy planning); Jones & Zywicki, supra note 7; Ponoroff & Knippenberg, supra note 7 (criticizing the inequities created by debtor forum shopping).
42. Jean Braucher, Increasing Uniformity in Consumer Bankruptcy: Means Testing as a Distraction and the National Bankruptcy Review Commission's Proposals as a Starting Point, 6 AM. BANKR. INST. L. REV. 1 (1998).
43. See Judith Schenck Koffler, The Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity, 58 N.Y.U. L. REV. 22 (1983); Vern Countryman, For a New Exemption Policy in Bankruptcy, 14 RUTGERS L. REV. 678 (1960); Frank R. Kennedy, Limitation of Exemptions in Bankruptcy, 45 IOWA L. REV. 445 (1960).
44. See Judith Schenck Koffler, The Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity, 58 N.Y.U. L. REV. 22 (1983); Vern Countryman, For a New Exemption Policy in Bankruptcy, 14 RUTGERS L. REV. 678 (1960); Frank R. Kennedy, Limitation of Exemptions in Bankruptcy, 45 IOWA L. REV. 445 (1960).
45. See Judith Schenck Koffler, The Bankruptcy Clause and Exemption Laws: A Reexamination of the Doctrine of Geographic Uniformity, 58 N.Y.U. L. REV. 22 (1983); Vern Countryman, For a New Exemption Policy in Bankruptcy, 14 RUTGERS L. REV. 678 (1960); Frank R. Kennedy, Limitation of Exemptions in Bankruptcy, 45 IOWA L. REV. 445 (1960).
46. See David A. Skeel, Jr., Rethinking the Line Between Corporate Law and Corporate Bankruptcy, 72 TEX. L. REV. 471 (1994).
47. See H.R. 3150 and S. 1301, supra note 5, for reform legislation passed by each body in the 105th Congress. See H.R. 833 and S. 625, supra note 6, for the reform bills of the 106th Congress.
48. See, e.g., Tanya Albert, Special Report: How Bankruptcy Finds Fertile Ground, USA TODAY, 1B (Tuesday, June 10, 1997) (illustrating how disparate state laws result in dramatic differences in bankruptcy filing rates).
49. ROBERTA ROMANO, THE GENIUS OF AMERICAN CORPORATE LAW 1 (1993).
50. See Edward L. Rubin & Malcolm Feeley, Federalism: Some Notes on a National Neurosis, 41 UCLA L. REV. 903 (1994).
51. See ADAM D. THIERER, THE DELICATE BALANCE: FEDERALISM, INTERSTATE COMMERCE, AND ECONOMIC FREEDOM IN THE TECHNOLOGICAL AGE 4-13 (1999).
52. THE STATUS OF FEDERALISM IN AMERICA: A REPORT OF THE WORKING GROUP ON FEDERALISM OF THE DOMESTIC POLICY COUNCIL 1 (1986).
53. ROMANO, supra note 39, at 5. ("[I]n a federal system, states and municipalities compete for citizens who choose to reside in the jurisdiction offering their preferred package of public goods and services").
54. For a comparable list of characteristics to those advanced here, see MICHAEL S. GREVE, REAL FEDERALISM: WHY IT MATTERS, How IT COULD HAPPEN 3-6 (1999).
55. FELIX MORLEY, FREEDOM AND FEDERALISM 6 (1959).
56. U.S. CONST. art. VI, cl. 2.
57. Stephen G. Calabresi, "A Government of Limited and Enumerated Powers": In Defense of United States v. Lopez, 94 MICH. L. REV. 752 (1995).
58. Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinea, 456 U.S. 694, 703 n.10 (states are "coequal sovereigns in a federal system"). Underwriters National Assurance Co. v. North Carolina Life & Accident & Health Ins. Guaranty Assn., 455 U.S. 691, 704 (1982) (recognizing "the structure of our nation as a union of states, each possessing equal sovereign powers").
59. The Full Faith and Credit Clause and other principles of comity and cooperation notwithstanding.
60. See Charles Tiebout, A Pure Theory of Local Expenditures, 64 J. POL. ECON. 416 (1956).
61. See GREVE, supra note 89, at 3-5.
62. Calabresi, supra note 92, at 776.
63. Id. at 774-78.
64. In the late 1980's, for example, Delaware experimented with a statutory reform to limit directors' personal liability for damages in shareholder suits. The resultant dramatic rise in share prices of firms changing statutory domicile to take advanage of this new provision led to the adoption of similar statutes in forty-one other states. Romano, supra note 35, at 19. Wisconsin's experiment with welfare reform provides an even more recognizable example.
65. Michael W. McConnell, Federalism: Evaluating the Founders' Design, 54 U. CHI L. REV. 1484, 1498-1500 (1987).
66. ROMANO, supra note 39, at 5. For example, a state may not be vigilant about pollution that is likely to be more problematic on the other side of its border, and may refrain from a mosquito spraying program that will benefit adjoining jurisdictions. Id.
67. See THOMAS R. DYE, AMERICAN FEDERALISM: COMPETITION AMONG GOVERNMENTS (1990).
68. See William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 88 YALE L.J. 663 (1974) (suggesting that jurisdictional competition results in a race to the bottom). See also Ralph K. Winter, State Law, Shareholder Protection, and the Theory of the Corporation, 6 J. LEGAL STUD. 251 (1977) (suggesting that jurisdictional competition results in a race to the top).
