Bankruptcy and Related Laws

Author: (American) Epstein
Publisher:
Publish Date: 2005-08-01
Features: Bankruptcy law has never been a major course in nearly four hundred law schools in China, and there are few scholars researching it. Even at China University of Political Science and Law, a law school with a relatively comprehensive legal curriculum, early bankruptcy law instruction was included within civil law and civil procedure courses. In the curriculum for students majoring in economic law, basic bankruptcy law knowledge was also explained within the context of business law. The weak state of bankruptcy law teaching and research in China is related to the controversy among Chinese legal scholars about whether bankruptcy law is a substantive law, a procedural law, or a special law. Due to excessive emphasis on the disciplinary attributes of bankruptcy law, its true value has been overlooked. In recent years, bankruptcy law teaching has improved in many law schools, and at least at China University of Political Science and Law, there are at least five professors teaching bankruptcy law, comparative bankruptcy law, and bankruptcy law and corporate restructuring. The initial neglect and current emphasis on bankruptcy law in Chinese law schools are entirely an interesting phenomenon that arises from the transformation of Chinese society and the market. As China's market-oriented reforms have gradually deepened, the market's understanding of bankruptcy law has become increasingly profound, and law students, as well as professionals in the business, finance, and commercial sectors, have placed greater importance on bankruptcy law. At China University of Political Science and Law, even specialized research institutions like the Bankruptcy Law and Corporate Restructuring Research Center have been established.
In American law schools, bankruptcy law is a crucial course. Since the United States does not have a legal discipline classification system like China's, bankruptcy law does not have a designated disciplinary and there is no debate about whether it is a substantive law, a procedural law, or a special law. In American law schools, bankruptcy law is treated as an equally important legal practice course as corporate law, securities law, and antitrust law. I can give an example to illustrate the importance of bankruptcy law in American law schools. At Harvard Law School, bankruptcy law is taught by Harvard Law-level professors. Among the few law professors at Harvard Law, at least three teach bankruptcy law courses. When I was a visiting scholar at Harvard in 2000, I audited Elizabeth Warren's two-semester bankruptcy law courses: Creditors and Debtors Law and Advanced Bankruptcy Law, each lasting one semester, meeting once a week for three hours per session. Harvard Law's JD program enrolls 550 students per year. Due to Warren's status as the chair of the U.S. Congress's Bankruptcy Reform and Advisory Committee and one of the most renowned professors at Harvard Law, combined with the importance of bankruptcy law, the number of students enrolled in her courses each semester exceeds 70. Warren uses her own lecture notes, and each unit requires students to pay for it, costing about $12 per unit. Over the course of the semester, eight or nine units would cost around $100. American students generally view bankruptcy law as a challenging but highly practical course. Additionally, in the legal economics course at Harvard's Law, Economics, and Business Center, bankruptcy law is also studied using economic methods.
I also audited a bankruptcy law course taught by Professor Scarberry at Pepperdine University's law school in California's western region. The law school enrolls about 300 students annually, with over 50 students enrolled in his course. Scarberry gave me a bankruptcy law textbook he wrote, which is over a thousand pages long and now in its third edition. Considering the number of students at American law schools, the course selection mechanism (with only six mandatory courses among hundreds), the credit system, and the difficulty of the bankruptcy law course, the fact that so many students choose to take this course demonstrates that bankruptcy law is a significant legal practice course in the United States.
In a fully commercialized society, bankruptcy law is undoubtedly one of the most important laws in that society. The current U.S. bankruptcy law, passed in 1978 and commonly referred to as the "Bankruptcy Code," is listed in Title 11 of the U.S. Code. Although the 1978 Bankruptcy Code has been amended in 1984, 1986, 1988, 1990, 1994, 1998, 1999, 2001, and 2003, and even a new bankruptcy law amendment bill was signed into law by President Bush in April 2005, its overall framework and basic content have not changed significantly. The main content of the U.S. Bankruptcy Code is divided into the following eight chapters:
Chapter 1: General Provisions, Definitions, and Rules;
Chapter 3: Case Administration;
Chapter 5: Creditors, Debtors, and Bankruptcy Property;
Chapter 7: Liquidation;
Chapter 9: Adjustment of Municipal Debts;
Chapter 11: Reorganization;
Chapter 12: Adjustment of Debts of Family Farmers with Fixed Annual Income;
Chapter 13: Adjustment of Debts of Individuals with Fixed Annual Income.
