Court of Bankruptcy

What Is Bankruptcy Court and How Does It Work?

The term “US bankruptcy court” refers to the United States’ specialized federal courtrooms. To resolve all kinds of personal and corporate bankruptcy matters, the federal government established bankruptcy courts.

Unlike the federal court system, which was created in 1781 by the United States Constitution, the bankruptcy court system did not exist until 1978, when Congress passed the Bankruptcy Reform Act.

Since then, the United States Bankruptcy Code has been modified many times.

How Does Bankruptcy Court Operate?

Unlike most criminal, civil, and familial matters, bankruptcy must be filed in a federal court. Because bankruptcy rules are governed by federal law rather than state law, anybody seeking to file for bankruptcy must do so via the federal court system.

In the United States, there are 94 federal judicial districts, each with its bankruptcy court. According to federal law, a bankruptcy case must be filed and heard in the court district where the filer’s main home, place of business, or significant assets are located. 

Even though the proceedings take place in different states, the bankruptcy procedure is governed by the Federal Rules of Bankruptcy Procedure to ensure uniformity from state to state.

Bankruptcy judges are appointed by the United States Court of Appeals and serve 14-year terms. Unless a judge orders otherwise, the proceedings of a bankruptcy court are open to the public and may be viewed at a bankruptcy clerk’s office or via the Public Access to Court Electronic Records, or PACER.3

Bankruptcy Court Procedures

When a person or a company is unable to repay their obligations, they may declare bankruptcy. The bankruptcy courts determine the following procedures once the debtor submits the petition: The court assesses and analyzes the debtor’s position before recommending a process and strategy for using the debtor’s assets to pay off a part of the outstanding debt.

A bankruptcy judge oversees the decision, and that judge has the authority to determine whether or not the debtor should be released from their obligations. This implies the debtor is no longer accountable or personally liable for the debts incurred due to the filing. 

Tax obligations, child support, alimony payments, and personal injury bills, for example, are not eligible for discharge.

Any creditor may still pursue a lien on a debtor’s property, and a person cannot be freed from any obligation on any secured property.

Is it Possible to Overturn a Bankruptcy Court Decision?

If a person or a creditor disagrees with a bankruptcy judge’s judgment and wants to appeal, the filer may do so by filing an appeal and starting the appeal process.

Individuals or companies with a stake in the decision or directly impacted by it often file an appeal. A bankruptcy court judge considers numerous claims from creditors who may claim “financial damage” and are directly affected by the result.

For example, the appeal may be the consequence of a creditor’s claim not being fulfilled or contested by the bankrupt company or person.

The bankruptcy court’s judgment must be appealed within ten days. Bankruptcy appeals are usually handled by an appeals court. Many judicial circuits have their bankruptcy-specific appeal courts to deal with such issues. 

Cases in Bankruptcy Court Examples

Various events in a person’s life may lead to bankruptcy court filings. For example, a person may accumulate credit card debt that is too large to repay and declare chapter 7 bankruptcy. Depending on their financial situation at the time of filing, a bankruptcy court may provide them relief from their debts.

Another scenario is a person who has monthly mortgage payments that are too expensive for them to afford. A chapter 13 bankruptcy petition may assist them in reducing their monthly obligations and making charges more reasonable. 6

In the case of companies, bankruptcy courts may aid in the restructuring of a firm that is filing for Chapter 11 bankruptcy.


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