69. See William L. Cary, Federalism and Corporate Law: Reflections Upon Delaware, 88 YALE L.J. 663 (1974) (suggesting that jurisdictional competition results in a race to the bottom). See also Ralph K. Winter, State Law, Shareholder Protection, and the Theory of the Corporation, 6 J. LEGAL STUD. 251 (1977) (suggesting that jurisdictional competition results in a race to the top).
70. See David K. Skeel, Rethinking the Line Between Corporate Law and Corporate Bankruptcy, 72 TEX. L. REV. 471 (1994) (urging transfer of the bankruptcy power to state control).
71. See Butner v. United States, 440 U.S. 48 (1979); see also JACKSON, supra note 14, at 21-22.
72. Id.
73. For an explanation of the common pool problem, see Randall C. Picker, Security Interests, Misbehavior, and Common Pools, 59 U. CHI. L. REV. 645, 647 (1992).
74. JACKSON, supra note 14, at 21-22.
75. Id.
76. 440 U.S. 48 (1979).
77. See, e.g., Chicago Board of Trade v. Johnson, 264 U.S. 1 (1924) (holding that a property interest in a seat on a financial exchange enters bankruptcy with the same attributes it had under state law).
78. Butner, 440 U.S. at 918.
79. Id. ("Congress has generally left the determination of property rights in the assets of a bankrupt's estate to state law.").
80. See G. Marcus Cole, A Calculus Without Consent: Mass Tort Bankruptcies, Future Claimants, and the Problem of Third Party Non-Debtor "Discharge," 84 IOWA L. REV. 753 (1999). See also Frederick Tung, Taking Future Claims Seriously: Future Claims and Successor Liability in Bankruptcy, 49 CASE W. RES. L. REV. 435 (1999).
81. See G. Marcus Cole, A Calculus Without Consent: Mass Tort Bankruptcies, Future Claimants, and the Problem of Third Party Non-Debtor "Discharge," 84 IOWA L. REV. 753 (1999). See also Frederick Tung, Taking Future Claims Seriously: Future Claims and Successor Liability in Bankruptcy, 49 CASE W. RES. L. REV. 435 (1999).
82. Cole, supra note 69, at 762-63.
83. Id. at 755.
84. This is known as the "Discovery Rule," since tort plaintiffs are not charged with the responsibility of complying with statutes of limitations until they discover that they have been injured. W. PAGE KEETON ET AL., PROSSER AND KEETON ON THE LAW OF TORTS § 30, at 66 (5th ed. 1984).
85. See Cole, supra note 69, at 788-89.
86. See, e.g., Jones, supra note 7, at 1695 (criticizing the resolution of future claims in bankruptcy proceedings).
87. See Wells M. Engledow, Cleaning Up the Pigsty: Approaching a Consensus on Exemption Laws, 74 AM. BANKR. L.J. 275 (2000). Mr. Engledow also arrays several other commentators on his side of the issue. See id. at 275 n.1.
88. See Wells M. Engledow, Cleaning Up the Pigsty: Approaching a Consensus on Exemption Laws, 74 AM. BANKR. L.J. 275 (2000). Mr. Engledow also arrays several other commentators on his side of the issue. See id. at 275 n.1.
89. The Bankruptcy Act of 1898 was the first bankruptcy law enacted by Congress to survive more than just a few years. See Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 8 (1995).
90. T. PLUCKNETT, LEGISLATION OF EDWARD I 139-50 (1949). See also F. POLLOCK & F. MAITLAND, HISTORY OF ENGLISH LAW BEFORE THE LEGISLATION OF EDWARD I 596 (2d ed. 1968); Judith Schenck Koffler, Some Contributions of Edward I to the Capitalist Transformation of England, 3 RES. L. & SOC. 107, 111 (1980).
91. T. PLUCKNETT, LEGISLATION OF EDWARD I 139-50 (1949). See also F. POLLOCK & F. MAITLAND, HISTORY OF ENGLISH LAW BEFORE THE LEGISLATION OF EDWARD I 596 (2d ed. 1968); Judith Schenck Koffler, Some Contributions of Edward I to the Capitalist Transformation of England, 3 RES. L. & SOC. 107, 111 (1980).
92. T. PLUCKNETT, LEGISLATION OF EDWARD I 139-50 (1949). See also F. POLLOCK & F. MAITLAND, HISTORY OF ENGLISH LAW BEFORE THE LEGISLATION OF EDWARD I 596 (2d ed. 1968); Judith Schenck Koffler, Some Contributions of Edward I to the Capitalist Transformation of England, 3 RES. L. & SOC. 107, 111 (1980).
93. Statute of Westminster II, 1285, 13 Ed. 1, ch. 18.
94. See, e.g., ARIZ. REV. STAT. ANN. § 12-1553(1) (1990); CONN. GEN. STAT. ANN. § 52-371 (1986) (repealed); DEL. CODE ANN. tit. 10, § 4901 (1974); N.J. STAT. ANN. § 2A:17-1 (1952).
