US Government Debt Different - Finance Department - University of ...

Charles W. Mooney, Jrnation based on the citizenship, residence, or principal place of businessof Treasuries holders, as contemplated by Alternative 1, mightconstitute such unfair discrimination. 70 That is not to say that allunsecured creditors must be treated in the same fashion. AlthoughChapter 9 incorporates the priority for administrative expenses itdoes not incorporate the other priorities that apply in other chaptersof the Bankruptcy Code. 71 It also does not adopt a baseline pro ratasharing distributional scheme as the Bankruptcy Code provides forliquidations under Chapter 7. 72 This leaves a debtor free to establishadditional priorities pursuant to a plan. Presumably priorities with arational, coherent basis, not unlike those established in Section 507of the Bankruptcy Code, would not constitute unfair discrimination.Examples would include exempting from the Prosperity Shareexchange (i.e., affording priority to) claims below a specified dollaramount, claims of holders on behalf of pension funds, and claimsnecessary for a financial institution to maintain required minimumcapital or reserves or to meet liquidity requirements. 73197Notwithstanding the foregoing, in establishing a bankruptcy lawthat applied to the U.S. government, Congress would not be obligedto follow the Chapter 9 template. 74 For example, it could abandon70 An analysis of unfair discrimination in the cramdown process is beyond thescope of this paper. Suffice it to say that the substantial disparity in treatment underAlternative 1 between the non-exempted and exempt Treasury obligations, whichhave identical priority outside bankruptcy, strongly suggests unfair discrimination.71 11 U.S.C. § 901(a) (incorporating 11 U.S.C. § 507(a)(2) on administrativeexpenses but not the other priorities established in section 507).72 See 11 U.S.C. § 726(a) (distributions in liquidation under Chapter 7).73 Lest I draw criticism for inconsistency or bias in favor of a U.S. federal governmentbankruptcy, I should emphasize that awarding such priorities under bankruptcylaw is wrong. See Mooney, Normative Theory, supra note 50, at 1053-58. It wouldbe (and in some respects is, under Bankruptcy Code section 507(a)) inconsistentwith my position that, in general, bankruptcy law should not adopt rules on basicrights and obligations that differ from those applicable outside of bankruptcy. Id.at 957-1010. Exceptions are appropriate when based on a rational need for specialrules in bankruptcy in order to achieve its goals. Id. at 1011-60. In the present discussion,I do not advocate such priorities. My goal instead is to explore the optionsthat would be available to the U.S. government in order to implement Alternative1 in bankruptcy.74 See Schwarcz, supra note 59, at 326. Indeed, following the Chapter 9 templatearguably “can bring in a lot of excess baggage” because a sovereign debtor, such asthe U.S. Government, is very different from municipalities. Id.