Chapter 6 - § 6.11 • ARBITRATION OF CLAIMS IN BANKRUPTCY

• Jurisdiction: Colorado

§ 6.11 • ARBITRATION OF CLAIMS IN BANKRUPTCY

The impact of bankruptcy laws on arbitration is generally the same as the impact on a judicial proceeding. Generally, under 11 U.S.C. § 362 (Bankruptcy Code), the automatic stay of proceedings applies only to claims against the debtor, and not to co-defendants. Generally, it does not apply to claims of the debtor that do not impair assets of the debtor.

When one party to an arbitration agreement is in bankruptcy, it might be anticipated that special rules with respect to enforcement of arbitration might not apply. In fact, that may not be the case. For example, in Mintze v. American General Financial Services, Inc.,¹³⁰ a Chapter 13 debtor-borrower sought to compel the lender to arbitrate his pre-petition rescission of a mortgage under the Truth in Lending Act, as well as claims under the consumer protection laws. The Third Circuit held that regardless of whether it was a core or non-core proceeding, the issue was whether "Congress intended to preclude a waiver of remedies for the statutory rights at issue," i.e., whether Congress intended to establish an exception to the FAA mandate to enforce arbitration agreements, even federal statutory claims. Here, the court found no such exception and enforced the arbitration clause.

Most courts at least compel arbitration in non-core bankruptcy matters.¹³¹ On the other hand, other courts have held that arbitration clauses need not be applied to "core" proceedings if doing so would conflict with provisions of the Bankruptcy Code.¹³²

Thus, the determinative issue, as with all statutory claims, is whether, given the federal policy in favor of arbitration, Congress intended to limit or preclude a waiver of judicial remedies for the statutory rights or intended to prohibit or limit the waiver of the judicial forum.¹³³ The burden is on the party opposing arbitration to show that Congress intended to limit waiver of the judicial forum or that there is a conflict between the FAA and the statute's underlying purpose.¹³⁴

1) The automatic stay provision of the Bankruptcy Code applies to arbitration proceedings, as well as judicial proceedings.¹³⁵
2) An arbitration clause survives a contract rejected by the bankruptcy debtor.¹³⁶
3) Generally, preferential transfer claims are not arbitrable.¹³⁷

• See § 14.8.
• Annot., Disposition by Bankruptcy Court of Request for Arbitration Pursuant to Arbitration Agreement to which Debtor in Bankruptcy is a Party, 72 A.L.R. Fed. 890.
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