The Immovable Object Versus the Irresistable Force: Rethinking the Relationship Between Secured Credit and Bankruptcy Policy

The last leaf in O. Henry’s classic short story was hanging by a delicate thread, but it never fell. It never fell, of course, because it wasn’t real; Old Behrman had painted it (and caught pneumonia for his trouble) in order to give Johnsy the will to live. The Supreme Court’s decision in Dewsnup v. Timm is also hanging by a thread, following a barrage of scholarly criticism and more than four years of limiting case law and legislative incursions on the case’s core conceptual rationale. But the holding in Dewsnup, unlike the last leaf, is very real. It has had, and continues to have, a deleterious effect on the ability of many individual debtors to obtain meaningful relief and a truly “fresh start” in bankruptcy. This article urges Congress, as it considers the recommendations of the National Bankruptcy Review Commission, to sever the last thread and consign the Supreme Court’s 1992 decision to its rightful role as a historical anomaly. In taking this action, Congress could clarify once and for all the nature and status of security and secured claims in bankruptcy. The advantages to be attained from doing so are considerable, not the least of which includes establishing the contours of the fresh start for individual debtors in chapter 7 in a manner that raises fresh-start policy to a level of dignity commensurate with the policy of efficient debt collection.