Several examples can illustrate the important role and impact of U.S. bankruptcy law in American society. The U.S. Bankruptcy Code is one of the two laws mentioned in the U.S. Constitution, and the relationship between bankruptcy law and the constitution has become a hotly debated topic in bankruptcy law classrooms in American law schools, a phenomenon rarely seen in other countries. The ongoing debates in Washington's Capitol about bankruptcy reform bills are also a perennial issue where creditor groups, American labor unions, the American Bankruptcy Association, and various lobbying groups actively advocate. Bankruptcy cases are often front-page news in major American business publications like the Wall Street Journal. High-profile media headlines about major bankruptcies like Enron, United Airlines, and WorldCom, which shocked the world, were all handled by U.S. federal courts under Chapter 11 of the U.S. Bankruptcy Code. In 2003 and 2004, the number of personal bankruptcy filings in the United States exceeded 1.5 million each year, and for a society highly sensitive to unemployment and bankruptcy, this figure has a significant impact on the economic and social stability of the United States. All these examples demonstrate the importance of bankruptcy law in American society and its direct and profound influence on the commercial and economic society of the United States.
Bankruptcy law is important because it addresses one of the oldest, most active, and fundamental relationships in human society—the relationship between creditors and debtors. According to Professor Warren, "The history of bankruptcy law is the history of the relationship between creditors and debtors." Since the emergence of commercial relationships in human society, the issues of credit and debt, as well as the relationships between creditors and debtors, have existed. Ordinary people and merchants engage in borrowing and lending in their daily lives, production, and transactions. Once borrowing and lending occur, creditors and debtors are created. In creditor-debtor relationships, repaying debts is a fundamental behavioral norm. Although the relationship between creditors and debtors may initially be in a "honeymoon" phase, among the numerous creditor-debtor relationships, there will inevitably be situations where debtors are unable to repay their debts, leading to the breakdown of the good relationship between creditors and debtors. In a commercial society, the occurrence of insolvency can be attributed to various factors, including debtors' varying living and business capabilities, intense competition, changes in consumer demand, market risks, unpredictable transaction factors, and the existence of malicious fraudulent commercial transactions. Regardless of the cause, when a debtor is unable to repay their debts, the relationship between creditors and debtors undergoes a fundamental change. The main research focus of creditor-debtor relationship law is how to handle this tricky relationship, especially how creditors can maximize the recovery of their debts.
From the perspective of creditor-debtor relationship law, the methods and means to resolve the issue of debtors unable to repay their debts are essentially two paths: non-legal (extra-judicial) and legal (intra-judicial). Bankruptcy law is the most important legal method for handling insolvency. Fundamentally, bankruptcy law is an ordered and civilized commercial arrangement led by the judiciary that fairly distributes the property of debtors unable to repay their debts to creditors or provides financial relief to debtors. This judicial commercial arrangement addresses the procedural and technical issues of fundamental creditor-debtor commercial relationships. This judicial commercial arrangement not only involves creditors and debtors but often engages more stakeholders related to this commercial arrangement and fundamental relationship, including shareholders, corporate employees, corporate management, labor unions, the government, debtor families, bankruptcy lawyers, accountants, and others. The complexity of bankruptcy law lies in this.
Due to its involvement in complex creditor-debtor commercial arrangements, commercial transaction evaluations, and intricate legal relationships, bankruptcy law itself holds significant commercial value. In a bankruptcy case, effective bankruptcy law and case handling can not only maximize the interests of creditors but also balance the interests of all stakeholders involved. Further, bankruptcy law is also a complex, theory-practice integrated science with practical and academic value.