[Volokh] Eric Posner: The Dodd Plan: A Contract Clause Problem?

[notify at powerblogs.com]

Posted by Eric Posner:
The Dodd Plan: A Contract Clause Problem?
http://volokh.com/archives/archive_2008_09_21-2008_09_27.shtml#1222262335


   Section 11 of the [1]Dodd bill seeks to minimize foreclosures by
   allowing bankruptcy judges to approve Chapter 13 bankruptcy plans that
   adjust the terms of residential mortgages in the debtorâs favor. Any
   Contract Clause experts willing to weigh in on this provision? There
   is no doubt that the section is lawful if applied prospectively, that
   is, to mortgages issued after the law goes into effect. But if it
   applies retroactively, as surely it is intended to, then creditors can
   assert a Contract Clause violation. The Supreme Court replaced the
   flat ban on this type of law with a balancing test during the Great
   Depression, under similar circumstances. Section 11 would pass the
   balancing test if interference with creditorsâ contractual rights is
   sufficiently limited and/or the government interest is sufficiently
   great. But, however bad things might be now, we are not in a Great
   Depression or even (yet) a Mild Recession, and we have very different
   personnel on the Supreme Court.

References

   1. http://www.politico.com/static/PPM41_ayo08b28.html