Rights of the Trustee

Liberalization of Relief Granted and Expansion of the Rights of the Trustee

As the coverage of the bankruptcy laws has been expanded, the scope of the relief afforded to debtors has been correspondingly enlarged. The act of 1800, like its English antecedents, was designed primarily for the benefit of creditors. Beginning with the act of 1841, which opened the door to voluntary petitions, rehabilitation of the debtor has become an object of increasing concern to Congress. An adjudication in bankruptcy is no longer requisite to the exercise of bankruptcy jurisdiction. In 1867, the debtor for the first time was permitted, either before or after adjudication of bankruptcy, to propose terms of composition that would become binding upon acceptance by a designated majority of his creditors and confirmation by a bankruptcy court. This measure was held constitutional,1 as were later acts, which provided for the reorganization of corporations that are insolvent or unable to meet their debts as they mature,2 and for the composition and extension of debts in proceedings for the relief of individual farmer debtors.3

More about Rights of the Trustee

Nor is the power of Congress limited to adjustment of the rights of creditors. The Supreme Court has also ruled that the rights of a purchaser at a judicial sale of the debtor's property are within reach of the bankruptcy power, and may be modified by a reasonable extension of the period for redemption from such sale.4 Moreover, the Court expanded the bankruptcy court's power over the property of the estate by affording the trustee affirmative relief on counterclaim against a creditor filing a claim against the estate.5

Rights of the Trustee: Developments

Underlying most Court decisions and statutes in this area is the desire to achieve equity and fairness in the distribution of the bankrupt's funds.6 United States v. Speers,7 codified by an amendment to the Bankruptcy Act,8 furthered this objective by strengthening the position of the trustee as regards the priority of a federal tax lien unrecorded at the time of bankruptcy.9 The Supreme Court has held, in other cases dealing with the priority of various creditors' claims, that claims arising from the tort of the receiver is an “actual and necessary” cost of administration,10 that benefits under a nonparticipating annuity plan are not wages and are therefore not given priority,11 and that when taxes are allowed against a bankrupt's estate, penalties due because of the trustee's failure to pay the taxes incurred while operating a bankrupt business are also allowable.12 The Court's attitude with regard to these and other developments is perhaps best summarized in the opinion in Continental Bank v. Rock Island Ry.,13 where Justice Sutherland wrote, on behalf of a unanimous court: “[T]hese acts, far-reaching though they may be, have not gone beyond the limit of Congressional power; but rather have constituted extensions into a field whose boundaries may not yet be fully revealed.” 14

Resources

References

This text about Rights of the Trustee is based on “The Constitution of the United States of America: Analysis and Interpretation”, published by the U.S. Government Printing Office.

[Footnote 1] In re Reiman, 20 Fed. Cas. 490 (No. 11,673) (D.C.S.D.N.Y. 1874), cited with approval in Continental Bank v. Rock Island Ry., 294 U.S. 648, 672 (1935).

[Footnote 2] Continental Bank v. Rock Island Ry., 294 U.S. 648 (1935).

[Footnote 3] Wright v. Vinton Branch, 300 U.S. 440 (1937); Adair v. Bank of America Ass'n, 303 U.S. 350 (1938).

[Footnote 4] Wright v. Union Central Ins. Co., 304 U.S. 502 (1938).

[Footnote 5] Katchen v. Landy, 382 U.S. 323 (1966).

[Footnote 6] Bank of Marin v. England, 385 U.S. 99, 103 (1966).

[Footnote 7] 382 U.S. 266 (1965). Cf. United States v. Vermont, 337 U.S. 351 (1964).

[Footnote 8] Act of July 5, 1966, 80 Stat. 269, 11 U.S.C. § 501, repealed.

[Footnote 9] 382 U.S. at 271-72.

[Footnote 10] Reading Co. v. Brown, 391 U.S. 471 (1968).

[Footnote 11] Joint Industrial Bd. v. United States, 391 U.S. 224 (1968).

[Footnote 12] Nicholas v. United States, 384 U.S. 678 (1966).

[Footnote 13] 294 U.S. 648 (1935).

[Footnote 14] 294 U.S. at 671.

Tables of Contents

• Rights of the Trustee and other Topics in the Contents – Article 1 of the U.S. Constitution
• U.S. Constitutional Law Category
• List of amendments to the U.S. Constitution
• Rights of the Trustee and other Topics in the Constitution Contents
• Interpretation of the U.S. Constitution (Table of Contents)
• Clauses of the Constitution (Table of Contents)