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When institutions fail, Part 2: U.S. Supreme Court & bankruptcy

Top court out of touch with spirit of the law

Continued from a previous post

Here's how we ended the post "When institutions fail us: Mistakes of others can cause bankruptcy":
Unfortunately, the way the statute is written, at least one court has ruled that government employers are due more protection from the bankruptcy code than are employees of private business. An excerpt from section 525 reads, in part:
. . . a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act. . . .

Supreme Court questions intention of Congress

What that's referring to is an error in the U.S. Bankruptcy Code--as interpreted by the U.S. Supreme Court in the case of Rea v. Federated Investors. Actually, the Supreme Court's reading of the law was not about error on the part of Congress; the court held that legislators had intended a difference between government and private employees.

Supreme Court missed the boat

As I read it, I don't think so. To me, whoever wrote the passage about private employees most clearly intended that private employers not discriminate against either candidates for employment or current employees, simply on the basis of filing for the legal protection of the bankruptcy code. Following is the passage covering private employment:
(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;

(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or

(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

All you need is an understanding of the language

I defy anybody to find a passage or clause in that language that makes a distinction in favor or government employees over private employees. For one, why would anyone make such a distinction? Second, the language in part (b) is sufficiently, simultaneously both 1) broad and 2) precise that no misunderstanding should occur: "no private employer may terminate . . . or discriminate with respect to employment against . . . ." No, I'm not a lawyer, but I can dang sure read English, and that passage says the law is supposed to protect private employees from bankruptcy discrimination.

The hinge phrase: 'deny employment'--it's a red herring

What the court found, however, is explained in the following passage (with my emphasis added), from a bankruptcy law site:
The court noted that section 525(a) forbids a governmental employer from denying employment based upon bankruptcy, while section 525(b) forbids a private employer from terminating employment or discriminating in employment based on bankruptcy.  The phrase “deny employment to” was found in section 525(a) but not in section 525(b). The court found that Congress must have had a reason for omitting this phrase from section 525(b).  Accordingly, it held that private employers were allowed to discriminate in hiring based upon bankruptcy, and the debtor’s discrimination case was dismissed.

As the old cartoon remarked: bologna, bologna, baloney: Congress most emphatically did not omit a phrase--it simply substituted the phrase "or discriminate with respect to employment against, an individual . . ."

A lopsided argument

In short, the Supreme Court majority was digging hard for an excuse to once again come down on the side of corporations against individual employees.

We've seen similar decisions, for example, the ruling that "corporations are people" in regard to funding political campaigns, and we've seen it with legislation against the so-called "cram-down powers" that limit bankruptcy judges' responses to modifying terms of a loan on a primary residence--even though they can cram down terms on vacation homes, snowmobiles, etc.--even yachts.

Consult with your attorney

If you're considering filing for the powerful protection of the bankruptcy code, I wouldn't let this deter me unless you're in a particularly sensitive area of the financial sector. However, if it troubles you at all, you should certainly consult with a trained, experienced bankruptcy attorney about your specific situation.

Beyond that, I would hope you will get involved in the political process and use your vote to make the laws fair for everyone.

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