Not Just Any Decision: The Ongoing Power Struggle Between Bankruptcy Courts and State Regulators

When the founders of the United States debated the Constitution in the summer of 1787, a primary point of contention was how to strike a proper balance of power between the federal government and the sovereign states. In fact, the founders were nearly obsessed with the concept of power, as demonstrated by James Madison’s words in The Federalist No. 45 that the “powers delegated to the federal government are few and defined [while those] which are to remain in the state governments are numerous and indefinite.” The Federalist supporters of a relatively strong centralized government prevailed, and the Constitution was ratified June 21, 1788.

As adopted, the Constitution included a provision authorizing Congress to enact “uniform Laws on the subject of Bankruptcies.” After a few short-lived attempts at a federal bankruptcy statute, Congress enacted the Bankruptcy Act in 1898 and the modern Bankruptcy Code in 1978.