95. The first "American" homestead exemption law was adopted by the Republic of Texas in 1839, in response to the panic of 1837. William T. Vukowich, Debtors' Exemption Rights, 62 GEORGETOWN L.J. 779, 783 n.16 (1974). In this regard, modern American homestead exemptions may be said to have originated from the Spanish Civil Code. See Dennis J. Wall, Homestead and the Process of History: The Proposed Changes in Article X, Section 4, 6 FLA. ST. U. L. REV. 877, 889 (1978). The elevated protection of a debtor's realty in the Americas, however, predates the enactment of homestead exemption laws. Colonial Virginia and Delaware employed the English law doctrine of elegit, which protected one half of a debtor's land from seizure by creditors. See Paul Goodman, The Emergence of Homestead Exemption in the United States: Accommodation and Resistance to the Market Revolution, 1840-1880, J. OF AM. HIST. 470, 475 (1993).
96. The first "American" homestead exemption law was adopted by the Republic of Texas in 1839, in response to the panic of 1837. William T. Vukowich, Debtors' Exemption Rights, 62 GEORGETOWN L.J. 779, 783 n.16 (1974). In this regard, modern American homestead exemptions may be said to have originated from the Spanish Civil Code. See Dennis J. Wall, Homestead and the Process of History: The Proposed Changes in Article X, Section 4, 6 FLA. ST. U. L. REV. 877, 889 (1978). The elevated protection of a debtor's realty in the Americas, however, predates the enactment of homestead exemption laws. Colonial Virginia and Delaware employed the English law doctrine of elegit, which protected one half of a debtor's land from seizure by creditors. See Paul Goodman, The Emergence of Homestead Exemption in the United States: Accommodation and Resistance to the Market Revolution, 1840-1880, J. OF AM. HIST. 470, 475 (1993).
97. The first "American" homestead exemption law was adopted by the Republic of Texas in 1839, in response to the panic of 1837. William T. Vukowich, Debtors' Exemption Rights, 62 GEORGETOWN L.J. 779, 783 n.16 (1974). In this regard, modern American homestead exemptions may be said to have originated from the Spanish Civil Code. See Dennis J. Wall, Homestead and the Process of History: The Proposed Changes in Article X, Section 4, 6 FLA. ST. U. L. REV. 877, 889 (1978). The elevated protection of a debtor's realty in the Americas, however, predates the enactment of homestead exemption laws. Colonial Virginia and Delaware employed the English law doctrine of elegit, which protected one half of a debtor's land from seizure by creditors. See Paul Goodman, The Emergence of Homestead Exemption in the United States: Accommodation and Resistance to the Market Revolution, 1840-1880, J. OF AM. HIST. 470, 475 (1993).
98. TEX. PROP. CODE ANN. §41.001-.002 (2000); see also Tex. Const. art. XVI, §§ 50-51. The Texas Constitution of 1845 contained a homestead exemption that protected the home and improvements of a head of household up to 200 acres. See A. THOMAS & A. THOMAS, INTERPRETIVE COMMENTARY TO ARTICLE 16, § 50 OF THE CONSTITUTION OF THE STATE OF TEXAS (1955) (cited in A. COHEN, DEBTOR-CREDITOR RELATIONS UNDER THE BANKRUPTCY ACT OF 1978, 557 (1979)).
99. FLA. CONST. art. X, § 4.
100. 1 S. SCOTT, THE CIVIL LAW 63-64 (1932).
101. Roman bankruptcy law became more humane with the need to encourage voluntary bankruptcies during the Civil Wars. It eventually provided that voluntary bankrupts could reserve a portion of after-acquired property for personal use. See Wall, supra note 80, at 889.
102. 4 Anne, ch. 17 (1705).
103. U.S. CONST. art. I, § 8, cl. 4. See CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY 4-8 (1935); F. REGIS NOEL, HISTORY OF THE BANKRUPTCY LAW 76-81 (1919); Vern Countryman, A History of American Bankruptcy Law, COM. L.J. 226 (June/July 1976).
104. U.S. CONST. art. I, § 8, cl. 4. See CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY 4-8 (1935); F. REGIS NOEL, HISTORY OF THE BANKRUPTCY LAW 76-81 (1919); Vern Countryman, A History of American Bankruptcy Law, COM. L.J. 226 (June/July 1976).
105. U.S. CONST. art. I, § 8, cl. 4. See CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY 4-8 (1935); F. REGIS NOEL, HISTORY OF THE BANKRUPTCY LAW 76-81 (1919); Vern Countryman, A History of American Bankruptcy Law, COM. L.J. 226 (June/July 1976).
106. NOEL, supra note 86, at 77.
107. THE FEDERALIST NO. 42 (James Madison) (Clinton Rossiter ed., 1961).
108. See PETER J. COLEMAN, DEBTORS AND CREDITORS IN AMERICA: INSOLVENCY, IMPRISONMENT FOR DEBT, AND BANKRUPTCY, 1607-1900, 18 (1974). According to Professor Charles Warren, "It is highly probable that the attention of the framers was chiefly centered on bankruptcy in relation to commerce, and that the exercise of the [bankruptcy] power was conceived as primarily for the benefit of the commercial class of creditors and debtors, as in England." CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY 7 (1935).
