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State Bankruptcy Cases and the Law of Unintended Consequences

By Joseph McDaniel, Esq.

The size of our insolvent States (they are bigger than most countries economies, remember) makes the prospect of a State Bankruptcy somewhat shocking and daunting.

For the moment, Republicans are apparently the party pushing to permit States to file bankruptcy.

Note that I didn't say pushing the States into bankruptcy; the States themselves would need to decide whether a bankruptcy was a good thing for themselves.

But I expect that the tenor of the entire discussion will change radically when Democrats consider the benefits of letting a Bankruptcy Judge decide hard questions.

And you can trust me on this one: a Bankruptcy Judge spends his or her entire career making difficult decisions. And they make 'em, and they make 'em fast (as compared to other Courts) because they have to do that so that the creditors have a better chance of getting paid: if the strawberries rot in the rail cars while lawyers are talking, nobody gets paid.

When I was a bailiff for a Superior Court Judge in Arizona, I acted as a sheep-dog for the juries during six-week jury trials concerning twenty thousand dollars in contested issues. Get along, little jury! Get along!

When I worked for the Chief U.S. Bankruptcy Judge for the District of Arizona, I watched as an automobile stay lift took fifteen minutes, and the control of a ten million dollar property was determined in ten minutes, and a hotly contested Chapter 13 Confirmation Hearing took six minutes.

Bankruptcy Judges don't fool around; they get it done, and they get it done now.

And anybody who thinks they can predict the outcome when a case enters a Bankruptcy Court had better think twice: the result is always uncertain until the order is signed. And the appeal time runs.

Full post as published by Arizona Bankruptcy Attorney Blog on January 27, 2011 (boomark / email).