Understanding Bankruptcy Courts

Bankruptcy Courts are part of a larger system of federal courts. Getty Images

Bankruptcy affects more people than you probably realize. It has been said that over a lifetime a person has a one in ten chance of filing a bankruptcy case. I can guarantee it has affected some of your neighbors, co-workers and even the members of your Sunday School class. Even if you have not filed a case yourself, you might have been a creditor of someone who did, or perhaps your employer filed.

When you are affected by a bankruptcy case, you are likely confused and frustrated about the process. This article will help quell some of that frustration by explaining how the bankruptcy court system works.

Bankruptcy is a process governed by federal law. Bankruptcy cases can only be heard in federal courts. Although there are proceedings under the laws of various states called "receivorship," the unified bankruptcy courts are all federal.

The federal court system is divided into levels. The trial courts, appellate courts and the Supreme Court. There are also various administrative law courts, like the immigration court. The basic trial court is called the district court. Bankruptcy courts are specialized courts that are in essence a division of the district courts. District courts can hear all matters that come within their jurisdiction, plus they can hear bankruptcy matters. As a matter of course, they refer all bankruptcy matters to the specialized bankruptcy courts.

Understanding the system of bankruptcy courts is essential to a clear picture of possible the avenues that your bankruptcy case may take.

Jurisdiction

Unlike the other federal courts, such as the district courts, bankruptcy courts are legislatively created. This means that the courts were established by Congress under its legislative authority to create courts under Article I, Section 8 of the Constitution.

Under the federal statute 28 U.S.C. 1334, bankruptcy courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in state court. The reason behind this law is that a uniform bankruptcy system requires cases to be filed in a uniform federal system, instead of in different state courts, which may have different rules and regulations.

Some matters in a bankruptcy case are so central to the bankruptcy process, they are designated core matters. Core matters can include interpreting the bankruptcy code itself, how claims are handled, what debts are dischargedChapter 13 repayment plans, how Chapter 11 debtors are reorganized and many more matters that would arise in a bankruptcy case and no where else. A bankruptcy judge might also be called on to decide non-bankruptcy matters. These are issues that could be decided by the district court or even state courts, but arise in the context of a bankruptcy case. For instance, a bankruptcy judge might be called on to interpret the terms of a contract so that the parties can determine the amount of a claim.

A core matter is decided by the bankruptcy judge. Those decisions can be appealable to the district court or to the appellate court with special permission.

With non-core matters, the parties can decide if the bankruptcy judge has the final say (at least at the trial court level), or whether the district judge has to put his stamp of approval (or disapproval) on the decision).  

Bankruptcy Judges

Bankruptcy judges are appointed for 14 year terms by the United States Court of Appeals for the particular federal circuit in which the bankruptcy court resides. Thus, unlike federal district court and appellate judges, who are appointed for life, the term of a bankruptcy judge must be renewed every 14 years by the appellate court. It is therefore quite possible for an appellate court to not renew a bankruptcy judge's term if it is unhappy with his or her performance. Likewise, the bankruptcy judge can choose to decline a 14 year appointment. 

System of Appeals

Although all initial bankruptcy matters are handled by a bankruptcy court, appeals of orders, decisions, and judgments on these matters are usually handled by district courts, but sometimes handled by appellate courts.

Some circuits have what is known as a bankruptcy appellate panel (BAP). BAPs have been convened in the FIrst, Sixth, Eighth, Ninth and Tenth Circuits. The appellate panel consists of bankruptcy judges from the same circuit who hear bankruptcy appeals. Even in circuits which have a bankruptcy appellate panel, an appellant may choose to have his appeal heard by the local federal district court.

The next level of appeal is the United States Court of Appeals for the particular circuit in which the bankruptcy court sits. For example, an appeal from the bankruptcy court in San Francisco will eventually move up to the Ninth Circuit Court of Appeals.

The final level of appellate review is the Supreme Court of the United States.

Federal Rules of Bankruptcy Procedure

The proceedings in bankruptcy courts are governed by the Federal Rules of Bankruptcy Procedure. As the name suggests, these rules govern the procedural aspects of bankruptcy proceedings and trials, such as the time within which you must file your bankruptcy schedules. In large part, the bankruptcy rules of procedure mirror and incorporate the Federal Rules of Civil Procedure, which govern litigation in other federal courts. Thus, litigation in bankruptcy courts is very similar to litigation in federal district courts.

Finding Bankruptcy Courts

If you are considering filing for bankruptcy, it is important to identify and locate the appropriate bankruptcy court. According to federal statute, you must file your bankruptcy case in the federal district in which you were domiciled, had a principal place of business, or principal assets in the United States, within the 180 days prior to filing. Your domicile is your primary residence. For example, if you have a summer home in Texas, but live nine months of the year in California, your domicile is likely California and not Texas. Once you have determined your domicile city, go to the U.S. Courts website. Click your domicile state on the colored map, then, click "Advanced Search." Click "Search by Circuit," choose "Bankruptcy Court" in the drop down menu. Choose your federal circuit according to the colored map and click "Locate." Find the geographically closest bankruptcy court. Many states have multiple bankruptcy courts. Contact one of the courts to ensure that you choose the proper court.

 

As always, a qualified bankruptcy attorney is your best resource when you are contemplating bankruptcy. 

Updated by Carron Nicks April 2017.