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

Charles W. Mooney, JrUnder any coherent distributional scheme of a bankruptcy law, thedistributions to creditors must be grounded in a debtor’s ability topay. For purposes of confirming a plan under Chapter 11 of theBankruptcy Code, for example, each holder of a claim of an impairedclass must either accept the plan or receive property of a valuenot less than such holder would receive in a liquidation of the debtor—the“best interests” test. 86 But such a test is not feasible for adebtor that is a government. As explained in relation to a municipalitydebtor under Chapter 9:201A municipality cannot be liquidated, its assets sold, and the proceedsused to pay its creditors. Nevertheless, the [best interests]concept is not without meaning in a municipal debt adjustmentcase. The concept should be interpreted to mean that the planmust be better than the alternative that creditors have. In thechapter 9 context, the alternative is dismissal of the case, permittingevery creditor to fend for itself in the race to obtain themandamus remedy and to collect the proceeds. 87In the present context, the alternative would likely be Alternative2—a selective default and a race among holders to collect. As explainedin Part III.C.3., the result probably would be uncollectiblejudgments (or no judgments at all, at least in the U.S., if non-exempteddebt were removed from the jurisdiction of the Court ofFederal Claims). 88 Presumably, the Prosperity Shares provided underAlternative 1 would offer a better result than uncollectible judgmentsand the less valuable Prosperity Shares provided under Alternative 2.Although a discharge is a common feature of a bankruptcy regime,that does not end the inquiry as to the scope of the BankruptcyClause. One can easily imagine an unbiased, objective majority ofthe Supreme Court holding that a putative bankruptcy law that appliesto the U.S. government as debtor is not within the scope ofthe Bankruptcy Clause. Such a holding likely would not be on thebasis that the pattern and structure of the law is outside the common86 11 U.S.C. § 1129(a)(7).87 6 Collier on Bankruptcy (Alan N. Resnick & Henry J. Sommer, eds., 16th ed.2011) 943.03[7][a].88 See text at notes 141-44, infra.