History of the United States Bankruptcy Courts

History of the United States Bankruptcy Courts

The U.S. bankruptcy courts, which are units of the district courts, exercise the bankruptcy jurisdiction established by statute and referred to them by their respective district courts. Although the Constitution grants the Congress authority to establish uniform bankruptcy laws, for much of the nation’s history the federal courts did not have any bankruptcy jurisdiction.

In the nineteenth century, three short-lived statutes assigned the federal courts responsibility for the administration of bankruptcy cases. An act of 1800 (2 Stat. 19, repealed in 1803) authorized judges of the district courts to appoint commissioners who would oversee the discharge of debts in each bankruptcy case. In an 1841 act (5 Stat. 440, repealed in 1843), Congress granted the district courts “jurisdiction in all matters and proceedings in bankruptcy” and charged the courts with formulating rules for bankruptcy proceedings. Under the act (14 Stat. 517) that governed federal bankruptcy from 1867 to 1878, Congress for the first time referred to the district courts as “constituted courts of bankruptcy,” with original jurisdiction in all bankruptcy matters. The district courts were to be open at all times for bankruptcy business, and the district judges were authorized to appoint registers to assist in the administration of such cases.

The 1898 bankruptcy act (30 Stat. 544), which was in effect for eighty years, again designated the U.S. district courts to serve as courts of bankruptcy. The act established the position of referee: referees were appointed by district judges to oversee the administration of bankruptcy cases and to exercise certain judicial responsibilities referred by the district court. Subsequent acts expanded the referees’ judicial powers.

By the 1960s, the rise in consumer bankruptcy and congestion in the federal courts led to proposals for reform of the nation’s bankruptcy laws. As part of a broad plan to revise the bankruptcy code, the congressionally chartered Commission on Bankruptcy Laws of the United States recommended the establishment of independent bankruptcy courts within the federal judiciary. The Bankruptcy Reform Act of 1978 (92 Stat. 2657) conferred original bankruptcy jurisdiction on the district courts and established a bankruptcy court in each judicial district to exercise bankruptcy jurisdiction. The act provided that the new bankruptcy courts would be considered adjuncts of the district courts but would be presided over by bankruptcy judges appointed by the president and confirmed by the Senate for fourteen-year terms, beginning in 1984. In the meantime the incumbent referees would serve as bankruptcy judges.

In Northern Pipeline Construction Co. v. Marathon Pipe Line Co. (458 U.S. 50), the Supreme Court in 1982 declared unconstitutional the grant of bankruptcy jurisdiction to independent courts composed of judges who did not have life tenure and the other protections of Article III of the Constitution. In response to the Court’s recommendations that Congress restructure the bankruptcy courts, the Bankruptcy Amendments and Federal Judgeship Act of 1984 (98 Stat. 333) conferred bankruptcy jurisdiction on the district courts and authorized the district courts to refer any or all matters falling within that jurisdiction to the bankruptcy judges for the district. The 1984 act also provided that bankruptcy judges would be appointed by the courts of appeals. Under current practice, district courts automatically refer bankruptcy cases and proceedings to the bankruptcy court. A bankruptcy court is authorized to decide all referred business, except in limited matters known as “non-core” proceedings. If one of the parties does not consent to entry of a judgment by the bankruptcy judge in these proceedings, the bankruptcy court may only hear the matter and submit proposed findings of fact and conclusions of law to the district court. The district judge then enters the final order, which is subject to review by the courts of appeals or bankruptcy appellate panels.

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