CHAPTER 3 Bankruptcy Basics

• Jurisdiction: United States

CHAPTER 3 Bankruptcy Basics

A. The Bankruptcy Code and Rules

You took Civil Procedure in law school, but there is little that could have prepared you for the array of authority that you have to obey just to get a piece of paper filed and served correctly, and addressed by the court. The Bankruptcy Code provides for many of the substantive rights and obligations that parties possess in a bankruptcy matter. However, beyond that, there are the Federal Rules of Bankruptcy Procedure, which provide the procedural framework within which bankruptcy attorneys operate.

Still, that is not all you are expected to know. Each bankruptcy court also has its local rules, which might vary from, limit or expand the range of procedural issues that you have to confront. In addition, the bankruptcy court might have various general orders that also have to be read, understood and obeyed. Then there might be general chambers procedures that apply to all judges within a district — even each judge might also have her own chambers procedures. But that is still not all! Have you checked to see whether there is a procedures order — or orders — entered in the case on which you are working?

At first, this web of rules, procedures and orders might seem simply overwhelming. While there is little doubt that in a lot of instances these procedures could be streamlined considerably, they are not optional. Moreover, the range of topics that they cover is considerable, and the importance of following them precisely is difficult to overemphasize. Is there a page limit for the brief you are about to file? What about a required font and type size? How wide do the margins need to be? Do you need to file a notice of that motion? Does a courtesy copy need to be delivered to chambers? Are you forbidden to e-mail a copy to chambers? When calculating the time to respond to a pleading, does Saturday count? Does it count when the time to respond is more than eight days? How about when it is more than 10 days? Do you need to seek leave of the court to file that pleading in the first place?

These types of questions are just the tip of the iceberg when it comes to the issues that are covered in the various procedural rules and orders that are out there. Now of course, you do not have to memorize them. But when they come into play, you have to be able to find them and follow them.

B. The Courts

The federal district courts have original and exclusive jurisdiction over all bankruptcy cases under 28 U.S.C. § 1334. Indeed, all 94 federal judicial districts handle bankruptcy matters. The district courts in turn may refer bankruptcy cases and bankruptcy proceedings to the bankruptcy courts, which are Article I courts. (Unlike district court judges, bankruptcy judges are appointed for 14-year terms by the circuit court of appeals for the circuit in which the bankruptcy judge sits, and they do not have guaranteed pay.) Technically, therefore, bankruptcy courts are units of the district courts. Every district court has a standing order referring all bankruptcy cases and bankruptcy proceedings to the bankruptcy court in that district. In certain rare circumstances, the district court may withdraw the reference (or take back the bankruptcy case or bankruptcy proceeding).

Section 157 of title 28 of the U.S. Code sets forth the bankruptcy court's authority to adjudicate bankruptcy proceedings, depending on the type of proceeding. First, there are core proceedings, which are integral to the administration of the bankruptcy case. The bankruptcy courts may finally determine core proceedings, subject to traditional appellate review. Second, there are non-core proceedings, which are merely related to the bankruptcy case. In non-core proceedings, the bankruptcy courts may only issue proposed findings of fact and conclusions of law, which are subject to de novo review by the district court or the bankruptcy appellate panel.

As if this statutory scheme was not complicated enough, the Supreme Court has held that the bankruptcy courts cannot finally decide certain core proceedings because doing so would violate Article III of the Con-stitution.¹ This raises numerous questions that are working their way through the courts. What core proceedings can a bankruptcy court finally decide? Can a bankruptcy court issue proposed findings of fact and conclusions of law in core proceedings that the court is constitutionally prohibited from finally deciding? Can the parties waive the right to argue that the bankruptcy court lacks the constitutional power to decide a core proceeding? As a young lawyer, you will likely be asked to research the answers to these and many other related questions.

The district courts have jurisdiction over appeals from the bankruptcy courts. Where bankruptcy appellate panels have been established, the bankruptcy appellate panel, consisting of three bankruptcy judges from another district, also has jurisdiction over appeals from bankruptcy court orders. Appeals from both the district courts and bankruptcy appellate panels are heard by the court of appeals for the applicable circuit. If a party loses at the court of appeals, he may file a petition for a writ of certiorari with the Supreme Court, which, as with every petition for a writ of certiorari, will then decide whether to grant review of the decision of the court of appeals.

C. Consumer Cases

The vast majority of bankruptcy cases are filed by consumers (i.e., individuals) rather than businesses. Consumers will usually file for bankruptcy in order to obtain relief from oppressive debt loads and a discharge, which is a permanent injunction that effectively prevents consumers from ever having to repay their debts. The consumer might also want to file in order to stay a foreclosure sale or an eviction proceeding.

Before you advise a consumer debtor client to file, you should determine whether bankruptcy is the best option. As a bankruptcy attorney, it is natural to start to think that bankruptcy is always the solution to your clients' problems: As the phrase goes, "If all you have is a hammer, everything looks like a nail." But it is important to keep in mind that there are other...