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

Charles W. Mooney, Jrthe Treasury debt with the Prosperity Shares. 77 It is a truism that afterdischarge of the valid debt it would be transformed into ProsperityShares and in that respect it would no longer be a valid debt for theformer face amount. But that is the essence of a bankruptcy law. IfCongress has the power under the Bankruptcy Clause to adopt abankruptcy law that would apply to the U.S. government, then itnecessarily has the power to provide for a discharge. Otherwise theBankruptcy Clause power would be meaningless in this context.199From the foregoing, it appears that whether Congressional power topermit the implementation of Alternative 1under the BankruptcyClause conflicts with Section Four depends on whether a bankruptcylaw applicable to the U.S. government as a debtor would be withinthe scope of the Bankruptcy Clause. As explained, if such a law iswithin the scope of the Bankruptcy Clause, it would prevail overany claim that it violates Section Four. In recent years, the SupremeCourt has considered analogous potential conflicts between bankruptcylaw and the Constitution apart from the Bankruptcy Clause,in particular sovereign immunity of the states of the U.S. under theEleventh Amendment. 78In Tennessee Student Assistance Corp. v. Hood, 79 the Court held that abankruptcy discharge of a student loan owed to a state “does not implicatea State’s Eleventh Amendment immunity.” 80 In effect, the majorityopinion held that there is no Eleventh Amendment immunityfrom a discharge and, consequently, there was no conflict betweenthat amendment and the discharge imposed by bankruptcy law.Two years later, in Central Virginia Community College v. Katz, 81 theCourt held that a state’s Eleventh Amendment sovereign immunitydid not protect it against a suit to recover a pre-bankruptcy preferentialpayment made by the debtor to a state creditor. The principal77 The statement in the text assumes that a bankruptcy law for the U.S. governmentwould follow the pattern of discharge in Chapter 11. See 11 U.S.C. § 1141(d)(1).78 U.S. Const. amend. XI. The Eleventh Amendment provides:The Judicial power of the United States shall not be construed to extend to anysuit in law or equity commenced or prosecuted against one of the United Statesby Citizens of another State, or by Citizens or Subjects of any Foreign State.79 541 U.S. 440 (2004).80 Id. at 445.81 546 U.S. 356 (2006).