Schultz v. United States ( 2008 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 08a0206p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiffs-Appellants, -
BERNARD F. SCHULTZ; ELIZABETH M. SABATINE,
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No. 07-5618
v.
,
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UNITED STATES OF AMERICA, -
Defendant-Appellee. -
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Appeal from the United States District Court
for the Eastern District of Tennessee at Chattanooga.
No. 07-00012—R. Allan Edgar, District Judge.
Argued: March 17, 2008
Decided and Filed: June 2, 2008
Before: RYAN, SILER, and COLE, Circuit Judges.
_________________
COUNSEL
ARGUED: Thomas E. Ray, SAMPLES, JENNINGS, RAY & CLEM, Chattanooga, Tennessee, for
Appellants. Lewis Yelin, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Appellee. ON BRIEF: Thomas E. Ray, SAMPLES, JENNINGS, RAY & CLEM, Chattanooga,
Tennessee, for Appellants. Lewis Yelin, William Kanter, UNITED STATES DEPARTMENT OF
JUSTICE, Washington, D.C., for Appellee. George W. Kuney, UNIVERSITY OF TENNESSEE
COLLEGE OF LAW, Knoxville, Tennessee, for Amicus Curiae.
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OPINION
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R. GUY COLE, JR., Circuit Judge. Plaintiffs-Appellants Bernard Francis Schultz and
Elizabeth Mary Sabatine (hereinafter “the Schultzes”), husband and wife and residents of Hamilton
County, Tennessee, filed for bankruptcy under Chapter 13 in the United States Bankruptcy Court
for the Eastern District of Tennessee. Independently, the Schultzes filed a complaint for declaratory
judgment in the United States District Court for the Eastern District of Tennessee, alleging that the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA” or “the Act”)
violates Article I, Section 8, Clause 4 of the Constitution (the “Bankruptcy Clause”), which gives
Congress the power to establish “uniform Laws on the subject of Bankruptcies throughout the
United States.” U.S. CONST. art. 1, § 8, cl. 4 (emphasis added). The district court granted the
Government’s motion for summary judgment and dismissed the Schultzes’ complaint. For the
following reasons, we AFFIRM the judgment of the district court.
1
No. 07-5618 Schultz, et al. v. United States Page 2
I. BACKGROUND
A.
Individual consumer debtors generally choose between two forms of relief afforded by the
Bankruptcy Code: Chapter 7 and Chapter 13.1 In a Chapter 7 proceeding, an individual debtor
receives an immediate unconditional discharge of personal liabilities for debts in exchange for the
liquidation of all non-exempt assets. See 11 U.S.C. §§ 701-784. By contrast, in a Chapter 13
proceeding, a debtor commits to repayment of a portion of his or her financial obligations over a
specified period of time (generally three to five years) in exchange for retaining non-exempt assets
and receiving a broader discharge of debt than is available under Chapter 7. See 11 U.S.C. §§ 1301-
1330. Under the bankruptcy system prior to the BAPCPA, Pub. L. No. 109-8, 119 Stat. 23 (codified
as amended in scattered sections of Title 11 of the United States Code), debtors had a presumption
of eligibility to file under Chapter 7, with the final determination made by the Bankruptcy Court on
an individualized basis. 11 U.S.C. § 727.
In 2005, the landscape for bankruptcy filings dramatically changed. Responding to a
growing belief that “bankruptcy relief may be too readily available and is sometimes used as a first
resort, rather than a last resort,” H.R. REP. NO. 109-31(I), at 4 (2005), and the prevalence of
“opportunistic personal filings and abuse,” id. at 5, Congress enacted the BAPCPA in order to
require above-median income debtors to make more funds available for the payment of unsecured
creditors. As a result, higher-income debtors with the ability to repay a substantial portion of their
debts without significant hardship are now required to do so by filing under Chapter 13 rather than
Chapter 7.
The centerpiece of the Act is the imposition of a “means test” for Chapter 7 filers, which
requires would-be debtors to demonstrate financial eligibility to avoid the presumption that their
bankruptcy filing is an abuse of the bankruptcy proceedings. By its terms, the BAPCPA authorizes
a bankruptcy court to dismiss a debtor’s petition filed under Chapter 7 or, with the debtor’s consent,
to convert such a petition to Chapter 13 “if it finds that the granting of relief would be an abuse of
the provisions of [Chapter 7].” 11 U.S.C. § 707(b)(1). Under this test, the first step instructs the
bankruptcy court to compare the debtor’s annualized current monthly income to the median family
income of a similarly sized family in the debtor’s state of residence. If the debtor’s current monthly
income is equal to or below the median, then the presumption of abuse does not arise. 11 U.S.C.
