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Abstract

Over the course of the past few decades, public awareness of privately created environmental hazards has risen. As a result, state and federal legislatures have been moved to enact comprehensive environmental laws that serve both to remedy past harms and to prevent future ones. Today, environmental statutes seek to correct and prevent public health hazards as diverse as groundwater contamination, toxic waste disposal, soil contamination, destruction of native plant and animal habitats, and air pollution, to name but a few. In addition, state and federal courts have permitted the invocation of common law theories, such as nuisance and trespass, to allow recovery in tort for injuries sustained by plaintiffs subjected to harmful environmental conditions. Unfortunately, as laws creating environmental liabilities have grown in scope and number, the cost of compliance has increased enormously. For some business operators on the economic margin, the substantial cost burdens associated with environmental compliance and liability, in conjunction with other ambient economic pressures, present an insurmountable barrier to profitable management. As a result, these individuals may decide to seek protection from their creditors, and from state and federal regulators, under the federal Bankruptcy Code (“Code”). The tension generated when an environmental violator seeks refuge from state regulators under the Code is the result of the conflicting policies which underlie the bankruptcy and environmental laws. Thus, when the environmental violator files a petition for bankruptcy, “[c]onflict among the various parties is virtually assured.” Government regulatory bodies want to see the debtor's assets used to satisfy environmental liabilities or, in the alternative, to at least enjoin the debtor's continuing violation of environmental laws. Creditors, on the other hand, want the bankruptcy courts to insulate the debtor's estate from such environmental claims to the maximum extent possible so that their personal interests in the estate are preserved. These competing interests present federal bankruptcy judges with the task of resolving a conflict which was, as one commentator has noted, only “dimly foreseen by the drafters of the Bankruptcy Reform Act of 1978 . . . and, thus, not adequately provided for [in that Act].” Accordingly, the courts have been compelled to decide cases which involve this policy conflict on what has been characterized as an essentially “ad hoc basis.”

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