In Unjust Debts (New Press, June), Jacoby explains how the powerful use bankruptcy to evade accountability.

When did you begin looking into bankruptcy?

I fell in love with bankruptcy in law school; my first job was at a bankruptcy court in Chicago. I believed it was so important for our society to help people get back on their feet. Over time, I’ve fallen out of love. The bankruptcy system has become less effective at helping families cancel debts. Congress was taken with arguments from the credit industry about personal responsibility—made at a time when the credit industry was making record profits. There’s also evidence that African American families pay more for bankruptcy and are less likely to get it. There need to be structural change to address that—and the use of bankruptcy by what I call “fake people.”

Fake people?

Corporations, cities, nonprofit organizations, churches—all these entities use bankruptcy. On the one hand, Chapter 11 bankruptcy is necessary for small businesses to be able to get over hard times. But Congress made bankruptcy more difficult for small businesses. Instead, powerful players have been able to change the law bit by bit for their own benefit. The law got dismantled over time, and that’s changed who’s helped and who’s hurt by the system. Now we are seeing bankruptcy used to handle issues like child sex abuse and the opioid crisis.

How does that work?

For instance, when Detroit and San Bernardino declared bankruptcy, survivors of police brutality who were owed damages ended up with the lowest rates of compensation of any claimant. These are people who didn’t ask to be creditors, they didn’t lend money to the city, and yet they were swept into the bankruptcy along with everybody else. Astoundingly, the families affected by the Sandy Hook shooting have been dragged into bankruptcy court multiple times as creditors, first by [gun manufacturer] Remington, and then because Alex Jones filed for bankruptcy after a judgment that he had defamed them by saying Sandy Hook was a hoax. The use of bankruptcy by nonprofits to manage liability for child sex abuse started with the Catholic Church in the 2000s; I think now over 35 Catholic dioceses have filed for bankruptcy for that reason.

Is this a partisan issue?

In 2005, when Congress made bankruptcy less forgiving for vulnerable families, that was on a bipartisan basis. But when I testified at a Senate Judiciary committee hearing in fall 2023, there was bipartisan anger at Johnson & Johnson for misusing the bankruptcy system to deal with allegations that its baby powder causes cancer. So, the parties often align, but they’re not seeing the big picture.