109. See PETER J. COLEMAN, DEBTORS AND CREDITORS IN AMERICA: INSOLVENCY, IMPRISONMENT FOR DEBT, AND BANKRUPTCY, 1607-1900, 18 (1974). According to Professor Charles Warren, "It is highly probable that the attention of the framers was chiefly centered on bankruptcy in relation to commerce, and that the exercise of the [bankruptcy] power was conceived as primarily for the benefit of the commercial class of creditors and debtors, as in England." CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY 7 (1935).
110. The Statute of 13 Elizabeth, enacted in 1570, provided that only traders and merchants, persons who earned their living "buying and selling," were eligible for bankruptcy. 13 Eliz., cap. 7. See also, Jay Cohen, The History of Imprisonment for Debt and its Relation to the Development of Discharge in Bankruptcy, 3 J. LEGAL HIST. 153 (1982).
111. According to Blackstone, the laws were: cautious of encouraging prodigality and extravagance by this indulgence to debtors; and therefore they allow the benefit of the laws of bankruptcy to none but actual traders; since that set of men are, generally speaking, the only persons liable to accidental losses, and to an inability of paying their debts, without any fault of their own. If persons in other situations of life run in debt without the power of payment, they must take the consequences of their own indiscretion, even though they meet with sudden accidents that may reduce their fortunes: for the law holds it to be an unjustifiable practice, for any person but a trader to encumber himself with debts of any considerable value. If a gentleman, or one in a liberal profession, at the time of contracting his debts, has a sufficient fund to pay them, the delay of payment is a species of dishonesty, and a temporary injustice to his creditor: and if, at such time, he has no sufficient fund, the dishonesty and injustice is the greater. He cannot therefore murmur, if he suffers the punishment which he has voluntarily drawn upon himself. But in mercantile transactions the case is far otherwise. Trade cannot be carried on without mutual credit on both sides: the contracting of debts is therefore here not only justifiable but necessary. And if accidental calamities, as by loss of a ship in a tempest, the failure of brother traders, or by the nonpayment of persons out of trade, a merchant or trader becomes incapable of discharging his own debts, it is his misfortune and not his fault.
112. WILLIAM BLACKSTONE, 2 COMMENTARIES ON THE LAWS OF ENGLAND 473-474 (1765-1769) (emphasis in original).
113. WARREN, supra note 89, at 6-7.
114. COLEMAN, supra note 89, at 14 (Rhode Island and the Carolinas).
115. Id. at 272.
116. Id.
117. WARREN, supra note 42, at 6-7.
118. Id.
119. 17 U.S. 122 (1819).
120. Id. at 195 ("This difficulty of discriminating with any accuracy between insolvent and bankrupt laws, would lead to the opinion, that a bankrupt law may contain . . . insolvent laws; and that an insolvent law may contain those which are common to a bankrupt law.").
121. COLEMAN, supra note 89, at 18.
122. See Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 AM. BANKR. INST. L. REV. 5, 14-15 (1995).
123. Id. at 16-21.
124. COLEMAN, supra note 89, at 29.
125. Id. at 19.
126. WARREN, supra note 86, at 16-18.
127. Tabb, supra 101, at 15.
128. COLEMAN, supra note 89, at 29.
129. The Bankruptcy Act of 1898, § 6 (act July 1, 1898, ch. 541, 30 Stat. 544, 548) (repealed 1979).
130. For example, Chapter 11, of the 1978 Code which governs reorganizations, was modeled after Chapter XI of the 1898 Act. See Tabb, supra note 101 at 35.
131. 110 186 U.S. 181 (1902).
132. 111 Id. at 190.
133. The case establishing the now familiar "substance-versus-procedure" distinction in federal diversity jurisdiction was Erie Rwy. Co. v. Tompkins, 304 U.S. 64 (1938).
134. See Tabb, supra note 101, at 32-33.
135. Id. at 36-37.
136. 11 U.S.C. § 522 (1994).
137. Id. See also 11 U.S.C. § 541(a) (1994).
138. Section 522(b) provides, in part: [A]n individual debtor may exempt from property of the estate . . . either . . . -(1) property that is specified under subsection (d) of this section, unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize; or, in the alternative, (2)(A) any property that is exempt under . . . State or local law. . . . 11 U.S.C. § 522(b)(1), (2)(A) (1994).
139. Id.
140. See Koffler, supra note 21, at 27.
141. See, e.g., CAL. CIV. PROC. CODE § 703.130 (2000). For a complete list of all of the states which have opted out of the federal exemption regime, see BROWN, AHERN & MACLEAN, BANKRUPTCY EXEMPTION MANUAL (2000), §3.02.
142. 680 F.2d 1131 (7th Cir.), cert. denied sub nom. Sullivan v. United States, 459 U.S. 992 (1982).
143. Id. at 1138; see also Rhodes v. Stewart, 705 F.2d 159 (6th Cir. 1983), cert. denied, 464 U.S. 983 (1983); In re Storer, 58 F.3d 1125 (6th Cir. 1995); In re Butcher, 125 F.3d 238 (4th Cir. 1997).
