Bankruptcy Courts and Cases – Journalist’s Guide
Individual, corporate, and government bankruptcies are handled by U.S. Bankruptcy Courts – a specialized system with many specialized rules.
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Federal courts have exclusive jurisdiction over bankruptcy cases. The primary purposes of the federal bankruptcy laws are to give a debtor, either a person or a business, a “fresh start” by relieving the debtor of most debts, and to give the debtor the opportunity to repay creditors in an orderly manner. A debtor may file bankruptcy under one of several chapters of the Bankruptcy Code, Title 11 of the United States Code.
There are 90 U.S. bankruptcy courts, which, by statute, are units of the U.S. district courts. Like district courts, bankruptcy courts have their own local rules, available on their websites. Bankruptcy Basics offers a good explanation of bankruptcy law and bankruptcy court proceedings.
Learn more about the bankruptcy process.
Bankruptcy court proceedings are open to the public except in an extraordinary circumstance, such as when the judge is considering a matter under seal. Documents filed in connection with a bankruptcy case are public (unless sealed) and can be viewed through PACER or at the bankruptcy clerk’s office. Bankruptcy courts generally have their own clerks. In high-profile cases, the court may designate a public information officer.
Bankruptcy judges are authorized to use either contract court reporters (who are not employees of the court) or electronic sound recording equipment.
Most bankruptcy judges use digital audio recording as the method of making the official court record. For information on how to obtain copies of such recordings, see Exhibits, Transcripts, and Courtroom Audio.
Judicial Conference policy does not grant journalists access to these telephone and video conferences.
Unlike district court cases, telephone and video court conferences are common in bankruptcy proceedings. This is because creditors and other interested parties are likely to be in many different locations, making it costly and impractical to assemble everyone in one court for what can sometimes be short proceedings.
It is important to note, however, that Judicial Conference policy does not grant journalists access to these telephone and video conferences. Such transmissions of a live court proceeding are authorized for purposes of judicial administration and are available only for parties in a case and their lawyers.
Most bankruptcy cases – more than 95 percent – are filed by consumers, as opposed to businesses. Bankruptcy generally provides two options: liquidation or reorganization.
|Chapter 7||Provides that non-exempt assets be liquidated and proceeds distributed to creditors|
|Covers local governments and instrumentalities|
|Allows businesses to reorganize and continue operating. Also available to individuals whose debts exceed statutory limits for filing under Chapter 13|
|Covers family farmers and fishermen|
|Provides that debtors with regular income retain assets and obtain court-confirmed plans to pay off their creditors|
|Applies to foreign corporations and individuals|
Liquidation means selling a debtor’s assets, if there are any available, to pay creditors. Chapter 7 of the Bankruptcy Code is designed for this purpose, and is by far the most common form of bankruptcy. A petition can be filed by a business or individual. When a Chapter 7 case is filed, a trustee is appointed by the U.S. Trustee, a Justice Department entity, to administer the estate. Most cases filed under Chapter 7, however, are “no assets” cases, in which the debtor does not have assets available for distribution to creditors.
In all bankruptcy cases, no matter what chapter a case is filed under, a meeting of creditors must be held.
Reorganization involves obtaining a bankruptcy judge’s approval of a plan for repayment over time of all or a portion of the debts owed to creditors. Chapters 11, 12, and 13 govern the reorganization of a debtor’s financial affairs. In Chapter 12 and 13 cases, the presiding judge must approve the repayment plan. In Chapter 11 cases, which are frequently filed by corporations or other business entities, the plan of reorganization must be voted on by creditors and approved by the bankruptcy judge. Chapter 12 is a reorganization of assests for individual family farmers or fishermen. After Chapter 7, Chapter 13 cases are the most commonly filed bankruptcy cases.
In all cases, no matter what chapter a case is filed under, a meeting of creditors must be held. The debtor is required to attend this meeting, during which the trustee and creditors may ask questions regarding the debtor’s financial affairs and the extent of the debtor’s holdings. The case trustee, not a bankruptcy judge, presides over this hearing.
Chapter 9 of the Bankruptcy Code provides protection for financially distressed municipalities from creditors while a plan for adjusting debts is negotiated.
There are several types of bankruptcy proceedings that may interest journalists. The first is a hearing on first-day orders, which often is held in Chapter 11 cases. At this type of hearing, a bankruptcy judge is asked to approve important matters that determine how the debtor will operate while the case is pending.
Another proceeding of interest is the hearing on the confirmation of a Chapter 11 debtor’s plan of reorganization. During this hearing, the debtor’s lawyer seeks the judge’s approval of the plan, and creditors have a chance to present their objections. Still another proceeding of interest is an adversary proceeding hearing – something of a mini-trial involving a particular issue related to the main bankruptcy case. For example, adversary proceedings can request injunctions, address environmental issues, and allege possible fraud by the debtor.
A bankruptcy judge’s rulings can be appealed to the district court or, in certain circuits, to a bankruptcy appellate panel. Further appeals to a court of appeals and the Supreme Court are available. If certain statutory requirements are met, the court of appeals also has jurisdiction to authorize a direct appeal from a bankruptcy judge’s ruling to the court of appeals.