When the Taker Goes Broke: Takings Claims in Municipal Bankruptcy

When a municipality takes property, the former owners can allege a violation of the Takings Clause and try to recover just compensation. But what should happen when the municipality goes broke and enters municipal bankruptcy? Can the municipal Bankruptcy Code empower judges to release municipalities from their obligation to pay just compensation through a discharge? Or does the Takings Clause provide special constitutional protection to claims for just compensation from a municipality that immunizes the claims from discharge? This issue has played out in municipal bankruptcies in Detroit, Michigan; Stockton, California; and Puerto Rico—and courts are deeply divided on the right approach. There now is a live circuit split over the issue: the Ninth Circuit has held that takings claims receive no special protections from discharge, whereas the First Circuit has held that takings claims do receive constitutional protection. This Comment provides the first comprehensive analysis that shows that takings claims are constitutionally dischargeable. As a threshold matter, the Comment shows that formalist considerations do not require immunizing takings claims from discharge. Even if the Takings Clause directly creates a right to recover just compensation, the right to recover just compensation from a municipality can be dis- charged without improperly infringing on the constitutional right. The Comment then shows that making takings claims dischargeable follows best from the original design of the Takings Clause given the host of procedural and political safeguards within municipal bankruptcy that would protect takings claimants against abuse. Lastly, the Comment shows that making takings claims dischargeable is normatively good. This position helps keep municipal bankruptcy relatively accessible and avoids creating thorny doctrinal problems. Even those with takings claims have minimal grounds to object to their claims being dischargeable given that they will generally be made no worse off by the municipal bankruptcy regime as a whole.