144. See Ponoroff & Knippenberg, supra note 21, at 235; Resnick, supra note 21, at 615.
145. See J. T. Hardin, Bankruptcy Planning: Risks of Converting Nonexempt Property to Exempt Property on the Eve of Bankruptcy, 12 OKLA. CITY U. L. REV. 279 (1987).
146. Section 522 of the Bankruptcy Code requires a debtor to have resided in the state for 180 days, but as will be explained below, most debtors try to wait one year after resettling before filing a bankruptcy petition, if possible. See 11 U.S.C. § 727(a)(2) (1994).
147. See First Fidelity Bank, N.A., vs. Jason Realty, L.P. (In re Jason Realty, L.P.), 59 F.3d 423, 427 (3d Cir. 1995) ("A federal court in bankruptcy is not allowed to upend the property law of the state in which it sits, for to do so would encourage forum shopping and allow a party to receive 'a windfall merely by reason of the happenstance of bankruptcy.'" (quoting Butner v. United States, 440 U.S. at 55)). See also 11 U.S.C. § 522(b)(2)(A) (1994).
148. See 11 U.S.C. § 727(a)(2) (1994); FED. R. BANKR. P. 4004(a).
149. 11 U.S.C. § 727(a)(2) (1994).
150. See, e.g., Alan N. Resnick, Prudent Planning or Fraudulent Transfer? The Use of Nonexempt Assets to Purchase or Improve Exempt Property on the Eve of Bankruptcy, 31 RUTGERS L. REV. 615 (1978).
151. See, e.g., Hanna v. Plumer, 380 U.S. 460, 474 (1965) (Harlan, J., concurring); Kevin M. Clermont & Theodore Eisenberg, Exorcising the Evil of Forum-Shopping, 80 CORNELL L. REV. 1507 (1995); Henry H. Friendly, Adverting the Flood by Lessening the Flow, 59 CORNELL L. REV. 634, 641 (1974); Kimberly Jade Norwood, Shopping for a Venue: The Need for More Limits on Choice, 50 U. MIAMI L. REV. 267 (1996).
152. See, e.g., Hanna v. Plumer, 380 U.S. 460, 474 (1965) (Harlan, J., concurring); Kevin M. Clermont & Theodore Eisenberg, Exorcising the Evil of Forum-Shopping, 80 CORNELL L. REV. 1507 (1995); Henry H. Friendly, Adverting the Flood by Lessening the Flow, 59 CORNELL L. REV. 634, 641 (1974); Kimberly Jade Norwood, Shopping for a Venue: The Need for More Limits on Choice, 50 U. MIAMI L. REV. 267 (1996).
153. See, e.g., Hanna v. Plumer, 380 U.S. 460, 474 (1965) (Harlan, J., concurring); Kevin M. Clermont & Theodore Eisenberg, Exorcising the Evil of Forum-Shopping, 80 CORNELL L. REV. 1507 (1995); Henry H. Friendly, Adverting the Flood by Lessening the Flow, 59 CORNELL L. REV. 634, 641 (1974); Kimberly Jade Norwood, Shopping for a Venue: The Need for More Limits on Choice, 50 U. MIAMI L. REV. 267 (1996).
154. For an argument that forum shopping is actually desirable in corporate bankruptcy, if engaged in before insolvency is imminent, see Robert K. Rasmussen and Randall S. Thomas, Timing Matters: Promoting Forum Shopping by Insolvent Corporations, 94 NW. U. L. REV. (forthcoming 2000) (draft on file with author).
155. For discussions of the importance of the federalist right to interstate travel to African-Americans, see David E. Bernstein, The Law and Economics of Post-Civil War Restrictions on Interstate Migration by African-Americans, 76 TEX. L. REV. 781, 792-823 (1998) (discussing the effect of southern "emigrant agent" laws on African-American migration and wage rates after the civil war). See also ALLAN H. SPEAR, BLACK CHICAGO: THE MAKING OF A NEGRO GHETTO 1890-1920, 129-46 (1967) (explaining the "great migration" of African-Americans from the south to the northern industrial cities as both economic and political, and encouraged by the northern black press); GILBERT OSOFSKY, HARLEM: THE MAKING OF A GHETTO - NEGRO NEW YORK, 1890-1930, 17-34 (1966) (same); NICHOLAS LEMANN, THE PROMISED LAND: THE GREAT BLACK MIGRATION AND HOW IT CHANGED AMERICA 14-21 (1991) (discussing the struggle between the northern black press and southern white planters to persuade African-American workers which environment was preferable for them).
156. For discussions of the importance of the federalist right to interstate travel to African-Americans, see David E. Bernstein, The Law and Economics of Post-Civil War Restrictions on Interstate Migration by African-Americans, 76 TEX. L. REV. 781, 792-823 (1998) (discussing the effect of southern "emigrant agent" laws on African-American migration and wage rates after the civil war). See also ALLAN H. SPEAR, BLACK CHICAGO: THE MAKING OF A NEGRO GHETTO 1890-1920, 129-46 (1967) (explaining the "great migration" of African-Americans from the south to the northern industrial cities as both economic and political, and encouraged by the northern black press); GILBERT OSOFSKY, HARLEM: THE MAKING OF A GHETTO - NEGRO NEW YORK, 1890-1930, 17-34 (1966) (same); NICHOLAS LEMANN, THE PROMISED LAND: THE GREAT BLACK MIGRATION AND HOW IT CHANGED AMERICA 14-21 (1991) (discussing the struggle between the northern black press and southern white planters to persuade African-American workers which environment was preferable for them).