§ 707(b)(7). If, however, it exceeds the median, the Act directs the court to recalculate the debtor’s
income by deducting certain necessary expenses specified by the statute. Id. § 707(b)(2)(A)(ii).
These reductions are derived from the national and local standards contained in the Internal Revenue
Service’s Financial Analysis Handbook. Id.; see INTERNAL REVENUE SERV., INTERNAL
REVENUE MANUAL, FINANCIAL ANALYSIS HANDBOOK (“IRS Handbook”), available at
http://www.irs.gov/irm/part5/ch15s01.html.
Because of these deductions, eligibility under the new regime is calculated at least in part
based on the state and county where the debtor resides. The housing expense 2deduction, for
example, is governed by the county where the debtor resides. Id. § 5.15.1.7(4)(A). Although the
national standards, which identify amounts for “food, housekeeping supplies, apparel and services,
1
While individual consumer debtors also may file under Chapter 11 of the Bankruptcy Code, see Toibb v.
Radloff, 501 U.S. 157, 160-64 (1991), as a practical matter, the cost and complexity of this remedy preclude most
individual debtors from doing so.
2
The BAPCPA also permits a debtor to deduct additional expenses for food, clothing, housing, utilities, health
insurance, disability insurance, health savings accounts, and certain educational expenses, so as long as the debtor
demonstrates that those additional allowances are reasonable and necessary. 11 U.S.C. § 707(b)(2)(A)(ii).
No. 07-5618 Schultz, et al. v. United States Page 3
and personal care products and services,” and a fixed “miscellaneous” amount, id. § 5.15.1.7(3), are
mostly uniform throughout the United States, the local standards, which define amounts for housing
and transportation, vary greatly.
If after deducting these necessary expenses and specified amounts, the debtor’s current
monthly income exceeds certain mathematical benchmarks, then the presumption of abuse arises.
11 U.S.C. § 707(b)(2)(A)(i). This presumption may be rebutted only if the debtor demonstrates
special circumstances justifying any additional expenses or adjustments to the debtor’s income for
which there is no reasonable alternative, and that those special circumstances reduce the debtor’s
income below the specified benchmarks. Id. § 707(b)(2)(B). And even if the presumption of abuse
does not apply, or has been rebutted by the debtor, the BAPCPA empowers a bankruptcy court to
consider whether it believes “the debtor filed the petition in bad faith,” or whether “the totality of
the circumstances . . . of the debtor’s financial situation demonstrates abuse.” Id. § 707(b)(3).
To implement and enforce these reforms, the United States trustee or the bankruptcy
administrator reviews a Chapter 7 debtor’s petition and files with the court a statement explaining
whether a presumption of abuse arises. Id. § 704(b)(1). If the trustee determines that it does, then
the trustee is directed either to file a motion to dismiss, a motion to convert the petition, or to
provide a statement explaining why such a motion is inappropriate. Id. § 704(b)(2).
The BAPCPA also amended two aspects of Chapter 13. First, “disposable income” is now
defined as “currently monthly income received by the debtor . . . less amounts reasonably needed
to be expended.” 11 U.S.C. § 1325(b)(2). If a debtor’s annualized monthly income exceeds the
median family income for a similarly sized family in the applicable state, the Act requires the
bankruptcy court to calculate “amounts reasonably necessary to be expended” in accordance with
the same IRS Handbook’s national and local standards used in Chapter 7. Id. § 1325(b)(3). If a
debtor is below the median income, the “amounts reasonably necessary to be expended” are instead
determined as they were pre-BAPCPA—by the bankruptcy court assessing whether the expenses
listed by the debtor in Schedule J (which must be filed along with the bankruptcy petition) are
reasonably necessary for the debtor’s maintenance and support. Id. § 1325(b)(2). Second, if the
debtor’s income still exceeds the median after recalculation, the Act imposes an “applicable
commitment period” of “not less than 5 years.” Id. § 1325(b)(4)(A)(ii). However, if the debtor’s
annualized income is less than the median, then the applicable commitment period is three years.
Id. § 1325(b)(4)(A)(i).
B.
