Appeals in Bankruptcy

Filing for bankruptcy can be a pretty big deal. This is because a court becomes involved and the process can drag on for some time. Ultimately, the court will decide how you should pay back the debts you’ve accrued. But what happens if you disagree with the court’s ruling?

Challenging the Court

Well, it is possible to appeal or question the court’s decision, although this too is a knotty process. There are several reasons for this, including the basic complex nature of bankruptcy law and its wild and woolly background. In 1978, the Bankruptcy Reform Act was passed and two chapters were created: Chapter 11, which is geared to the reorganization of business funds and Chapter 13, which focuses on personal funds.

Then in 1982 there was the Marathon Court decision which claimed that the bankruptcy judges had too much control (or judicial power) in the U.S. In turn, the courts were forced to rethink their current system and restructure all bankruptcy proceedings. But despite these initial glitches, all in all, the Reform Act did make it easier for businesses and individuals to file for bankruptcy after 1979.

How it Works

A bankruptcy proceeding may be filed under Chapter 7, Chapter 11, Chapter 12, or Chapter 13. With all but Chapter 7 cases, the process usually lasts for a substantial amount of time. In general, Chapter 12 and Chapter 13 go on for three to five years. During this time, the court makes several decisions and rulings. Here are some examples:

▪ Clerical decisions such as appointing the debtor a trustee or counsel

▪ Objections to claims or exemptions

▪ Definitions the debtor’s property

▪ Decisions regarding the sale of the debtor’s assets (called liquidation)

▪ Decisions regarding cash collateral

▪ Creation of petitions

Progress and Reform

Even though numerous factors are taken into account and on first glance it appears quite complicated, the bankruptcy court’s review process actually makes a lot of sense. Let’s break it down this way: if a bankruptcy court makes a decision which is then questioned by the parties involved, the case moves to the next level, namely the district court. From there, it could go to the circuit court and then the Supreme Court.

In some situations (like in the 1982 Marathon case where there was a question about a particular business contract between Northern Pipeline Construction and Marathon Pipeline Company and the possibility of fraud), the court must respond to matters and concerns that would normally fall under the state’s jurisdiction (rather than the jurisdiction of a bankruptcy court). Knowing this, the court carefully reviews all aspects of each proceeding and deals with the issues on a case by case basis.

As you can see, filing for bankruptcy has the potential to be complex and very time consuming – the rocky transition period of the 1978 Bankruptcy Reform Act and the Marathon decision are testament to that fact! But there is comfort knowing that the appeals process has been established in an attempt to simplify and expedite the course of action in all kinds of bankruptcy suits.