157. For discussions of the importance of the federalist right to interstate travel to African-Americans, see David E. Bernstein, The Law and Economics of Post-Civil War Restrictions on Interstate Migration by African-Americans, 76 TEX. L. REV. 781, 792-823 (1998) (discussing the effect of southern "emigrant agent" laws on African-American migration and wage rates after the civil war). See also ALLAN H. SPEAR, BLACK CHICAGO: THE MAKING OF A NEGRO GHETTO 1890-1920, 129-46 (1967) (explaining the "great migration" of African-Americans from the south to the northern industrial cities as both economic and political, and encouraged by the northern black press); GILBERT OSOFSKY, HARLEM: THE MAKING OF A GHETTO - NEGRO NEW YORK, 1890-1930, 17-34 (1966) (same); NICHOLAS LEMANN, THE PROMISED LAND: THE GREAT BLACK MIGRATION AND HOW IT CHANGED AMERICA 14-21 (1991) (discussing the struggle between the northern black press and southern white planters to persuade African-American workers which environment was preferable for them).
158. For discussions of the importance of the federalist right to interstate travel to African-Americans, see David E. Bernstein, The Law and Economics of Post-Civil War Restrictions on Interstate Migration by African-Americans, 76 TEX. L. REV. 781, 792-823 (1998) (discussing the effect of southern "emigrant agent" laws on African-American migration and wage rates after the civil war). See also ALLAN H. SPEAR, BLACK CHICAGO: THE MAKING OF A NEGRO GHETTO 1890-1920, 129-46 (1967) (explaining the "great migration" of African-Americans from the south to the northern industrial cities as both economic and political, and encouraged by the northern black press); GILBERT OSOFSKY, HARLEM: THE MAKING OF A GHETTO - NEGRO NEW YORK, 1890-1930, 17-34 (1966) (same); NICHOLAS LEMANN, THE PROMISED LAND: THE GREAT BLACK MIGRATION AND HOW IT CHANGED AMERICA 14-21 (1991) (discussing the struggle between the northern black press and southern white planters to persuade African-American workers which environment was preferable for them).
159. GREVE, supra note 44, at 3. For an example of African-Americans engaged in intrastate "voting with their feet," see Price V. Fishback, Can Competition Among Employers Reduce Governmental Discrimination? Coal Companies and Segregated Schools in West Virginia in the Early 1900s, 32 J.L. & ECON. 311, 328 (1989).
160. The constitutional right to interstate travel was first expressly recognized by the Supreme Court in the Passenger cases, 7 How. 283, 492 (1849) ("We are all citizens of the United States; and as members of the same community, must have the right to pass and repass through every part of it without interruption, as freely as in our own States."). It has been reaffirmed repeatedly ever since Crandall v. Nevada, 6 Wall. 35, 43 (1867); See United States v. Guest, 383 U.S. 745, 758 (1966) ("Freedom to travel throughout the United States has long been recognized as a basic right under the Constitution.").
161. See Tiebout, supra note 50, at 416.
162. ROMANO, supra note 39, at 42-44.
163. This phrase was coined by Brinig & Buckley, supra note 17, at 201.
164. Id. at 202-03.
165. Real estate tends to be both the largest element of exempt property, and a common basis for state and local taxation.
166. FLA. STAT. ANN. § 199.062 (1993).
167. See 11 U.S.C. § 727(a)(8) (1994).
168. Jeremy Berkowitz & Richard Hynes, Bankruptcy Exemptions and the Market for Mortgage Loans, 42 J. LAW & ECON. 809, 826 (1999).
169. Id. at 826.
170. Id.
171. Id.
172. See Engledow, supra note 75, at 275. The National Bankruptcy Review Commission shared Mr. Engledow's perspective. See COMMISSION REPORT, supra note 4, at Recommendation 1.2.1.
173. Brinig & Buckley, supra note 17.
174. Wells Engledow adds his voice to the long list of commentators calling for uniformity which he presents in his paper. See Engledow, supra note 75, at 275 n.1.
175. Adapted from the analysis provided by Larry E. Ribstein & Bruce H. Kobayashi, An Economic Analysis of Uniform State Laws, 25 J. LEGAL STUD. 131, 138-40 (1996).
176. As of this writing, at least some part of the Uniform Commercial Code has been adopted in all fifty states, the District of Columbia, and Puerto Rico. National Conference of Commissioners on Uniform State Laws, Press Release: July 24, 2000 (visited September 14, 2000) >http://www.nccusl.org/press-releases/pr7-24-00.htm<.
177. Ribstein & Kobayashi, supra note 149, at 138.
178. Id. at 139.
179. Id. at 140.
180. Id. at 139.
181. This example is adapted from the one offered by Roberta Romano in THE GENIUS OF AMERICAN CORPORATE LAW, supra note 39, at 5.
