Impair Contracts

Re: Impair Contracts

Well, yes and no.

You are correct that the constitution does not contain an explicit prohibition on congress's power to impair contracts in the same way that it prohibits states from doing so. But the federal government is bound by the fifth amendment from taking property without due process of law, and the courts have held that federal laws that impair contractual obligations can run afoul of the fifth amendment. See, e.g., National Rail Passenger Corp. v. Atchison, T. & S.F. Ry., Co.. So the congress can't pass a law that impairs contracts if the law has the effect of depriving persons of their property without due process of law.

Impair Contracts
joefromchicago-
That's a very well researched and thought-out answer. Thank you very much.

Congress is considering amending the Bankruptcy Act. I believe it will draft it so that the new terms of the Bankruptcy Act are binding for all debts whether incurred prior to the enactment or subsequent to its passage.

In my opinion (which has no legal force) this can constitute a unilateral taking of property. But apparently the courts permit it I think pursuant to the "to make all Laws which shall be necessary and proper" clause.

I think Congress should pass the new law for debts entered into after its enactment.

There's a clause in the Constitution called ex post facto, which should cure the whole problem. But for reasons I don't understand it is only applied to criminal cases.

Congress has plenary power over bankruptcy, which means that it pretty much can do anything it wants. And there can be a significant difference between impairing a contract and changing the remedies available for someone who has a contract.

Impair Contracts
Congress has plenary power over bankruptcy, which means that it pretty much can do anything it wants.

I will take your word for it. The Constitution says it has authority to "establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;"

Though my understanding is that each State set its own limits that impact the property that the federal Bankruptcy Act covers. For example, I believe that Florida & Texas have expansive "homestead laws" that allow homeowners to file for bankruptcy while excluding the homeowners' personal residence from the estate available to creditors.

I'm not sure what areas Congress has less than plenary power over. Article I, Section 8 is written in an all-or-none manner.

And there can be a significant difference between impairing a contract and changing the remedies available for someone who has a contract.

I will take your word for it. But if someone already owes me a $1,000, then Congress enacts a "liberalization" of the Bankruptcy Act that effectively precludes me from demanding payment, then my property was reduced by $1,000 whether you call it "impairing a contract" or you call it "changing the remedies available for someone who has a contract."

Re: Impair Contracts

Well, if you demand $1,000 from someone who doesn't have any money, you won't have much success getting paid back, regardless of the system of laws in place. Bankruptcy (or, at least, chapter 7 liquidation types of bankruptcy) effectively cancels all debts, so the drafters of the constitution already recognized at least one instance where congress could "impair contracts" through legislation. If the debtor has any assets, the court will parcel them out among the creditors according to the statutory priorities. That may or may not mean that you get paid a portion of what you're owed, but that all depends on where you stand in line among the other creditors. The mere fact that you had an enforceable contract doesn't put you at the head of the line, nor does the fact that you end up with nothing mean that you have been deprived of your constitutional rights.