On November 21, 2006, the Schultzes filed for bankruptcy under Chapter 13 in the United
States Bankruptcy Court for the Eastern District of Tennessee. On January 13, 2007, the bankruptcy
court confirmed their plan, which required payment for sixty months and resulted in a pro-rata
distribution to unsecured creditors of less than 100% of their allowed claims.
Concurrently, the Schultzes brought a separate suit against the United States, which
challenges the five sections of the BAPCPA that employ the “means test”—Sections 707(b)(7),
707(b)(2), 704(b), 1325(b)(3), and 1325(b)(4)—under one central theory: because median-income
calculations are based, at least in part, on the state and county in which the debtor resides, the
BAPCPA is not a “uniform Law[] on the subject of Bankruptcies throughout the United States.”
U.S. CONST. art. 1, § 8, cl. 4 (emphasis added).
At the time of their Chapter 13 filing, the Schultzes had an annualized current monthly
income of $84,975.84, an amount that is above the median family income for a family of five for
Tennessee residents (which is $63,174), but below the median family income of Connecticut,
No. 07-5618 Schultz, et al. v. United States Page 4
Hawaii, Massachusetts, Maryland, New Hampshire, and New Jersey.3 As a result of this benchmark
in Tennessee, the Schultzes’ applicable commitment period was five, rather than three, years, and
in calculating their disposable income they were limited to the expense deductions set forth in
Sections 707(b)(2)(A) and (B). 11 U.S.C. § 1325(b)(3)-(4).
After the parties filed cross-motions for summary judgment, the district court granted the
Government’s motion and dismissed the Schultzes’ complaint. Canvassing relevant Supreme Court
precedent, the district court concluded that the “uniformity requirement does not proscribe different
results in different states because of state law variations.” Schultz v. United States, 369 B.R. 349,
352 (E.D. Tenn. 2007). In response to the Schultzes’ argument that the BAPCPA amendments are
unconstitutional because they create variations in different states based on federal instead of state
law, the district court explained that there is “no principled reason for concluding that variations
resulting from federal statistics create unconstitutional non-uniformity, whereas variations resulting
from state law do not.” Id. The court concluded that “[d]isposable income might vary from place
to place, but it is based on uniformly calculated national statistics. The variations in the results
produced by these statistics are of no constitutional consequence.” Id. at 353.
The Schultzes timely appealed. We review de novo a district court’s grant of summary
judgment. Miller v. Admin. Office of the Courts, 448 F.3d 887, 893 (6th Cir. 2006).
II. ANALYSIS
A.
As a threshold matter, we address briefly the Government’s contention that the Schultzes
lack standing to challenge two BAPCPA provisions affecting Chapter 7 bankruptcy filings: Sections
707(b)(2) and 704(b). We review de novo the question of standing, Sandusky County Democratic
Party v. Blackwell, 387 F.3d 565, 573 (6th Cir. 2004), even “where standing has erroneously been
assumed below,” Adarand Constructors, Inc. v. Mineta, 534 U.S. 103, 110 (2001).4 A plaintiff has
Article III standing when he or she can show: (1) an injury-in-fact that (2) was “fairly traceable to
the defendant’s allegedly unlawful conduct” and (3) is “likely to be redressed” via a favorable
decision. Prime Media, Inc. v. City of Brentwood, 485 F.3d 343, 349 (6th Cir. 2007) (quoting Lujan
v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). The only question in dispute is whether the
Schultzes have shown an “injury-in-fact,” or “an invasion of a legally protected interest which is
(a) concrete and particularized, and (b) actual or imminent,” Lujan, 504 U.S. at 560 (citations
omitted), by the two presumption-of-abuse sections intended for Chapter 7 debtors. In applying the
first requirement of a concrete injury, the Supreme Court made clear that a plaintiff is not entitled
to injunctive or declaratory relief “[a]bsent a sufficient likelihood that he will again be wronged in
a similar way,” City of Los Angeles v. Lyons, 461 U.S. 95, 111 (1983), unless the plaintiff is subject
to “continuing, present adverse effects,” O’Shea v. Littleton, 414 U.S. 488, 496 (1974).
The problem, as the Government sees it, is that the Schultzes never filed a Chapter 7
bankruptcy petition, nor do they intend to do so in the future. Although the Schultzes have shown
that their income is above the applicable median family income for Tennessee, potentially subjecting
them to the challenged Chapter 7 provisions, they have not established that they would be exposed
to the presumption of abuse after their monthly income is reduced by allowable expenses specified
3
Across the United States, the median family income for a family of five ranges from $52,036 in Mississippi
to $98,505 in Connecticut. (Joint Appendix (“JA”) 73-74.)
