The world of international bankruptcy has seen increasing use of the versatile scheme of arrangement, a form of corporate reorganization available under English law. A key feature of the scheme is its modularity, whereby a debtor can restructure only a single class of debt, such as bond indentures, without affecting other debt, such as trade. This is the opposite of chapter 11 of the U.S. Bankruptcy Code’s comprehensive reckoning of all financial stakeholders. This article considers a novel idea: could the scheme be transplanted into the consumer realm? It argues that it could and should. Substantial benefits of more individually tailored debt relief would accrue, and costs within an expensive, court-focused system would reduce. But the proposal also encounters some serious complexities, inapplicable to the business world, regarding the scope of discharge in a “partial” consumer bankruptcy proceeding.

The analysis proceeds as follows. First, it canvasses normative conceptions of consumer bankruptcy (an under-theorized domain) to propose what are argued to be essential attributes of debtor relief law, centering on the concept of abuse-policed discharge. Second, it discusses the history of the scheme of arrangement, its anti-holdout motivation, and its deployment of corporate reorganization modularity. It then makes a case for demand for modularity in the consumer realm based on recent empirical evidence from the Consumer Bankruptcy Project. Third, it sketches what a consumer scheme might look like, proposing a “car scheme” as a prototype that would divide personal debts into asset classes (vs. the conventional scheme’s creditor classes). The proposal includes both a strong and weak version, which under the former but not the latter would provide for discharge of related unsecured indebtedness. Fourth, the article discusses in some length the challenges presented, including whether the strong version would adequately police moral hazard, and whether either version might stray too far from the essential attributes of consumer bankruptcy law. It also assesses whether a limited car scheme would exceed the constitutional scope of laws “on the subject of bankruptcies,” discussing the roles collectivity and insolvency play in the answer to that question. Developments in cross-border insolvency law are also considered to further that enquiry. Finally, the article examines recent U.S. legislative proposals that could be considered kindred spirits and concludes that notwithstanding potential complexities, the time for the modular consumer scheme of arrangement has come.


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