Beneficial Bankruptcy.

• Author: Rimensnyder, Sara
• Position: Soundbite - Debt's Dominion

As U.S. businesses struggle to rebuild after the tragic events of September 11, Washington, D.C., is auditioning for the role of economic savior. So far, Congress has responded by giving the airline industry, which was acutely and immediately affected by the terrorist attacks, a massive $15 billion bailout.

Legislators would do well to listen to University of Pennsylvania Law Professor David Skeel, who has just published Debt's Dominion: A History of Bankruptcy Law in America (Princeton). His book describes how American populism helped create a body of bankruptcy law that's unique in the world. U.S. law gives the debtor the benefit of the doubt-including the opportunity to conduct business as usual until he either restructures his way to solvency or decides to truly pack it in. This "fresh-start" approach, argues Skeel, makes American companies ideally prepared to withstand crisis--without taxpayers' billions. Assistant Editor Sara Rimensnyder spoke with Skeel by telephone in October.

Q: Your book explains that U.S. bankruptcy laws were forged in disaster. How?

A: Bankruptcy laws originated in the 19th century, when a series of devastating financial panics caused many railroads to fail. Everyone agreed they had to be saved, but Constitutional limitations made it impossible for lawmakers to step in. Judges came to the rescue by devising a procedure for reorganizing troubled corporations.

Q: How will the "fresh-start" aspect of U.S. bankruptcy law help companies weather the economic fall-out of September 11?

A: Our system is designed to give companies...