4
The Government did not raise the standing issue at the district court, Schultz, 369 B.R. at 351 n.1, but
“[s]tanding is not an affirmative defense that must be raised at risk of forfeiture.” Cmty. First Bank v. Nat’l Credit Union
Admin., 41 F.3d 1050, 1053 (6th Cir. 1994).
No. 07-5618 Schultz, et al. v. United States Page 5
by the statute. See 11 U.S.C. § 707(b)(2). The Schultzes, in turn, argue that the potential for being
subject to the presumption of abuse under Chapter 7 forced them into filing under Chapter 13. And
requiring a debtor to file a Chapter 7 petition with full knowledge that it would be dismissed subjects
the debtor to years of litigation while his bankruptcy case, and financial situation, remain in limbo.
The questions of whether the Schultzes were deterred from filing a Chapter 7 petition, and
whether the presumption of abuse would have applied after the appropriate reductions and
calculations, are irrelevant for one simple reason: the parties concede that the Schultzes have
standing to challenge the Chapter 13 provisions—Sections 1325(b)(3) and (4)—which use the same
state-specific median income levels and varying local standards as the Chapter 7 amendments.
Based on their median family income calculation in Tennessee, the Schultzes are currently repaying
debt under a sixty-month Chapter 13 plan, and receive less favorable treatment in their plan than
individuals in other states. Moreover, their housing and transportation expenses were determined
by reference to the IRS Handbook, which varies by locality.
Because our resolution of the Schultzes’ Chapter 13 challenges effectively addresses the
identical claims for the Chapter 7 provisions, without regard to whether they have standing to
challenge those provisions, we find no need to resolve this issue. To put it simply, we could not
invalidate some of the “means test” provisions without invalidating the others.
B.
1.
We turn to the central issue in this case: Is the BAPCPA a uniform law on the subject of
bankruptcy? The Bankruptcy Clause of the Constitution grants Congress the power to “establish
. . . uniform Laws on the subject of Bankruptcies throughout the United States.” U.S. CONST. art.
I, § 8, cl. 4. What distinguishes these “peculiar terms” from the other Article I powers is the concept
of uniformity, which, as Chief Justice Marshall noted nearly two centuries ago, “deserve[s] notice.
Congress is not authorized merely to pass laws, the operation of which shall be uniform, but instead
to establish uniform laws on the subject throughout the United States.” Sturges v. Crowinshield, 17
U.S. (4 Wheat.) 122, 193-94 (1819).
Echoing Justice Marshall’s concern that the concept of “uniformity is, perhaps, incompatible
with state legislation,” id., the Schultzes contend that “the classification scheme adopted by
Congress based upon whether a debtor is above or below the median income of his particular state
of residence violates the Bankruptcy Clause because it results in some debtors receiving different
bankruptcy relief under federal law based solely upon [the] state or county [in which] they happen
to reside.” (Appellants’ Br. 8-9.) Implicit in their argument is what the Supreme Court has referred
to as personal uniformity, or the notion that the bankruptcy laws should apply identically to
individual debtors, regardless of the state or locality in which the debtor resides. The Court,
however, has consistently described the Bankruptcy Clause’s uniformity requirement as
“geographical, and not personal,” Hanover Nat’l Bank v. Moyses, 186 U.S. 181, 188 (1902), which
is “wholly satisfied when existing obligations of a debtor are treated alike by the bankruptcy
administration throughout the country regardless of the State in which the bankruptcy court sits,”
Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 172 (1946) (Frankfurter, J.,
concurring).
Over the last century, the Supreme Court has wrestled with the notion of geographic
uniformity, ultimately concluding that it allows different effects in various states due to
dissimilarities in state law, so long as the federal law applies uniformly among classes of debtors.
In Moyses, one of the first cases dealing with the validity of a bankruptcy statute, the Court upheld
the incorporation of varying state exemptions into the 1898 Bankruptcy Act. 186 U.S. at 189-90.
