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What influences bankruptcy cases?
Federal law applies to all bankruptcy cases no matter which type of bankruptcy an individual or a business files. Although federal bankruptcy law applies uniformly throughout the country, interpretations of the law can be specific to each case. Also, rules regarding filing for bankruptcy differ state by state.
Despite differences in individual cases or state laws, the distinction between issues involving or not involving federal law directly affects all bankruptcy cases. Issues directly relative to federal bankruptcy law, are “core proceedings.” In general, core proceedings align to specific codes or sections of federal bankruptcy law or reference specific case rulings. Issues considered not relative to bankruptcy law are “non-core” proceedings.
Decisions of core vs. non core proceedings can affect their outcome, particularly regarding disputes between debtors and creditors, such as allegations of fraudulent claims. As a result, distinctions between core and non-core proceedings continue as the subject of debate within the courts, among bankruptcy judges and as lawyers argue cases for their clients.
Historically, inconsistency rules the issues over which courts have jurisdiction relating to bankruptcy. The district courts handle most core proceedings in bankruptcy cases. Non-core proceedings are referred to state and local courts, with exceptions for agreeing to district court rulings on behalf of the filer.
What are core proceedings?
Core proceedings divide into three main areas:
1) Individual or business rights directly related to specific codes under bankruptcy law. For example, the appointing of a trustee under Chapter 11 Bankruptcy is a core proceeding under this area.
2) Issues within the context of bankruptcy cases. For example, injunctions or claims against the state are core proceeds under this area.
3) Administration of the estate or assets. For example, attorney’s fees determined the court-appointed bankruptcy trustee are a core proceeding under this area.
About 90 percent of written federal law and of case law determined through bankruptcy court is considered core proceedings, including counterclaims to bankruptcy filings, court procedural matters, mortgage foreclosure, and transfers of venue.
What is a non-core proceeding?
Non-core proceedings bear upon the bankruptcy case but have no specific basis in federal bankruptcy law. The 1984 Marathon decision established interpretations of issues not relative to bankruptcy law.
As such, non-core proceedings may relate to state or local law. They are heard with the understanding that the issue relates outside the jurisdiction of the court in following federal bankruptcy law.
For example, a case in which shareholders sued each other over debt vs. stock in a medical clinic as an issue in declaring bankruptcy, this situation was ruled as a non-core proceeding, because state law directly addressed the specific financial issues involved in the dispute, not bankruptcy law.
Decisions regarding core vs. non core proceedings in bankruptcy cases affect all bankruptcy cases. Regardless of whether the issues affecting a bankruptcy case are ruled as core or non core proceedings, district, state or local courts respond to all issues in bankruptcy cases.
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