538. Bankruptcy, Inequality, and the Quest for Fairness feat. Melissa B. Jacoby

May 9, 2025

Melissa B. Jacoby, a Law Professor at UNC Chapel Hill and author of 'Unjust Debts', explores the complexities of the U.S. bankruptcy system. She discusses how specialized courts affect both personal and corporate bankruptcies, often entrenching existing inequalities. The conversation highlights disparities faced by low-income communities, the influence of the consumer credit industry, and the ethical concerns surrounding how wealthy families navigate bankruptcy. Greg and Melissa also examine the long-lasting impacts of these laws on justice and fairness.

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INSIGHT

Different Treatment in Bankruptcy

Bankruptcy law applies the same basic legal powers to both individuals and corporations, but the outcomes can be very different.
This raises important questions about fairness and why corporations often receive more generous treatment than humans.

INSIGHT

Bankruptcy Is Costly to Access

Bankruptcy requires debtors to pay fees upfront to gain relief, which can deter those least able to afford it.
The system is designed as self-funded social insurance but this can undermine accessibility and fairness.

INSIGHT

Bankruptcy Reinforces Inequality

Bankruptcy law often piles on to pre-existing social inequities, especially affecting low-income communities of color.
Certain fines and fees that disproportionately burden these communities are rarely dischargeable, perpetuating cycles of hardship.

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What are the broader implications of specialized bankruptcy courts on the U.S. legal system? How are bankruptcies being used and misused by debtors and creditors today?

Melissa B. Jacoby is a professor of law at the University of North Carolina at Chapel Hill. She’s also the author of the book Unjust Debts: How Our Bankruptcy System Makes America More Unequal.

Greg and Melissa discuss the complexities of the U.S. bankruptcy code, highlighting its impact on both individuals and corporations. Their conversation digs into the unintended and often unfair consequences of bankruptcy laws, especially concerning personal bankruptcy versus corporate restructuring. Melissa and Greg also touch on the racial disparities in bankruptcy cases, the influence of the consumer credit industry, and the role of non-bankrupt players like the Sacklers in liability discharge.

*unSILOed Podcast is produced by University FM.*

Episode Quotes:

The cost of going bankrupt in America

09:35: You have to pay not to pay in America to go bankrupt. It is the kind of social insurance that requires an outlay of funds, and the bankruptcy system can't print money. It doesn't do job retraining. So the one thing it does is cancel debt, but you have to pay for that.

How bankruptcy reflects broader inequality

16:14: It's important to see how bankruptcy is in conversation with a lot of other laws and policies that create inequities outside of bankruptcy. And then, when they're brought into bankruptcy, bankruptcy piles on.

The role of civil litigation in bankruptcy

24:27: There are areas of law that depend not as much on upfront regulation but on ex-post exploration of alleged wrongs, that the civil litigation process is not merely to reward a remedy like some people think, although again, sometimes that is what people want. It is to switch the power dynamics in the control that an injured person gets to ask someone else questions, gets to shape the process. And that doesn't mean they're going to prevail. It is possible that instead of getting 3 cents on the dollar, there will be zero. But that's not really the point here. The point here, you're losing a lot of other objectives that the law outside of bankruptcy is supposed to fill. And it becomes very easy once one spends a lot of time in the bankruptcy system. Everything is about money.

Bankruptcy can cancel debts but we've made it too hard to use

08:34: The thing that bankruptcy can do the best, or is the most equipped to do relative to other laws, is to cancel debts. So, what is going on with the consumer credit industry in its many, many years of lobbying to make the bankruptcy system more complicated and more expensive for average families to use? It doesn't seem to have been that the bankruptcy system operates more smoothly and efficiently, because, if anything, the 2005 amendments had the opposite effect.

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