In the exercise of its bankruptcy powers Congress must not transgress the Fifth and Tenth Amendments. It may not take from a creditor specific property previously acquired from a debtor nor circumscribe the creditor's right to such an unreasonable extent as to deny him due process of law;[1096] neither may it subject the fiscal affairs of a political subdivision of a State to the control of a federal bankruptcy court.[1097] Since Congress may not supersede the power of a State to determine how a corporation shall be formed, supervised and dissolved, a corporation which has been dissolved by a decree of a State court may not file a petition for reorganization under the Bankruptcy Acts.[1098] But Congress may impair the obligation of a contract and may extend the provisions of the bankruptcy laws to contracts already entered into at the time of their passage.[1099] It may also empower courts of bankruptcy to entertain petitions by taxing agencies or instrumentalities for a composition of their indebtedness where the State has consented to the proceeding and the federal court is not authorized to interfere with the fiscal or governmental affairs of the petitioner.[1100] Also bankruptcy legislation must be uniform, but the uniformity required is geographic, not personal. Congress may recognize the laws of the States relating to dower, exemption, the validity of mortgages, priorities of payment and similar matters, even though such recognition leads to different results from State to State.[1101]
Prior to 1898 Congress exercised the power to establish "uniform laws on the subject of bankruptcies" only very intermittently. The first national bankruptcy law was not enacted until 1800 to be repealed in 1803; the second was passed in 1841 and repealed two years later; the third was enacted in 1867 and repealed in 1878.[1102] Thus during the first 89 years under the Constitution a national bankruptcy law was in existence only sixteen years altogether. Consequently the most important problems of interpretation which arose during that period concerned the effect of this clause on State law. The Supreme Court ruled at an early date that in the absence of Congressional action the States may enact insolvency laws since it is not the mere existence of the power but rather its exercise which is incompatible with the exercise of the same power by the States.[1103] Later cases were to settle further that the enactment of a national bankruptcy law does not invalidate State laws in conflict therewith but serves only to relegate them to a state of suspended animation with the result that upon repeal of the national statute they again come into operation without reenactment.[1104]