§ 28.01 The Bankruptcy Code and Rules: An Overview
[1]—The Bankruptcy Code and Court System
[a]—History and Structure of Bankruptcy Code
U.S. federal bankruptcy law is principally codified as title 11 of the United States Code.2 The Bankruptcy Code has been enacted under the grant of authority of Article I, Section 8 of the United States Constitution, which often times is referred to as "the Bankruptcy Clause" and which authorizes Congress to establish "uniform" bankruptcy laws throughout the United States. Major bankruptcy statutes have been enacted in the U.S. in 1800, 1841, 1867, 1898 and 1978.3 Practitioners and the Federal Rules of Bankruptcy Procedure refer to the current bankruptcy statute as the "Code" and the 1898 statute as the "Act."4
The Bankruptcy Code consists of nine Chapters. Chapters 1, 3 and 5 generally apply to all cases, under the Bankruptcy Code, while Chapters 7, 9, 11, 12, 13 and 15 apply to specific types of bankruptcy cases, involving specific types of debtors, i.e., consumers, businesses, wage earners, farmers, municipalities, etc., and to the substantive rights applicable in cases commenced under such Chapters.
Chapter 1 of the Bankruptcy Code is entitled—General Provisions and includes definitions, rules of construction, powers of the court, rules governing the extension of certain time periods and a group of other provisions generally applicable to all bankruptcy cases. Chapter 3 of the Bankruptcy Code is entitled—Case Administration. Chapter 3 is divided into four Subchapters: Subchapter I—Commencement of a Case; Subchapter II—Officers, Subchapter III—Administration; and Subchapter IV—Administrative Powers. Chapter 5 of the Bankruptcy Code is entitled—Creditors, the Debtor and the Estate. It is divided into three Subchapters: Subchapter I—Creditors and Claims Subchapter II—Debtor's Duties and Benefits and Subchapter III—The Estate.
The bankruptcy courts are so-called Article I courts,5 rather than Article III courts, as they have been legislated into existence under the Bankruptcy Clause in Section 8 of Article I of the Constitution.6 By way of comparison, the federal district courts, the courts of appeal, and the United States Supreme Court have been established pursuant to Article III of the Constitution and are the so-called "Courts of the United States."7 Under principles of the separation of powers, bankruptcy judges cannot exercise the judicial power reserved for Article III judges, i.e., district court judges, circuit court judges, and U.S. Supreme Court Justices.
In Northern Pipeline Construction Co. v. Marathon Pipe Line Co. (Marathon), the Supreme Court struck down certain provisions of the Bankruptcy Act of 1978 because they conferred Article III judicial power on bankruptcy judges.8 Nearly two years later, Congress enacted the Bankruptcy Amendments and Federal Judgeship Act of 19849 to fix the statutory infirmity identified in Marathon. The jurisdictional scheme for bankruptcy courts continues in force today, or nearly so. Congress "fixed" the constitutional problem identified in Marathon by providing for the jurisdiction of the bankruptcy courts in the Federal Judicial Code (title 28).10
As amended in 1984, 28 U.S.C. § 1334 provides that the district courts shall have "original and exclusive jurisdiction of all cases under title 11" and "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title Section 151 of title 28 provides that each bankruptcy court is "a unit of the district court" in the federal district where it is located.12 Each district court may—but need not—refer cases and matters within the scope of bankruptcy jurisdiction to the bankruptcy court in its district. Section 157(b) of title 28 provides that "[b]ankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11 or arising in a case under title 11."13 Thus, a bankruptcy court may enter a final order with respect to all bankruptcy cases before it and all matters within the scope of its "core" jurisdiction. Such a final order is subject to appellate review by the applicable district court or bankruptcy appellate panel (and, thereafter, by the applicable court of appeals). Section 157(b)(2) of title 28 provides a nonexclusive list of matters that purportedly fall within "core" jurisdiction.14
In Stern v. Marshall, the U.S. Supreme Court held that, even though bankruptcy courts are statutorily authorized under 28 U.S.C. § 157(b)(2) to enter final judgments on various categories of bankruptcy-related claims, Article III prohibits bankruptcy courts from finally adjudicating certain of those claims.15 Specifically, the Court ruled that a bankruptcy court lacks constitutional authority under Article III to enter a final judgment on a state law counterclaim of the bankruptcy estate that is not resolved in the process of ruling on a creditor's proof of claim, even though 28 U.S.C. § 157(b) (2)(C) identifies such a counterclaim as a core proceeding.16 Post Stern, courts were left to struggle with the following issues:
(1) whether a bankruptcy court has jurisdiction to address, and how it should deal with, a claim that, while statutorily denominated as core, is not in fact constitutionally determinable by an Article III judge (a "Stern claim"); and
(2) the effect of a party's consent to adjudication of a Stern claim by a bankruptcy court.
