Bankruptcy

Lawyers Make Good Laws?

By Gene Wedoff

I attended last weekend's University of Illinois/ABI Symposium on Debt?a tour de force, as readers of Credit Slips can glean from Mechele Dickerson's recent reports. My main interest in attending was to gain insights about how to improve U.S. consumer bankruptcy law, and I got one insight in particular from an unexpected source--a paper on international corporate bankruptcy. The insight?  Bankruptcy lawyers really may be the best source for good bankruptcy laws.

The paper, "Missing Debtors: National Lawmaking and Global Norm-Making of Corporate Bankruptcy Regimes," by Terence Halliday, Susan Block-Lieb, and Bruce Carruthers, asks why the corporate bankruptcy reforms recently enacted in a number of countries have a "pro-debtor" (reorganization) focus, even though the corporations that would benefit from pro-debtor laws were not active in lobbying for or drafting the reform legislation. An ultimate reason given by the paper is that the legislative outcome was driven by bankruptcy professionals, especially lawyers. David Skeel, who commented on the paper, reached a similar conclusion in his book Debt's Dominion, in explaining the development of U.S. bankruptcy law through 1978.

Of course, it's not surprising that lawyers would want to influence the system in which they earn their living; both the paper and Skeel book emphasize the interest lawyers have in creating bankruptcy systems that require substantial work by lawyers.  But the paper makes another point, easy to miss: lawyers have an instinct to make laws that, beyond benefiting their profession, benefit society generally.  Here's how the paper puts it (citing Max Weber as supporting authority):

Professionals characteristically value arenas where they can exercise creativity, where their ingenuity has powerful consequences, where they can use law to make a difference.  This instinct gains leverage when it coincides with normative causes--saving jobs, reviving productive businesses, preserving company towns.  A bankruptcy regime that offers lawyers broad scope to mobilize law creatively towards a good cause simultaneously maximizes intrinsic, aesthetic and extrinsic values.  To do good while doing well has much to recommend it.

In my experience, this rings true.  Bankruptcy lawyers generally have the willingness to separate themselves from the clients they represent and work cooperatively toward developing good bankruptcy legislation, effectively balancing debtor and creditor interests.  Whether any such lawyer-generated legislation can be enacted is a product of shifting political and economic climates, but if the climate in the U.S. ever favors good bankruptcy legislation, bankruptcy lawyers should be ready to propose it.

Full post as published by Credit Slips on May 05, 2008 (boomark / email).