Cornell Law Review

One of the glaring differences between personal bankruptcies and sovereign “bankruptcies” is the absence of a fresh start for sovereigns. This is largely because sovereigns cannot declare bankruptcy in the same way that individuals can declare bankruptcy.^{11. Martin Guzman et al., Introduction to TOO LITTLE, TOO LATE: THE QUEST TO RESOLVE SOVEREIGN DEBT CRISES XIII, XIII (Martin Guzman, José Antonio Ocampo & Joseph E. Stiglitz eds., Columbia Univ. Press 2016) (“A fresh start for distressed debtors is a basic principle of a well-functioning market economy. . . . But there is no international bankruptcy framework that similarly governs sovereign debts.”).} A sovereign cannot enter into bankruptcy in the traditional sense—creditors and a sovereign cannot be forced to come together under an organized legal system to discharge and restructure the sovereign-debtor’s obligations.^{22. LEE C. BUCHHEIT ET AL., COMM. ON INT’L ECON. POL’Y & REFORM, REVISITING SOVEREIGN BANKRUPTCY IV (2013), https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=5904&context=faculty_scholarship [https://perma.cc/7JEG-3ULN] (“[T]here is no legally and politically recognized procedure for restructuring the debt of bankrupt sovereigns.”).} This obviates the sovereign’s ability to declare bankruptcy in the “straightforward” manner an individual can.

Without the ability to declare bankruptcy, sovereigns currently lack the opportunity for a financial fresh start. No institution (bankruptcy court or otherwise) has the power to force the creditors and the debtor to the bargaining table, and thus no institution has the power to provide the sovereign with a fresh start like a bankruptcy judge can for an individual. While the judge’s ability to provide an individual with a fresh start is well founded in American jurisprudence,^{33. Jonathon S. Byington, The Fresh Start Canon, 69 FLA. L. REV. 115, 119 (2017) (“The Supreme Court began recognizing the fresh start policy by name as early as 1885.”).} it “appears only once in the actual text of the Bankruptcy Code [in § 1507(b)(5)].”^{44. Id. at 118–19. The “fresh start” language appears in Chapter 15 of the Bankruptcy Code (the Code), which—ironically for this Note—is the section of the Code that deals with international bankruptcies.}

All this begs the question, without an institution or a set of laws that can facilitate a sovereign’s bankruptcy proceeding, is a fresh start ever possible? I argue that it is, at least in part. This Note will unfold as follows. Section I will begin by examining how American bankruptcy law conceives of the fresh start concept. Section II will look at the problem of excessive sovereign debt and how a sovereign’s insolvency is handled when it cannot resort to bankruptcy. Section III will argue for incorporating the fresh start policy into the current sovereign debt restructuring regime. And Section IV will explore how the practice of labelling governments illegitimate and their debts odious can serve as a mechanism for determining what debts are dischargeable, which will ultimately bring the sovereign closer to receiving a fresh start.

To read more, click here: Incorporating the Fresh Start Into Sovereign Debt Restructuring Through Odious Debt.