Ethical Considerations in Filing Personal Bankruptcy: A Hypothetical Case Study

• Date: 01 March 2012
• DOI: http://doi.org/10.1111/j.1744-1722.2011.01099.x
• Published date: 01 March 2012

Journal of Legal Studies Education

Volume 29, Issue 1, 59–93, Winter/Spring 2012

Ethical Considerations in Filing

Personal Bankruptcy: A Hypothetical

Case Study

Robert J. Landry, III*

I. Introduction

Bankruptcy is one of the fields least written about by legal studies schol-

ars. Bankruptcy-related topics have received little treatment in the scholarly

journals published by the Academy of Legal Studies in Business (ALSB). In

recent years, only one article in the Journal of Legal Studies Education (JLSE)

has specifically addressed bankruptcy.1Only a handful of bankruptcy arti-

cles have been published in the American Business Law Journal (ABLJ).2Paper

presentations at the ALSB’s annual conference typically include just a few

∗Associate Professor of Finance,College of Commerce and Business Administration, Jacksonville

State University, Jacksonville, Alabama.

1Sandra Benson & Wade M. Chumney, The Rise and Fall of a Ponzi Scheme: The Ideal Illustration

of the Law and Ethics of the Federal Bankruptcy Code,28 J. Legal Stud. Educ. 273 (2011). An

earlier JLSE article included bankruptcy as an important subissue in the context of a tax case

study. Lucien J. Dhooge & Cynthia F. Eakin, Integrating Tax Law into the Business Law Classroom:

A Corporate “Cradle to Grave” Case Study,19 J. Legal Stud. Educ. 271, 307–09 (2001).

2A Westlaw search on May 3, 2011, found five articles in the American Business Law Journal

that had bankruptcy in the title: Deborah A. Ballam, The “Willful and Malicious” Injury Exception

to Discharge in Bankruptcy: An Analysis and Recommended Revision,28Am.Bus.L.J.87 (1990);

Frank P. Darr, Federal-State Comity in Utility Bankruptcies,27Am.Bus.L.J.63(1989); Gloria Jean

Liddell et al., Charitable Contributions in Bankruptcy: An Empirical Analysis,39 Am. Bus. L J. 99

(2001); Jeffery M. Sharp, Returning Confidence to Prepetition Foreclosure Sales under the Bankruptcy

Code: Scrutinizing Federal Policy and a Vague Statute,32Am.Bus.L.J.186(1994); Jeffrey M. Sharp,

Bankruptcy Reorganizations, Section 1129, and the New Capital Quagmire: A Call for Congressional

Response,28Am.Bus.L.J.525 (1991). The low incidence of bankruptcy topics in the scholarship

in the American Business Law Journal was noted by a former editor of that journal. See Larry A.

DiMatteo, Editor’s Corner: The Value of Legal Studies Research,43Am.Bus.L.J.v (2006) (finding

only four manuscripts (5.2 percent) pertaining to commercial law, which included bankruptcy

as a subtopic, over a five-year period).

C2012 The Author

Journal of Legal Studies Education C2011 Academy of Legal Studies in Business

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60 Vol. 29 / The Journal of Legal Studies Education

bankruptcy-related papers.3The treatment of bankruptcy in legal studies

textbooks is typically consistent with the attention given in the scholarship.4

A great deal of research by legal studies scholars pertains to employ-

ment law, international law, and corporate governance, as well as other fields

including ethics and international law.5The fields typically addressed are

very important and rightfully receive considerable attention in the scholar-

ship and textbooks. However, bankruptcy as a learning tool is greatly un-

derutilized. This observation is particularly true considering today’s global

economic climate, with so many high-profile bankruptcy cases in recent years,

such as Enron,6Worldcom,7and Lehman Brothers,8and the ever-increasing

incidence of consumer bankruptcy.9

This article attempts to partially fill the void in the legal studies literature

by presenting a hypothetical case study of an individual who is in financial

3A review of the ALSB National Proceedings from 2005 through 2010 reveals only two articles

that pertain to bankruptcy. See ALSB National Proceedings, http://alsb.roundtablelive.org/

Default.aspx?pageId=478850 (last visited May 3, 2011).

4Usually only a chapter or a portion of a chapter in a text is devoted to bankruptcy. See, e.g.,

Kenneth W. Clarkson et al., Business Law: Text and Cases 581–604 (12th ed. 2012);

Marianne M. Jennings,Business:Its Legal, Ethical, and Global Environment 485–87

(9th ed. 2012); Robert E. Meiners et al., The Legal Environment of Business 353–60

(2012); Roger LeRoy Miller et al., Essentials of the Legal Environment 384–404 (3d

ed. 2011); Roger LeRoy Miller &Gaylord A. Jentz,Business Law Today: The Essentials

466–82 (9th ed. 2011); O. Lee Reed et al., Legal and Regulatory Environment of Business

526–27 (15th ed. 2010); Mark E. Roszkowski,Business Law: Principles, Cases, and Policy

516–41 (6th ed. 2006).

