Bankruptcy issues can be thorny, dry, and seldom make their way to the Supreme Court of the United States. One thing was made evident yesterday by the impressive performance by Neal Katyal, who handled the oral argument for Alfred Siegel, Chapter 7 Trustee, who states “based on the gross misconduct of Mr. Law, and when monetary sanctions (which remain unpaid even today) were ineffective, Bankruptcy Courts were left with only one solution: to surcharge Mr. Law’s exempt property for the time and expense incurred addressing his post-filing activity.”
Law v. Siegel highlights the fact that Bankruptcy Courts need mechanisms to enforce the underlying spirit of the Bankruptcy Code on debtors that file with only exempt property. Section 105(a) provides this mechanism to force bankrupt debtors, with assets that only represent exempt property, to follow the law of the land, and otherwise comply with Bankruptcy Court orders.
Section 105(a), which is sparingly used, was clearly designed by the drafters of the Bankruptcy Code to handle unforeseen situations, exactly like Mr. Law’s conduct in this case. For courts of equity to do equity they must be allowed the flexibility to address unforeseen complications while still accomplishing just and fair results.