182. See TERRY ANDERSON & DONALD LEAL, FREE MARKET ENVIRONMENTALISM 21-22, (1991); see also THIERER, THE DELICATE BALANCE, supra note 41, at 141.
183. For an expression of this sentiment, see Engledow, supra note 75, at 277.
184. U.S. SENTENCING GUIDELINES MANUAL 2 (Nov. 1991) (citing Congress's search for "reasonable uniformity in sentencing by narrowing the wide disparity in sentences imposed for similar criminal offenses committed by similar offenders" as one of the underlying goals of the Sentencing Reform Act of 1984).
185. See, e.g., Koffler, supra note 21, at 22.
186. The term "local knowledge," as defined by Friedrich Hayek, sometimes referred to as "personal knowledge" as defined by Michael Polanyi, describes information (such as tastes or preferences) which resides with the affected individual, the content of which "cannot be explicitly stated," or can be ascertained only through a transaction involving the affected party. See FRIEDRICH A. HAYEK, THE USE OF KNOWLEDGE IN SOCIETY 13-14 (1977); MICHAEL POLANYI, KNOWING AND BEING 141 (1969).
187. See Tiebout, supra note 50, at 416.
188. Id.
189. Ribstein & Korbayashi, supra note 149, at 140.
190. See THIERER, THE DELICATE BALANCE, supra note 41, at 50.
191. Id.
192. Lawrence L. Knutson, Clinton Embraces Wisconsin Welfare Plan, CHICAGO SUN-TIMES, May 19, 1996, at 2; Robert L. Jackson, Clinton Praises GOP Governor's Welfare Model, LOS ANGELES TIMES, May 19, 1996, at 1.
193. Lawrence L. Knutson, Clinton Embraces Wisconsin Welfare Plan, CHICAGO SUN-TIMES, May 19, 1996, at 2; Robert L. Jackson, Clinton Praises GOP Governor's Welfare Model, LOS ANGELES TIMES, May 19, 1996, at 1.
194. HAYEK, supra note 160, at 13-14. What is important about such information is the fact that it requires the input or action of the affected party before it can be used. See id. at 14; MICHAEL POLANYI, KNOWING AND BEING 141 (1969).
195. HAYEK, supra note 160, at 14.
196. For a detailed discussion of the propensity for transactions to convey information about preferences, see FRIEDRICH A. HAYEK, supra note 160, at 1-17 (1988).
197. We care about marginal debtors and creditors because in a competitive environment, it is marginal "consumers" that set or police the terms available in the marketplace, in much the same way that coupon-collecting comparison shoppers help assure that the price of sugar at one grocery store never outrageously exceeds that at competitive stores. See Alan Schwartz and Louis L. Wilde, Intervening in Markets on the Basis of Imperfect Information: A Legal and Economic Analysis, 127 U. PENN. L. REV. 630 (1979).
198. See Gropp, et al., supra note 30, at 218.
199. See, e.g., FLA. CONST. art. X, § 4. (1984).
200. See, e.g., DEL. CODE ANN. tit. 10, § 4914(a) (1991) (providing Delaware debtors with no homestead exemption at all, and prohibiting them from employing federal bankruptcy exemptions).
201. See Berkowitz & Hynes, supra note 142, at 826.
202. Id.
203. Id.
204. This example is loosely based upon reports of the financial difficulties of former Major League Baseball Commissioner Bowie Kuhn. See David Margolic, Bowie Kuhn is Said to be in Hiding, N.Y. TIMES, June 15, 1990, at D1.
205. Bankruptcy Code § 303(b) provides that: An involuntary case against a person is commenced by the filing with a bankruptcy court of a petition under chapter 7 or 11 of this title -(1) by three or more entities, each of which is . . . a holder of a claim . . . if such claims aggregate at least $10,775 . . .; (2) if there are fewer than 12 such holders, excluding any employee or insider . . ., by one or more such holders that hold in the aggregate at least $10,775 of such claims . . . .
206. U.S.C. § 303(b) (2000).
207. Section 303 of the Bankruptcy Code requires at least three claimants whose claims aggregate to at least $10,775 to commence an involuntary proceeding when there are twelve or more claim holders. 11 U.S.C. § 303(b)(1) (2000).
208. See First Fidelity Bank, N.A., vs. Jason Realty, L.P. (In re Jason Realty, L.P.), 59 F.3d 423, 427 (3d Cir. 1995) ("A federal court in bankruptcy is not allowed to upend the property law of the state in which it sits, for to do so would encourage forum shopping and allow a party to receive 'a windfall merely by reason of the happenstance of bankruptcy.'" (quoting Butner v. United States, 440 U.S. at 55)). See also 11 U.S.C. § 522(b)(2)(A) (1994).
209. 59 F.3d 942 (9th Cir. 1995), cert. denied 516 U.S. 1074 (1996).
210. Id. at 948.
211. Id.
212. Id.
213. See In re Morris, 30 F.3d 1578 (7th Cir. 1994).
214. Section 522 is the Bankruptcy Code provision that addresses the treatment of exempt property in bankruptcy. See 11 U.S.C. § 522 (1994).
215. 11 U.S.C. § 522(f)(1) (1994).