No. 07-5618 Schultz, et al. v. United States Page 6
Geographic uniformity in this context, the Court observed, was satisfied “when the trustee takes in
each state whatever would have been available if the bankrupt law had not been passed. The general
operation of the law is uniform although it may result in certain particulars differently in different
states.” Id. at 190. In 1918, the Court reaffirmed the Moyses principle in a case involving the
Bankruptcy Act’s incorporation of varying state fraudulent conveyance statutes, despite the fact that
the laws “may lead to different results in different states.” Stellwagen v. Clum, 245 U.S. 605, 613
(1918). See also Vanston, 329 U.S. at 172 (explaining that the Bankruptcy Clause “does not mean
wiping out the differences among the forty-eight States” and holding that state tort and contract law
may determine the validity of creditors’ claims).
Nearly sixty years later, the Supreme Court, applying Moyses, held that Congress may enact
non-uniform laws to deal with geographically isolated problems as long as the law operates
uniformly upon a given class of creditors and debtors. Blanchette v. Connecticut General Ins.
Corps., 419 U.S. 102 (1974). In Blanchette, the Court considered the constitutionality of the
Regional Rail Reorganization Act (“Rail Act”), which operated only in a single statutorily defined
region: the northeast United States. In explaining why such a specific statute did not exceed
Congress’s power under Article I, the Court noted that at the time Congress passed the Rail Act, all
of the railroads then operating under the bankruptcy laws were contained within the northeast
region, and thus, even had the statute been drafted to be of general applicability, its operation and
effect would have been unchanged. Id. at 159-60. The Court ultimately concluded that the
“uniformity provision does not deny Congress power to take into account differences that exist
between different parts of the country, and to fashion legislation to resolve geographically isolated
problems,” id. at 159, so long as the law “appl[ied] equally to all creditors and debtors,” id. at 160.
See also Leidigh Carriage Co. v. Stengel, 95 F. 637, 646 (6th Cir. 1899) (holding that the
Bankruptcy Clause “imposes no limitation upon congress as to the classification of persons who are
to be affected by such laws, provided only the laws shall have uniform operation”).
Only once has the Court struck down a statute as non-uniform. In Railway Labor
Executives’ Ass’n v. Gibbons, 455 U.S. 457, 470-71 (1982), the Court determined that Congress
overstepped its authority in passing a private bankruptcy law that affected only the employees of a
single company, the Rock Island & Pacific Railroad Company. While acknowledging that “the
uniformity requirement is not a straightjacket that forbids Congress to distinguish among classes of
debtors,” id. at 469, the Court found that the Act “[was] a response to the problems caused by the
bankruptcy of one railroad” and was therefore “nothing more than a private bill,” id. at 470-71. The
Court documented the chaos created by discriminatory state legislation during the Articles of
Confederation, and concluded that the “uniformity requirement was drafted in order to prohibit
Congress from enacting private bankruptcy laws.” Id. at 472. The lesson, in short, is that “[t]o
survive scrutiny under the Bankruptcy Clause, a law must at least apply uniformly to a defined class
of debtors.” Id. at 473.
Applying these principles to the instant case, we conclude that the BAPCPA is a
constitutionally uniform law. Congress is allowed to distinguish among classes of debtors, and to
treat categories of debtors differently, whether it be through the incorporation of varying state laws
“affecting dower, exemptions, the validity of mortgages, priorities of payment and the like.”
Stellwagen, 245 U.S. at 613. And this is precisely what the BAPCPA does: Sections 707(b)(7),
1325(b)(3), and 1325(b)(4) distinguish between two classes of debtors, those whose annualized
current monthly income is above the family median income for the applicable state and those whose
income is below. All Chapter 13 below-median-income debtors have only a three-year instead of
a five-year applicable commitment period, and are subject to more favorable treatment in calculating
their disposable income than all debtors above the median; all above-median-income debtors are
subject to an applicable commitment period of “not less than 5 years,” and have their income
recalculated in accordance with the IRS Handbook’s national and local standards. Yes, the
Schultzes may receive less favorable treatment simply because they are residents of Tennessee, a
No. 07-5618 Schultz, et al. v. United States Page 7
state whose median monthly income is lower than a host of others, but the same could be said of
debtors living in states with less favorable state property exemption laws. See Moyses, 186 U.S. at
190. Accordingly, “[t]he general operation of the law is uniform although it may result in certain
particulars differently in different states.” Moyses, 186 U.S. at 190.
