American Bankruptcy Law Already Undercuts Accountability for Police Misconduct

Police misconduct continues to be among the nation’s biggest public problems, putting Black Americans especially at risk every day. The policy tools to tackle this problem range from strengthening the powers of federal investigation and criminal prosecution to more comprehensive structural changes such as defunding and abolition. But in the absence of such public reforms, private civil rights lawsuits remain essential to holding cities and officers accountable. Those suits already are an uphill battle for people injured at the hands of the police. But the climb may soon get steeper for an unexpected reason.

Cities have been using the American bankruptcy system to shield themselves from liability for police misconduct. Although those cases have been rare so far, the United States Supreme Court is set to rule any day on a case that could make bankruptcy an even more formidable barrier to accountability for excessive force and other wrongs. The practical effect would be to chill civil rights lawyers from even trying to enforce victims’ rights in cities where police reform is most needed.

Most bankruptcy filers are individual people, with companies in a distant second place. But cities, as “municipalities,” also are eligible under some circumstances. Bankruptcy law makes it possible to change all creditors’ rights without obtaining consent from each and every one. The bankruptcy system’s doors initially opened to governments in the 1930s so they could reset the repayment schedules for municipal bonds they’d issued.

Fear of a New York City collapse prompted Congress to give municipal bankruptcy filers a bigger toolbox in 1976. An even broader overhaul of the American bankruptcy system in 1978 allowed all kinds of cases to change the rights of more claimants than ever before—including people alleging injury, whether or not they had filed or prevailed in lawsuits. Bankruptcy law treats allegations of police brutality—a bodily harm rooted in constitutional rights—the same way it treats an invoice for office supplies or credit card debt.

Civil rights obligations do not drive big cities into bankruptcy. According to professor Joanna Schwartz, a leading expert on police misconduct liability, civil rights judgments typically constitute less than 1 percent of local budgets. Instead, the big issues tend to be the inability to honor the terms of municipal bonds and other financial instruments and underfunded public pensions. When a case is centered on reworking obligations like bonds and pensions, cities offer no seat at the negotiating table to injured individuals, whether they have been hit by a city bus or subject to police abuse. Canceling civil rights liabilities has become an incidental “benefit” of bankruptcy, even if unnecessary for economic recovery.

A decade ago, the City of Detroit used federal bankruptcy law to cut $7 billion in debt. The breadth of modern bankruptcy law made it possible for Detroit—a majority-Black city with a long history of police problems—to change the rights of people who had alleged police misconduct and other civil rights violations. Detroit promised civil rights claimants a low level of compensation (just 10–13 percent of their claims)—a payment level that sunk to pennies on the dollar in the years after a court approved the city’s plan. Claimants who didn’t file the proper paperwork couldn’t recover at all.

Notably, Detroit’s civil rights claimants retained important rights because the court denied the city’s request to use its bankruptcy to shield police officers of their own personal liability. Detroit remained on the the hook to pay those judgments under collective bargaining agreements with the police.

Depending on the outcome of the pending Supreme Court case, civil rights claimants in other cities won’t get to retain those rights. The question in the Supreme Court case is whether an entity can use its own bankruptcy to permanently shield third parties that have not filed for bankruptcy themselves. In the case before the Supreme Court, the bankruptcy filer is OxyContin maker Purdue Pharma, and the protected parties are the wealthy Sackler family. But if the highest court greenlights Purdue Pharma’s plan, cities contemplating bankruptcy are more likely to seek liability shields for their police officers.