In its 2014 ruling, in Executive Benefits Insurance Agency v. Arkison, the Supreme Court determined that when a bankruptcy court is confronted with a claim that is statutorily denominated as "core," but is not constitutionally determinable by a bankruptcy judge under Article III of the U.S. Constitution, the bankruptcy judge should treat such a claim as a noncore "related to" claim that is subject to de novo review by a district court.17 ,18 A year later, in Wellness Int'l Network, Ltd. v. Sharif, the Supreme Court held that so long as consent—whether express or implied—is "knowing and voluntary," Article III of the U.S. Constitution is not violated by a bankruptcy court's adjudication of such a claim.19 Wellness and Arkison nonetheless leave several significant jurisdictional and constitutional questions unanswered, as neither opinion offers guidance as to?/span>
• what constitutes "knowing and voluntary" consent or when such consent (express or implied) must be given in order to cure any constitutional deficiency.
• which claims, as a constitutional matter, can be determined finally by a bankruptcy judge.
Thus, disputes over whether a claim is a Stern claim are likely to continue.
Part of the concern expressed by the Supreme Court in its Stern decision centered on the fact that the bankruptcy judges, as Article I judges, do not share the same constitutional protections as Article III judges.20 For example, bankruptcy judges are appointed by the judicial conference for the respective federal judicial circuits for fourteen-year terms.21 In contrast, the justices of the U.S. Supreme Court, the judges of the U.S. circuit courts of appeal and the judges of the federal district courts are appointed by the President of the United States and confirmed by the Senate. Such Article III appointments are lifetime appointments.22
Jurisdiction over federal bankruptcy cases resides with the United States district courts. The district courts are invested with the exclusive and original jurisdiction over every bankruptcy case, and original, but not "exclusive jurisdiction" over civil proceedings arising in, arising under, or related to each such bankruptcy case.23 The United States bankruptcy courts are units24 of the district courts, and every district court may refer bankruptcy cases filed in their district to the bankruptcy courts for that district.25 Virtually all federal districts operate using a standing orders of reference26 , under which bankruptcy cases automatically are referred to the local bankruptcy courts; however, such reference may be withdrawn under appropriate circumstance.27 "Withdrawal of the reference" may be with regard to an entire bankruptcy case or with respect to a specific contested matter or adversary proceeding that constitutes a single element of a case.
The Bankruptcy Code operates in tandem with the Federal Rules of Bankruptcy Procedure (the "Rules").28 To supplement, and in aid of the Rules, virtually all of the judicial districts around the country have implemented local bankruptcy rules of procedure.29 With respect to evidentiary matters, the bankruptcy courts apply the Federal Rules of Evidence with regard to contested matters (motion practice) and adversary proceedings (litigation commenced by the filing of a complaint with the Clerk of the Bankruptcy Court.30
[b]—Venue
A bankruptcy case may be filed in the district of the debtor's domicile, residence, principal place of business or assets for 180 days before filing or longer portion of such 180 days than anywhere else.31
Bankruptcy proceedings may be filed
(a) in the district where the case is pending (or anywhere else allowed by general venue statutes) except;
(b) in "smaller" proceedings, only in the district where defendant resides.
[c]—The Benefits of Voluntary Bankruptcy Relief
Consumer and commercial entities may file for voluntary bankruptcy relief for a variety of reasons, including severe financial distress, as a tool to manage litigation or for other strategic purposes. Insolvency is not a prerequisite for a voluntary filing under the Bankruptcy Code.32 A financially distressed natural person or business entity subject to the jurisdiction of a bankruptcy court generally is referred to by the Bankruptcy Code as a "debtor."33 The Bankruptcy Code does not use the term "bankrupt," which was a term widely used in cases governed by the Act.34
[2]—Chapter 7 Cases—Types of Bankruptcy Cases
A debtor35 may commence a Chapter 7 case by filing a "Voluntary Chapter 7...
