Thomas H. Jackson

Translating Assets and Liabilities to the Bankruptcy Forum

A BANKRUPTCY system sorts out rights among claimants to particular assets. But this sorting does not exist in the abstract; rather, it is derived from activities in the nonbankruptcy world that create myriad relationships among various entities. These relationships give rise to a rich variety of substantive entitlements (assets) and obligations (liabilities). These assets and liabilities, as well as their implementation, may vary in subtle (or not so subtle) ways one from another, both because of various private arrangements and because of the dictates of legal rules. The ways in which implementing them may vary, moreover, differ depending on whether the question is being addressed as one, say, of debtor versus creditor or as one of creditor versus creditor. All this richness affects the bankruptcy process. Bankruptcys central normative goal is to collectivize the process by which a debtors assets are made available to its claimants. This goal can be achieved only if the nonbankruptcy attributes of assets and liabilities that affect ordering among claimants are precisely identified and translated, with minimal dislocations, into the bankruptcy forum. Questions of identification and translation are difficult, because of the complexity of the nonbankruptcy world and the need to adjust nonbankruptcy attributes to unique bankruptcy procedures. Nonetheless, it is rarely necessary to compound this difficulty by asserting the relevance of any bankruptcy policy other than those inherent in (or implied by) the collectivization norm.