Had Congress described the “means test” in explicit geographic terms, by enacting
legislation exempting residents of certain states without justification, we would be faced with a
significantly different case. In St. Angelo v. Victoria Farms, Inc., 38 F.3d 1525 (9th Cir. 1994), for
instance, the Ninth Circuit considered whether a statutory amendment extending the deadline for two
states to implement an administrative program violated the uniformity provision of the Bankruptcy
Clause. The Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of
1986, Pub. L. No. 99-554, 100 Stat. 3088 (1986), permanently established the United States Trustee
Program, an administrative agency responsible for overseeing the administration of bankruptcy cases
and private trustees. Congress curiously chose to phase the program in over a two-year period for
every state except North Carolina and Alabama, who instead had the option of voting into the
Trustee program over an extended period of time. Several years later, in Section 317 of the Judicial
Improvements Act of 1990, Pub. L. No. 101-650, 104 Stat. 5089 (1990), Congress extended the
deadline for North Carolina and Alabama to implement the program to October 1, 2002, without any
corresponding explanation for the special treatment. St. Angelo, 38 F.3d at 1529.
Finding that the exemption was “not a provision which has different effects . . . due to
differences in the laws of these two states,” id. at 1531, and that “Congress [did not] provide[] [any]
indication that the exemption in question was intended to deal with a problem specific to North
Carolina and Alabama,” id., the Ninth Circuit concluded that the law did “not apply uniformly to
a defined class of debtors,” id. at 1532.
But there are key differences between the BAPCPA and the statute in St. Angelo. For one,
as we have already noted, the BAPCPA is uniform in form: all debtors whose income is above the
median family income are treated alike, as are all debtors whose income falls below. The resulting
differences based on the state in which the debtor resides are analytically indistinguishable from the
differences resulting from the incorporation of various state laws. For another, whereas in St.
Angelo there was no indication that Congress intended for the exemption to deal with a problem
specific to North Carolina and Alabama, the BAPCPA directly addresses regionally isolated
problems. Because debtors in certain parts of the country are likely to pay more for housing than
debtors in other parts, Congress believed that the means test—or “needs-based bankruptcy
relief”—could gauge varying costs of living, and thus “ensure that debtors repay creditors the
maximum they can afford.” H.R. REP. NO. 109-31(I), at 2. The Bankruptcy Clause “does not deny
Congress power to take into account differences that exist between different parts of the country,
and to fashion legislation to resolve geographically isolated problems,” Blanchette, 419 U.S. at 159,
and it is not for us as an appellate court to pass judgment on the wisdom of congressional legislation.
2.
The Schultzes next argue that the uniformity requirement was enacted in response to the fear
that the national government would use its power over commerce to the disadvantage of particular
states. (Appellants’ Br. 12-21; Amicus Br. 4-5.) Accordingly, even if a federal bankruptcy law may
vary in application from state to state, employing federal income standards enables the preferential
treatment of debtors in some states over debtors in other states, a form of discriminatory treatment
the Framers explicitly prohibited. We do not find their argument or their view of history
compelling.
No. 07-5618 Schultz, et al. v. United States Page 8
First, Supreme Court precedent lends no support to the federal versus state distinction.
Moyses, Stellwagen, and Blanchette cannot be read as standing for anything more than their precise
holding: that Congress does not exceed its constitutional powers in enacting a bankruptcy law that
permits variations based on state law or to solve geographically isolated problems. Although the
Supreme Court has not specifically addressed classifications based on federal law such as those in
the BAPCPA, we find no reasoning within the relevant case law explaining why employing federal
variations somehow makes a bankruptcy law non-uniform. The lesson of Moyses and its
progeny—that Congress may permissibly address regional variations—would apply equally to
variations based on either state laws or federal statistics.
And Gibbons does not counsel a different result. There, the Court struck down a federal
bankruptcy law as violative of the uniformity provision on the ground that the Act was a law
designed for and applied to only one bankrupt railroad. 455 U.S. at 470-71. The BAPCPA, in
contrast, is uniformly applicable across the nation and does not target any isolated entity.
True, the Court has recognized that “the Bankruptcy Clause itself contains an affirmative
limitation or restriction upon Congress’ power.” Gibbons, 455 U.S. at 468. But a strict reading of
this statement “overlooks the flexibility inherent in the constitutional provision,” Blanchette, 419
U.S. at 158, and improperly cabins the reach of Congress’s authority. It is worth noting that in every
case considering the scope of the Clause, the Court merely assumed that the term “uniform” implied
an affirmative restriction, and ultimately concluded that such a restriction could be satisfied by a law
that is uniform only in form.
