Toibb V. Radloff - The Opinion of The Court

The Opinion of The Court

Justice Blackmun, writing for an 8-1 majority, held that nothing in the Bankruptcy Code prevents individuals from filing for Chapter 11 Bankruptcy.

In interpreting a statute, courts "look first to the statutory language and then to the legislative history if the statutory language is unclear"; thus, "the plain language of . . . . Section 109" of the Bankruptcy Code governs who can or cannot file for protection under each chapter. Quoting from the Bankruptcy Code, Justice Blackmun wrote that "Section 109(d) provides: 'Only a person that may be a debtor under chapter 7 of this title, except a stockbroker or a commodity broker, and a railroad may be a debtor under chapter 11 of this title.' Section 109(b) states: 'A person may be a debtor under chapter 7 of this title only if such person is not - (1) a railroad; (2) a domestic insurance company, bank, . . .; or (3) a foreign insurance company, bank, . . . engaged in such business in the United States.'" Nothing in the text of the Code itself imposes a requirement that only businesses can file for protection under chapter 11, and given the great care with which Congress enumerated those who can and cannot receive protection under each of the various chapters the Court was "loath to infer the exclusion of certain classes of debtors from the protections of Chapter 11."

Turning to the legislative history of the then-current version of the Bankruptcy Code, the Court determined that a Senate report showed that Congress anticipated that only businesses would ever file for bankruptcy under chapter 11, but did not show that Congress intended that only businesses would be able to file under chapter 11. Likewise, the Court considered the ultimate purposes of the various chapters of the bankruptcy code, one of which is "maximizing the value of the bankruptcy estate"; because a chapter 11 reorganization plan must be approved by creditors or must provide that creditors "will receive not less than they would receive under a Chapter 7 liquidation," denying chapter 11 protection to individuals would not advance Congress' overall purpose.

Finally, the Court considered the possibility that if chapter 11 were held to apply to individuals, somebody might be involuntarily forced to file for chapter 11 (thus resulting in "debt peonage," a form of involuntary servitude); although chapter 13 bankruptcy petitions are always voluntary, chapter 11 contains no such provision. The Court held that if a debtor were to choose not to cooperate in a chapter 11 case, a bankruptcy court would simply be able to convert it to a chapter 7 case, and thus the danger of an involuntary chapter 11 filing would be minimal; furthermore, because only chapter 13 bankruptcy includes "future wages" in the "bankruptcy estate," there is no danger of forcing anybody into debt peonage.

In summary, the Court held that individuals, even if they are not the owner of a business, can file for chapter 11 bankruptcy because the plain language of Title 11 (which contains chapter 11) does not expressly prohibit them from doing so, because Congress did not specifically intend to deny them the ability to do so (even if it assumed that they would not), because allowing them to do so would not likely violate the rights of creditors, and because allowing them to do so would not result in anybody being forced to do so against their will.