5Forexample,intheAmerican Business Law Journal the most prevalent topics over one five-year

period included employment law, intellectual property and corporate governance. DiMatteo,

supra note 2, at vi.

6In re Enron Corp., No. 01-16034 (Bankr. S.D.N.Y. 2001).

7In re Worldcom, No. 02-13533 (Bankr. S.D.N.Y. 2002).

8In re Lehman Brothers Holdings, Inc., No. 08-13555 (Bankr. S.D.N.Y. 2008).

9Total bankruptcy filings have increased from 413,294 for the twelve-month period ending on

March 31, 2007 to 1,118,481 for the twelve-month period ending on March 31, 2011. News Re-

lease, Administrative Office of the U.S. Courts, Bankruptcy Filings up Slightly in March (May 6,

2011), http://www.uscourts.gov/News/NewsView/11-05-06/Bankruptcy_Filings_Up_Slightly_

in_March.aspx. Consumer bankruptcy filings have increased to such an extent that it is a rel-

atively common occurrence. Ning Zhu, Household Consumption and Personal Bankruptcy,40 J.

Legal Stud. 1, 1 (2011) (“Personal bankruptcy has grown from a relatively rare household

event a couple of decades ago to a fairly common occurrence today.”). See also Angela Littwin,

The Affordability Paradox: How Consumer Bankruptcy’s Greatest Weakness May Account for its Surprising

Success,52 Wm. & Mary L. Rev. 1933, 2017 (2011) (recognizing the ever increasing consumer

bankruptcy filing rate in recent years).

2012 / Ethical Considerations in Filing Personal Bankruptcy 61

distress and who is presented with the decision of whether or not to file for

bankruptcy protection.10 The case provides an opportunity to explore the

ethical ramifications of the decision. The case is not designed to teach the

finer points of bankruptcy law, which would be of little long-term value to

the typical business student.11

Following this introduction, Part II presents a brief literature review of

the case study as a pedagogical tool. Part III provides a concise overview of

consumer bankruptcy law in the United States, and Part IV discusses ethical

theories that may be relevant in the bankruptcy decision-making process.

Both sections are designed to provide a foundation for the case study pre-

sented in Part V. Following the case study is a teaching note that includes the

following: learning objectives, potential uses of the case study, a discussion

of the assigned case questions, and suggested approaches to evaluating stu-

dents. Finally, the conclusion provides anecdotal information on the use of

the case study.

II. Literature Review: Case Study

as a Pedagogical Tool

The case study method has been employed in a wide range of educational

settings.12 The roots of its use in business schools can be traced back to

10Some academics have asserted that case studies concerning hypothetical situations are partic-

ularly effective. See Joseph W. Rand, Understanding Why Good Lawyers Go Bad: Using Case Studies

in TeachingCognitive Bias in Legal Decision-Making,9 Clinical L. Rev. 731, 759 (2003). Excellent

case studies can also be developed from actual events or cases. See, e.g., Benson & Chumney,

supra note 1 (case study based on an actual Ponzi scheme); Marisa Anne Pagnattaro, International

Legal and Ethical Considerations at Pfizer, Inc., 22 J. Legal Stud. Educ. 169 (2005) (case study to

explore ethical and legal consequences of drug company’s handling of three drugs).

11In many respects, law courses in business schools take a legalistic approach rather than em-

phasizing the skills needed in making business decisions. This case takes the latter approach.

For a detailed discussion of the need to refocus business school law courses away from being too

legalistic, see generally Marc Lampe, A New Paradigm for the Teaching of Business Law and Legal

Environment Classes,23 J. Legal Stud. Educ. 1 (2006) (arguing that that business school law

courses should not attempt teach students to be lawyers, but rather to be business practitioners

and presenting a new paradigm for business law courses to embrace teaching that enhances the

skills that business practitioners actually need).

12Robert C. Bird et al., Troubled Times at Upturn Records: Getting TraditionalLegal Concepts to Dance

to the New Online Beat,22 J. Legal Stud. Educ. 1, 3 at n.5 (2004) (“Case studies have been

utilized successfully in teaching such diverse fields as auditing, medicine, business, education,

geography, and law.”); Jeffrey Pittman, Consumer Electronic v. Jones & Diamond: A Hypothetical Case