4 things you should know about the bankruptcy court system

Odds are, if you have inquired about filing for bankruptcy, your research has included some mention of the U.S. Bankruptcy Court and/or the U.S. District Court and may be wondering what the bankruptcy court does exactly. 

(1) Bankruptcy Court - A Definition

The bankruptcy court is a federal court that oversees all bankruptcy cases filed in the United States. Read a more in-depth definition here.

(2) How does bankruptcy court work?

The bankruptcy court hears both voluntary and involuntary bankruptcy court cases. Depending on the type of bankruptcy the debtor has filed, the bankruptcy court may serve merely an administrative purpose, with the filer, their creditors, and the case trustee moving the case along. The filer’s discharge is an order from the bankruptcy court. If a dispute arises in the case, either between the filer and the trustee or involving another party, the bankruptcy court hears the dispute and makes rulings. Oftentimes, this is accomplished through a “contested matter” handled as part of the administrative bankruptcy proceeding. 

Certain actions the trustee, a creditor, or other interested party may wish to take require the filing of a complaint and a separate lawsuit. This separate lawsuit is called an adversary proceeding. There are some common scenarios when an adversary proceeding would take place. For example, a filer may transfer money to someone, a friend or family member, before filing for bankruptcy so that money is not subject to the bankruptcy. The trustee can sue that family member or friend to get the money back and distribute it to the filer’s creditors. Another instance in which an adversary proceeding would be commenced is when a creditor took funds from a filer towards payment of a debt when the creditor knew that he had been stopped from collecting when the bankruptcy case was filed. In that case, the filer can bring the lawsuit against the creditor.

(3) Who are some of the bankruptcy court professionals?

In addition to the person filing bankruptcy, other individuals who will play an important role in your bankruptcy case are your case trustee, your bankruptcy judge, and - if you have one - your bankruptcy attorney. Read the full article on bankruptcy court professionals here.

(4) Special Considerations: Bankruptcy Court and the United States Trustee

The United States Trustee Program is a division of the Department of Justice. It’s mission is to promote efficiency and protect the integrity of the Federal bankruptcy system. Except in Alabama and North Carolina, the United States Trustee appointed for the region is notified of all bankruptcy proceedings filed in the bankruptcy court. 

The United States Trustee through its staff attorneys, can appear in any bankruptcy proceeding. They oversee the Chapter 7 panel trustees and organize the committee for unsecured creditors in Chapter 11 cases. However, the United States Trustee is limited to advocating for the interests it represents in front of the bankruptcy court. The ultimate decision making authority rests firmly with the bankruptcy judge. 

Conclusion

The bankruptcy court plays an important part in the bankruptcy system but it is not actively involved in every single case. Simple no-asset Chapter 7 cases often require no court involvement at all. In fact, unless they reaffirm a car loan, most Chapter 7 filers never even have to step foot in a courtroom.