Restoring Bankruptcy’s Fresh Start

Authors

Jonathan S. Hermann, Fordham University School of Law

Keywords

bankruptcy; bankruptcy code; debtors; creditors; discharge; class action; civil procedure; inherent conflict; arbitration; federal arbitratin act; FAA

Abstract

The discharge injunction, which allows former debtors to be free from any efforts to collect former debt, is a primary feature of bankruptcy law in the United States. When creditors have systemically violated debtors’ discharge injunctions, some debtors have attempted to challenge those creditors through a class action lawsuit in bankruptcy court. However, the pervasiveness of class-waiving arbitration clauses likely prevents those debtors from disputing discharge injunction violations outside of binding, individual arbitration. This Note first discusses areas of disagreement regarding how former debtors may enforce their discharge injunctions. Then, it examines the types of disputes that allow debtors to collectivize in bankruptcy court. Without seeking to resolve either disagreement, this Note assumes debtors may collectivize in this context and employs an “inherent conflict” test that looks to whether disputes over discharge injunction violations are arbitrable. Because the “inherent conflict” test likely leads to the conclusion that courts must enforce class-waiving arbitration clauses, this Note argues that Congress should amend the Bankruptcy Code not only to provide debtors an express right of action under § 524 and the ability to collectivize, but also to prohibit the arbitration of these claims. Doing so will give full effect to the discharge injunction and fulfill the promise to debtors that they can truly begin anew after bankruptcy.

Recommended Citation

Jonathan S. Hermann, Restoring Bankruptcy’s Fresh Start, 86 Fordham L. Rev. 189 (2017).
Available at: https://ir.lawnet.fordham.edu/flr/vol86/iss1/15