Nor does the original understanding of the Bankruptcy Clause support the federal versus state
distinction that the Schultzes urge us to adopt. We need not belabor the point, as a historical account
of the Bankruptcy Clause has been recounted numerous times, including once recently by this
circuit. See In re Hood, 319 F.3d 755, 764-65 (6th Cir. 2003), aff’d on other grounds, Tennessee
Student Assistance Corp. v. Hood, 541 U.S. 440 (2004). It suffices to say the following: the
Bankruptcy Clause emerged amidst a depressed economy, collapsing business ventures, and the
prospect of commercial warfare between the various states. To combat mounting debt crises in the
newly confederated America, states enacted “an ignoble array of legislative schemes” discharging
the debt obligations of their citizens, primarily at the expense of out-of-state creditors. Home Bldg.
& Loan Ass’n v. Blaisdell, 290 U.S. 398, 427 (1934).
Faced with multiple obstacles for collecting debt, and the resulting economic harm, the
Framers believed that a federal—and “uniform”—bankruptcy system would be necessary to reduce
the problem inherent in applying varying state insolvency and bankruptcy rules, and to rein in the
pro-debtor excesses of state legislatures. See Cent. Virginia Cmty. Coll. v. Katz, 546 U.S. 356, 362-
63 (2006) (“The history of the Bankruptcy Clause . . . demonstrate[s] that it was intended not just
as a grant of legislative authority to Congress, but also to authorize limited subordination of state
sovereign immunity in the bankruptcy arena. Foremost on the minds of those who adopted the
Clause were the intractable problems, not to mention the injustice, created by one State’s
imprisoning of debtors who had been discharged . . . in and by another State.”); Hood, 319 F.3d at
764-65 (“Indeed, setting bankruptcy policies on the state level would enable states to favor in-state
creditors over similarly-situated out-of-state creditors. By granting the power to Congress
exclusively, the Constitution prevented runaway states from defeating bankruptcy’s goals.”); In re
Dehon, Inc., 327 B.R. 38, 56 (Bankr. D. Mass. 2005) (“[T]he use of the word ‘uniform’ in the
Bankruptcy Clause was not primarily intended as a restriction on congressional power, but as a grant
of power to Congress. The very structure of the clause and its placement in the Constitution clarify
this point.”). See also BRUCE H. MANN, REPUBLIC OF DEBTORS: BANKRUPTCY IN THE AGE OF
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AMERICAN INDEPENDENCE 183-85 (2002); Kurt H.5 Nadelmann, On the Origin of the Bankruptcy
Clause, 1 AM. J. LEGAL HIST. 215, 225-27 (1957).
In light of this account, we find no merit in the Schultzes’ argument that Congress can
incorporate state laws, but cannot incorporate federal standards. At the time of the Constitutional
Convention, the fear was not, at least in the bankruptcy context, of Congress discriminating in favor
of or against a particular locality. Quite to the contrary, uniformity in the Bankruptcy Clause was
viewed as a way to safeguard the nation’s interest in establishing and maintaining a single system
of debt and credit without interference from the parochial or otherwise obstreperous action on the
part of the fifty states. See Dehon, 327 B.R. at 56 n.34.
3.
One final point needs to be addressed: We are not persuaded that the heightened scrutiny
applied in United States v. Ptasynski, 462 U.S. 74, 84 (1983), is relevant to the interpretation of the
Bankruptcy Clause. In Ptasynski, the Court considered whether a section of the Crude Oil Windfall
Profit Tax Act granting an exemption for oil produced in certain regions near Alaska violated the
uniformity provision in the Taxing Power. Although the Court ultimately upheld the exemption, it
began its analysis with the presumption that the “the Uniformity Clause was proposed as one of
several measures designed to limit the exercise of [Congress’s] power,” id. at 81, and applied a form
of heightened scrutiny: “[W]here Congress does choose to frame a tax in geographic terms, we will
examine the classification closely to see if there is actual geographic discrimination.” Id. at 84-85.
