Vindicating Bankruptcy Rights

Abstract

Thousands of consumer debtors pass through the bankruptcy process each year. Although their cases are legally complex, the bankruptcy system handles them in a routinized manner. Creditor and debtor attorneys rely heavily on forms in place of individualized pleadings, and many aspects of a debtor’s case are designed to function without direct judicial oversight. This system functions well, but it is not without limitation. Certain repeat players — large institutional lenders with hundreds of borrowers in bankruptcy — have exploited the absence of direct oversight to tilt the consumer bankruptcy process in their favor.

This article is the second portion of my project on the use of class litigation to curb systematic creditor overreaching in bankruptcy. It considers the unique set of challenges presented by the class action device: namely, the rigorous requirements for class certification and the force of class action waivers in arbitration agreements. It finds that the prototypical debtor class action remains viable in the modern, anti-class-action framework. First, the force of class arbitration waivers can be muted in bankruptcy, as bankruptcy courts have broad discretion to deny arbitration of a matter when arbitration would “inherent[ly] conflict” with bankruptcy's aims. This article argues that courts should marshal their considerable discretion in applying the “inherent-conflict” analysis to deny arbitration of debtor class action proceedings when a class arbitration waiver is present. Second, debtor class action cases are strong candidates to run the ever-tightening gantlet of class certification.

Keywords: Bankruptcy, Consumer Law, Class Actions, Arbitration