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1994 U. Ill. L. Rev. 1 (1994)
An Essay on Optimal Bankruptcy Rules and Social Justice

handle is hein.journals/unilllr1994 and id is 11 raw text is: AN ESSAY ON OPTIMAL BANKRUPTCY RULES AND SOCIAL JUSTICE Robert K. Rasmussen* The economic approach to bankruptcy envisions bankruptcy law as a set of rules approximating the contractual terms to which, at the time credit is extended, a creditor and debtor would agree should govern in the event of the debtor's insolvency. Some tradi- tional bankruptcy scholars criticize the economic approach for what they see as its failure to advance goals and values which they deem necessary for social justice, and contend that viewing bank- ruptcy law as a set of contractual terms ignores the impact of insol- vency upon various groups affected by a firm which experiences financial difficulties. In this article, Professor Robert K. Rasmussen challenges those critics, arguing that the economic approach to bankruptcy law is fully compatible with social justice as defined by philosopher John Rawls. Rawls's theory of justice requires that those in the original position must adequately advance the needs of society's least advantaged members in order to create a just political and legal system. In accordance with this requirement, Professor Ras- mussen demonstrates that regardless of which class of creditors is found to be the least advantaged, the economic approach to bank- ruptcy law protects that class's interests better than more traditional theories. Thus, from a Rawlsian perspective, adopting a bank- ruptcy regime designed to promote efficiency would promote so- cial justice. What to do about Chapter 11? This question has become one of the more vigorously debated issues in corporate law. The debate itself has proceeded at two levels. At one level, discussion has focused on whether Chapter 11 should be abolished, amended, or retained. Pro- posals range from the most conservative-retaining Chapter 11 in its * Associate Professor of Law, Vanderbilt Law School. B.A. 1982, Loyola University of Chicago; J.D. 1985, University of Chicago. I would like to thank Doug Baird, Rebecca Brown, Ken Dau-Schmidt, Linda Meyer, Dan Keating, Lynn LoPucki, Bruce Markell, Stanley Paulson, Eric Rasmusen, David Skeel, Bob Thompson, George Triantis, Don Welch, and the participants at the Indiana University School of Law Workshop for helpful comments on an earlier draft of this article. I am grateful to the Dean's Fund at Vanderbilt Law School for financial support.

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