However, the text and the background of the Taxing Power is wholly inapposite to that of
the Bankruptcy Clause. We need not look any further than the plain language of the Bankruptcy
Clause, which states: “[The Congress shall have Power] to establish . . . uniform Laws on the subject
of Bankruptcies throughout the United States.” U.S. CONST. art. I, § 8, cl. 4. Reading these words
in conjunction with the Taxing Power, another clause in Congress’s enumerated powers, reveals a
striking contrast. The Taxing Power states: “The Congress shall have Power to lay and collect
Taxes, Duties, Imposts and Excises, . . . but all Duties, Imposts and Excises shall be uniform
throughout the United States.” U.S. CONST. art. I, § 8, cl. 1 (emphasis added). If the Framers had
intended both of these uniformity provisions to be read as an absolute limitation, requiring Congress
to enact perfectly uniform laws, they presumably would have employed similar language in the
Bankruptcy Clause by stating that “Congress shall have Power to establish Laws on the subject of
Bankruptcies, but all such Laws shall be uniform throughout the United States.” See Randolph J.
Haines, The Uniformity Power: Why Bankruptcy is Different, 77 AM. BANKR. L.J. 129, 166-67
(2003) [hereinafter The Uniformity Power].
McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), provides ample support for this
reading of constitutional text. In his foundational analysis in McCulloch, Justice Marshall concluded
that “necessary” as used in the Necessary and Proper Clause should be interpreted as conferring an
additional grant of power, rather than a limitation on Congress’s authority to choose only those
means that were absolutely necessary: “1st. The clause is placed among the powers of congress, not
5
Indeed, the only direct reference to the Bankruptcy Clause in the Federalist Papers conveys the idea that
uniform bankruptcy laws were necessary to protect creditors in a national economy. James Madison recognized in No.
42 that “[t]he power of establishing uniform laws of bankruptcy, is so intimately connected with the regulation of
commerce, and will prevent so many frauds where the parties or their property may lie or be removed into different
States, that the expediency of it seems not likely to be drawn into question.” THE FEDERALIST No. 42, at 239 (James
Madison) (Clinton Rossiter ed., 1961). So did Alexander Hamilton in No. 32, when he explained that the word
“uniform” in the Naturalization Clause—a provision that closely mirrors that of the Bankruptcy Clause—confers on
Congress the “exclusive jurisdiction” to regulate within that area, “because if each State had power to prescribe a distinct
rule, there could not be a uniform rule.” THE FEDERALIST No. 32, at 199 (Alexander Hamilton) (Clinton Rossiter ed.,
1961).
No. 07-5618 Schultz, et al. v. United States Page 10
along the limitations on those powers. 2d. Its terms purport to enlarge, not diminish the powers
vested in the government.” Id. at 419-20. Much like the Bankruptcy Clause, if Congress intended
“necessary” to imply a restraint on the sphere of congressional authority, it “would have been
expressed in terms resembling these. ‘In carrying into execution the foregoing powers, and all
others,’ &c. ‘no laws shall be passed but such as are necessary and proper.’” Id. at 420. See also
Haines, The Uniformity Power, at 167. As it was in McCulloch, so it is here: the term “uniform”
was intended to grant an additional power at the expense of the fifty states, rather than to limit the
scope of Congress’s delegated powers.
While it is true that the Supreme Court has “looked to the interpretation of [the Bankruptcy
Clause] in determining the meaning of the [Taxation Power],” Ptasynski, 462 U.S. at 83 n.13 (citing
Blanchette, 419 U.S. at 160-61), the Court has never found prior precedent in one area to be
dispositive in the other, nor has it required appellate courts to apply the heightened scrutiny in
Ptasynski to cases interpreting the Bankruptcy Clause. In fact, the Court in Ptasynski acknowledged
in the very same footnote that “the purposes giving rise to the Bankruptcy Clause are not identical
to those underlying the [Taxing Power’s] Uniformity Clause . . . .” Id. The lengthy historical
discussion in Ptasynski shows that the Taxing Power emerged from the “concern that the national
government would use its power over commerce to the disadvantage of particular States,” id. at 81,
a history that stands in stark contrast to the problems inherent in applying varying state bankruptcy
rules to debtors and creditors living in different states. In sum, uniformity of taxes and duties served
to assure the states that Congress would not discriminate in favor of or against a particular locality,
whereas uniformity in the bankruptcy context was viewed as a grant of power to standardize creditor
relief across the nation, notwithstanding varying obtrusive state laws. We therefore find it
inappropriate to employ the heightened scrutiny in Ptasynski and to determine whether the BAPCPA
results in “actual geographic discrimination.” Id. at 85.
III. CONCLUSION
For those reasons, we AFFIRM the judgment of the district court.