The Dark Knight Rises: Bankruptcy

Without going into too much detail above the fold (spoilers ahead!), a key plot point of The Dark Knight Rises concerns bankruptcy law.  Today we’re going to talk about a couple of aspects of that.

We’ve talked about how unlikely it is that Wayne would actually be bankrupted by Bane, but let’s assume that the plan actually worked the way it’s portrayed in the movie.  After Bruce Wayne is bankrupted by Bane, he informs Selena Kyle that “they’re letting me keep the house.”  This lets him keep the Batcave, and it has other important consequences in the film’s denouement.  But how likely is that, really?

I. Bankruptcy in General

In the United States, bankruptcy is mostly an issue of federal law, per Article 1, Section 8, Clause 4 of the Constitution.  However, the federal law allows states to customize certain aspects of the law, especially bankruptcy exemptions (i.e. property that creditors can’t get to).  Although the federal law provides certain default exemptions, states are free to add to those or opt-out of them entirely, providing residents with only state-law exemptions.

Why does this matter?  As it happens, the so-called “homestead exemption” varies tremendously from state to state.  In some states it is virtually worthless and in other states it is extremely important.  So the answer depends almost entirely on state law.

II. The Homestead Exemption

Unfortunately, we don’t know what state Gotham is in, so it’s impossible to say for sure whether Wayne would be allowed to keep the house.  Instead, we’ll consider a couple of different states’ homestead exemptions.

In a relatively small number of states, such as Florida and Texas, the homestead exemption is unlimited in value and limited only by the size of the property. Fla. Stat. §222.01 et seq.;  Tex. Prop. Code § 41.001 – 2.  In many such states the maximum size of the property is pretty generous so long as it’s not within city limits (e.g. 160 acres in Florida; 100 acres in Texas).  If Gotham is in a state like that, then Wayne Manor may be free and clear.

Now, you might be thinking “hey, anyone contemplating bankruptcy should just buy an enormous ranch in Texas, declare bankruptcy, then sell the ranch to get their money back.”  Alas, the feds are one step ahead of you.  In 2005 the “mansion loophole” was closed by capping the homestead exemption at $146,450 (that’s the current value; it’s adjusted for inflation every 3 years) for any property acquired within 1,215 days before the bankruptcy filing.  11 USC 522(p).  Luckily, Wayne acquired Wayne Manor long before that, so he’d be okay on that score.

By contrast, in New York the homestead exemption varies according to where the property is located, but it basically ranges from $75,000 – $150,000. N.Y. CPLR § 5206; N.Y. Debtor and Creditor Law § 282.  This is relatively generous as non-unlimited homestead exemptions go and it’s more than the federal exemption, but it’s safe to say that Wayne Manor exceeds that value.  However, Wayne would be allowed to keep the family burial plot under § 5206(f).

III. Inflation and Personal Property Exemptions

One of the problems with many homestead exemptions is that they are very old and often not indexed to inflation.  For example, Missouri’s real property exemption is a whopping $15,000, which is less than even the federal exemption, which isn’t available in Missouri anyway.  To get a further sense of just how antiquated many bankruptcy statutes are, consider the personal property exemptions in many states, which are clearly aimed at small-scale, pre-industrial farming.  For example, in Vermont, a debtor is allowed to keep

(11) one cow, two goats, 10 sheep, 10 chickens, and feed sufficient to keep the cow, goats, sheep or chickens through one winter;
(12) three swarms of bees and their hives with their produce in honey;
(13) one yoke of oxen or steers or two horses kept and used for team work;
(14) two harnesses, two halters, two chains, one plow, and one ox yoke;

Suffice it to say that basically no states would allow Wayne to keep his Batman equipment.  They probably aren’t tools of his trade, since he doesn’t earn money with them, nor are his vehicles likely exempt.  In any case their value likely exceeds any exemption.  So it’s a good thing the creditors don’t know about the Batcave and its contents.

IV. Conclusion

In the past the bankruptcy laws have tended to be amended to favor creditors in good times and debtors in bad times.  So far the most recent recession has not resulted in a significant swing in pro-debtor laws, but maybe the state Gotham is in is an exception.  Whether through recent amendment or long-standing law, however, there is at least a possibility that Wayne would be allowed to keep the manor and its grounds.