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.

15 Responses to The Dark Knight Rises: Bankruptcy

  1. Of course, if Bruce did file for bankruptcy, and failed to disclose assets (i.e., the contents of the Batcave), then he has committed a fraudulent act, and forfeits the protection of the bankruptcy court.

    Some states have a hobby exemption, so he can probably protect at least a little bit of the bat-gear. If I recall, there’s usually special rules for clothes, too, so the bat-suits might sail through bankruptcy, as well.

  2. You seem to only be looking at this through a chapter 7 lens. We’re talking Bruce Wayne here. He more than likely filed a Chapter 11. Chapter 13 may be appealing, but given his vast wealth, he would probably be over the debt limit. 11 is a reorganization that would allow him to retain a good bit of his property, so long as he paid as a dividend to the unsecured creditors on the unexempt equity in his home. Given the amount of sweet, most likely unencumbered cars he owned, he could probably come up with the scratch to keep the house. But it wouldn’t be as magic as “they let me keep the house.”
    The real issue here is perjury. It seems unlikely that Bruce disclosed any of his Batman paraphernalia, which would give even more unexempt equity toward the unsecured creditors. The documents he signed were under penalty of perjury. Wayne should be spending some time in federal prison for his fraud.

    • Those are good points, but since the movie framed it in terms of “letting him keep the house” (as opposed to “managing to keep the house”), I focused on the homestead exemption.

      Regarding Chapter 11: I think Wayne owed far more than he had, forcing a liquidation. After all, why would Bane leave Wayne with any substantial assets? He doesn’t seem like the type to do something halfway.

      Another possibility apart from reorganization or the homestead exemption is that the house could have been held in a spendthrift trust, but then Wayne wouldn’t have been able to dispose of it in his will, so that doesn’t quite work.

      Regarding perjury: What if ownership of the Batman equipment was never formally transferred from Wayne Enterprises to Bruce Wayne? That could possibly give Wayne the cover necessary to avoid perjury.

      • Fair points. On perjury, most of the bat-equipment is an amalgamation of various pieces constructed by Bruce himself (see Batman Begins). The Tumbler and the Bat are the biggest (and most expensive) exceptions; essentially Wayne Enterprises direct.

        Even if the argument wins that ownership never transferred to Bruce, then you have an issue of embezzlement. Batman does nothing for Wayne Enterprises (unless they adopt him as some kind of mascot or start up a sponsorship deal). His use, manipulation, and inevitable destruction of the items would certainly rise to the fraudulent conversion of the property of another for which he had lawful possession. Point is, Bruce should be in jail. Several times over.

        You mentioned clothing on your reply as well. Can’t speak for the rest of the country, but in Georgia, you only get $5,000.00 for all household good and wearing apparel (and some other miscellaneous items), up to $300.00 for any one item. I forget the quote, but the value of the suit itself is WAY higher than that!

        Side note: this is the best conversation I’ve had all year.

      • As I recall the suit is also from the Applied Sciences division. He gets suits from Lucius in both Batman Begins and The Dark Knight, if I’m remembering correctly.

        Embezzlement is definitely a big problem for both Wayne and Fox.

  3. Some questions:
    1) Can Bruce and Fox get around the embezzlement issue by the payment of a nominal rent.
    2)It’s also been suggested that Fox should have set up a consulting contract with Batman for destructive testing of the equipment.
    3) how much of the Bat equipment could Bruce protect from the Bankruptcy by setting up a corporation as the actual owner?
    4) Also could the Wayne house and lands have been protected via a trust of some sort? What about entailment?

    • 1) Maybe, but it would create a paper trail and Fox might not have the authority to hand out such valuable technology without the approval of the board or another C-level officer. It all depends on how the company is set up. Of course, Wayne might well have seen to it that the CEO has unlimited authority for that very reason.
      2) Yes, although there’s the same paper trail problem, and people might ask why this billionaire playboy is being tasked with destructive testing of high-tech equipment.
      3) Setting up shell corporations whose sole purpose is to ‘own’ something that is really exclusively used by an individual is a good way to end up with a pierced corporate veil.
      4) Yes, a spendthrift trust can be used to protect assets from creditors in bankruptcy, but the quid pro quo is that the beneficiary (Wayne) no longer has control over the trust assets (Wayne Manor). Thus, Wayne wouldn’t have been able to make the manor into an orphanage in his will.

  4. If Lucius Fox is simultaneously pursuing a remedy for obvious fraud through the courts (given that these trades happened mysteriously during a terrorist takeover of the trading floor and most likely are completely unlike Wayne’s other trading activity) how does that affect the bankruptcy proceedings?
    Would they be held in abeyance? Would some sort of lien be put on Wayne’s property so it can still be seized while things play out?

    • I think it’s the other way around. The question is what effect the bankruptcy proceeding would have on the fraudulent trade investigation. Most likely, as a part of the estate, the trustee would be the one to do the investigation, the court having given automatic stay against everyone else.

  5. Suffice it to say, it’s a good thing Bruce fled the country, and he sure as heck hopes the government doesn’t get France to extradite him.

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  7. According to th The Atlas of the DC Universe (1990) from by Mayfair Games, Gotham City is located in New Jersey. (For the record, Metropolis is nearby in Delaware.)

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