The blogosphere has recently become abuzz with Republican 2012 contender Herman Cain's comments that the Federal Government does not regulate bankruptcies. Cain is emphatically wrong: Article 1, Section 8 of the Constitution grants Congress the power to establish "uniform Laws on the subject of Bankruptcies throughout the United States." However, the former Godfather's Pizza CEO's misstatement sheds light on an interesting historical anecdote: Not all the Founding Fathers were in favor of granting the Federal Government broad power with regard to bankruptcies.
Connecticut's Roger Sherman, the only man to sign the Declaration of Independence, the Articles of Confederation, the Constitution, and the 1774 Declaration of Rights, fiercely opposed granting the central government the power to regulate bankruptcies, preferring (like Mr. Cain) that the state governments handle those matters. Sherman's logic was recorded by James Madison at the 1787 Constitutional Convention, where both men represented their respective states. The Nutmeg delegate "observed that Bankruptcies were in some cases punishable with death by the laws of England -- & He did not chuse to grant a power by which that might be done here."
While Sherman's claim may seem far-fetched to us today, an obscure British law enacted in 1706 declared those bankrupts who did not pay their debts subject to hanging. By the time of the Constitutional Convention in 1787, only three men had been hung as a result of the statute. Nevertheless, Sherman thought the precedent so dangerous that he encouraged the other delegates to vote against Federal bankruptcy powers; in the end, only his state of Connecticut did so (at the 1787 Convention, states voted in blocs, rather than by individual delegate).
Luckily for us, Roger Sherman and Herman Cain were wrong on the subject of bankruptcy laws. Had Sherman gotten his way, fifty unique and complex state laws would govern bankruptcies. In a world where an individual might own property and owe debts in many different localities, this potential mishmash of regulations could make efficient debt collection impossible. While Congress does grant states the ability to carve out some modifications to the uniform bankruptcy provisions (such as Florida's asset exemption which allow bankrupts to keep their homes), the Federal government's constitutionally-derived powers create a much-needed consistency in the modern era.
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