216. Id.
217. See BROWN, ET AL., BANKRUPTCY EXEMPTION MANUAL § 6.02 (2000).
218. 11 U.S.C. § 522(e) (1994).
219. For a thorough discussion of the various normative underpinnings of the nonwaivable right to discharge, see JACKSON, supra note 14, at 228-48.
220. Compare Edward J. McCaffery, Tax's Empire, 85 GEO. L.J. 71, 73 (noting that the tax cutting efforts of Governors Whitman and Engler propelled them to national prominence) and Christopher C. DeMuth, The Case Against Credit Card Interest Rate Regulation, 3 YALE J. ON REG. 201, 231-36 (1986) (showing that states competed for credit card consumers on the basis of usury laws, and that consumers chose states without usury laws over states with restrictive ones) with Lior Jacob Strahilevitz, The Uneasy Case for the Devolution of the Individual Income Tax, 85 IOWA L. REV. 907, 973 (2000) (asserting that "it is difficult to make the case that states' fiscal policies have much effect on the business cycles in the individual states").
221. Compare Edward J. McCaffery, Tax's Empire, 85 GEO. L.J. 71, 73 (noting that the tax cutting efforts of Governors Whitman and Engler propelled them to national prominence) and Christopher C. DeMuth, The Case Against Credit Card Interest Rate Regulation, 3 YALE J. ON REG. 201, 231-36 (1986) (showing that states competed for credit card consumers on the basis of usury laws, and that consumers chose states without usury laws over states with restrictive ones) with Lior Jacob Strahilevitz, The Uneasy Case for the Devolution of the Individual Income Tax, 85 IOWA L. REV. 907, 973 (2000) (asserting that "it is difficult to make the case that states' fiscal policies have much effect on the business cycles in the individual states").
222. Compare Edward J. McCaffery, Tax's Empire, 85 GEO. L.J. 71, 73 (noting that the tax cutting efforts of Governors Whitman and Engler propelled them to national prominence) and Christopher C. DeMuth, The Case Against Credit Card Interest Rate Regulation, 3 YALE J. ON REG. 201, 231-36 (1986) (showing that states competed for credit card consumers on the basis of usury laws, and that consumers chose states without usury laws over states with restrictive ones) with Lior Jacob Strahilevitz, The Uneasy Case for the Devolution of the Individual Income Tax, 85 IOWA L. REV. 907, 973 (2000) (asserting that "it is difficult to make the case that states' fiscal policies have much effect on the business cycles in the individual states").
223. See generally Tiebout, supra note 50, at 416.
224. Albeit, through the use of a new federal choice-of-law mechanism.
225. The details and people of this example are entirely fictional, intended
226. The elimination of an exemption for an automobile is done here to simplify the example. A transactional nexus regime can easily accommodate multiple claims governed by multiple automobile exemptions, which would be applied in the fashion described for homestead exemptions.
227. The state with the lowest homestead exemption determines the maximum amount of the debtor's interest that can be shielded from creditors, since creditors with claims arising under that state's law will be able to access all but that exempt amount.
228. For purposes of this illustration, the proceeds of Deborah's home will be distributed as follows: American Excess 10,000 × 0.85 = 8,500 Cashco 5,000 + (45,000 × 0.85) = 43,250 Mr. Tortia 2,500 + (22,500 × 0.85) = 21,625 Cars-R-Us 2,500 + (22,500 × 0.85) = 21,625 TOTAL DISTRIBUTION = 95,000 This $95,000 was the maximum amount that could be recovered by creditors under any of the state exemption laws, since Maryland law grants Deborah a $5,000 homestead exemption.
229. The logic here is similar to that underlying the trustee's strong arm power as a hypothetical lien creditor under § 544(a). For a detailed explanation of how hypothetical lien creditor status freezes the creditors' relative positions before a race to the assets is commenced, see JACKSON, supra note 14, at 70-73.
230. Elul & Subramian, supra note 26, at 18.
231. For a thorough explanation of the treatment of secured claims in bankruptcy, see Thomas H. Jackson & Anthony T. Kronman, Secured Financing and Priorities Among Creditors, 88 YALE L.J. 1143 (1979).
232. The term "Maryland creditors" refers to creditors whose claims arise from transactions that give rise to the application of Maryland law.
233. For a thorough discussion of the complexities of choice-of-law determinations, see Larry Kramer, Rethinking Choice of Law, 90 COLUM. L. REV. 277 (1990).
234. See Engledow, supra note 75, at 294.
235. 205 U.S. Const., Art. IV, sec. 1.
236. This argument is of a species advanced by a classic critique of federalism, developed in GRANT MCCONNELL, PRIVATE POWER & AMERICAN DEMOCRACY 101-118 (1966).
237. See Amy Lynn Wagenfeld, Law for Sale: Alaska and Delaware Compete for the Asset Protection Trust Market and the Wealth that Follows, 32 VAND. J. TRANSNAT'L L. 831 (1999).
238. See Brinig & Buckley, supra note 17, at 206; see also Elul & Subramian, supra note 26, at 3.
239. See Berkowitz & Hynes, supra note 142, at 826.
240. See TAYLOR BRANCH, PARTING THE WATERS: AMERICA IN THE KING YEARS 1954-63, 203 (1988).