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Supreme Court Considers Case Concerning Limits Of Bankruptcy Judges’ Power

Charlotte Bankruptcy attorney Bryan W. Stone answers the question: “How do I file for bankruptcy?”

The U.S. Supreme Court will soon hear a case that deals with the powers, and limitations on those powers, of bankruptcy judges. The case is an important one because it helps clarify a previous ruling from 2011 about which matters can be heard by bankruptcy court judges and which must be decided by federal district court judges.

 

Supreme Court Charlotte Bankruptcy Lawyer North Carolina Chapter 7 AttorneyThe case before the Supreme Court is Executive Benefits Insurance Agency v. Arkison. The case should clarify the question of whether bankruptcy judges, who have more specialized knowledge, are constitutionally empowered to tackle some questions that might otherwise fall to district court judges. The case will also deal with the question of whether parties in a bankruptcy case are permitted to consent to a bankruptcy judge deciding matters that would normally need to be decided by a district judge.

 

Previously, the rules said that bankruptcy judges were allowed to decide “core” bankruptcy issues, things that were directly related to bankruptcy matters. Bankruptcy judges were not allowed to handle “non-core” matters, which were instead left to federal district court judges. This idea was seemingly rejected when the Supreme Court heard Stern v. Marshall, the case begun by Anna Nicole Smith against the son of her deceased billionaire husband. In that case, the Supreme Court threw out a victory by Smith in a California bankruptcy court, deciding that the matter did not fall within the jurisdiction of the judge despite the fact that none of the parties in the case ever objected to allowing the judge to decide the issue.

The problem with bankruptcy court judges is that they do not meet the strict definition of a federal district judge contained in the U.S. Constitution. Federal judges must be appointed by the President and confirmed by the Senate, must have life terms and must never have their salaries lowered. None of these are true for bankruptcy judges, which means they do not meet the definition of a federal court judge and cannot hear matters that are reserved for such judges. As a result, the bankruptcy court system has been under attack before as an unconstitutional creation given the important matters the judges decide. The issue was supposed to have been resolved by the “core” “non-core” distinction, but that too has come under attack.

 

Now, the Supreme Court must decide the limits of bankruptcy judges’ powers. One possibility is that bankruptcy judges will simply not be allowed to hear a range of issues, including fraudulent transfer matters (which is what the Arkison case deals with). Another is that the parties might be permitted to waive their ability to have a district judge decide an issue in favor of a bankruptcy court judge. Finally, the Supreme Court might allow bankruptcy judges to issue a kind of advisory opinion on a range of issues that must then go on to a federal district court judge to formally decide.

 

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC today at (704) 370-2828. As professionals who are experienced in the bankruptcy arena, our attorneys will provide you with the best advice for your particular situation.

 
Source:

“Supreme Court hears case on the limits of bankruptcy judges’ powers,” by Roger Parloff, published at Fortune.CNN.com.

 

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