What is Bankruptcy Court?

Mary McMahon
Mary McMahon

In the American legal system, a bankruptcy court is a court which specializes in bankruptcy cases. In other legal systems, bankruptcy is usually handled in a generic court, but in the United States, the vast majority of bankruptcies are heard and settled in a bankruptcy court. This is designed to streamline the process for declaring bankruptcy in the United States, and to ensure that the complex bankruptcy code is enforced by knowledgeable judges.

In the United States, all bankruptcy petitions are filed in federal court.
In the United States, all bankruptcy petitions are filed in federal court.

Bankruptcy courts are federal courts, and while bankruptcy cases can theoretically be heard in district courts, many district courts refer these cases to a bankruptcy court. In most cases, the court has what is known as a standing referral order in place, which means that all bankruptcies go straight to bankruptcy court, without even appearing in a district court. Judges in bankruptcy courts are appointed by the United States Court of Appeals for 14 year terms. Bankruptcy Appellate Panels (BAP) comprised of appointed judges can hear appeals from people who disagree with decisions handed down by a bankruptcy court.

Judges in bankruptcy courts are appointed by the United States Court of Appeals.
Judges in bankruptcy courts are appointed by the United States Court of Appeals.

This system was established in 1979, as part of the part of the reworking of Title 11 of the United States Code, also known as the Bankruptcy Code. People and companies who wish to declare bankruptcy must present their case in a bankruptcy court, and if they satisfy the terms of the Bankruptcy Code, the judge can approve the bankruptcy proceedings. Numerous reforms to Title 11 of the United States Code have made declaring bankruptcy increasingly difficult in the United States, in response to pressure from the financial industry.

Most people do not plan on becoming familiar with the process involved in declaring bankruptcy, and people facing financial ruin tend to retain a lawyer to help them navigate the bankruptcy process. Lawyers can determine which section of the Bankruptcy Code is relevant to the case, and they can also represent their clients in a bankruptcy court. Some lawyers specialize in this type of work, while others offer a range of legal services related to finances.

Like other courts of law in the United States, the proceedings in a bankruptcy court are carefully mandated by law, and the court environment is supposed to be as neutral as possible. All of the individuals present are expected to behave respectfully to the judge and other people in the courtroom, as a mark of respect for the sanctity of the court. Respectful behavior is not limited to the rules of common courtesy: people in court are also expected to dress well and to present a neat appearance, no matter how tattered their finances may be.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments


@Izzy78 - That is correct and that is why people can no longer declare bankruptcy right as they get out of college in order to avoid paying debt right away.

Most of the time when people get out of college they are unemployed right away because they have spent their last four years on their studies and have simply not gotten a job with their degree yet.

This is why the normal thing to do was to declare bankruptcy on student loans so they did not have to pay thousands in debt right away.

However, the government determined this to be an unfair cop out and decided that no one can declare bankruptcy on their student loans, yet someone can declare bankruptcy for failing at running a business.

Although there are cracks in the system I feel like the bankruptcy courts are always reforming and changing for the better and becoming stiffer on people who take advantage of the system. I really wonder if besides student loans there are other such things that one cannot declare bankruptcy on?

@Emilski - I understand how annoyed you may be with these people but there was a time that people in such debt went to prison and they never got out.

These debtors prisons became a drain on the system because it was so hard to determine who should be sent to a prison as well as determining their sentence. For centuries the common policy was to keep the people in until their debt was paid off which almost never happened, thus the people in effect received life sentences.

The reason for bankruptcy court is to allow people a second chance at trying to make it and encourages people to try to run businesses and take chances to succeed.

It would be unfair to punish someone who goes into bankruptcy a second time because a company they sunk a lot of money into failed and that is why bankruptcy court looks into cases and decides as fair as they can what the person should owe and what they can be forgiven on payment.


@stl156 - I completely understand what you mean and it is pretty frustrating and a drain on the system.

But, in reality what can happen is the people can be denied things in bankruptcy court that could benefit them in paying off their debt and they could even be forced to take wage garnishments, which they cannot get around.

The government is starting to watch these people more closely now and they have already done so in a way by eliminating the opportunity for someone to declare bankruptcy on their college debt right after they graduate.

Personally I really think there needs to be a lot of reform in the system and possibly stiffer penalties for people in debt such as the threat of prison terms.


I have to say that I really do not understand why there are such things as bankruptcy courts, as all they do is seem to get people out of the debt that they owe.

I understand that there are circumstances in which someone is sued for so much money or may owe a hospital so much that they will never be able to pay it off, but it seems like too many people simply get let off of paying their mounting debt and they end up going to bankruptcy court several times.

These types of cases I have a real problem with because I have met someone that has gone to bankruptcy court six times and drives a very nice sports car.

It seems to me like some people do not learn anything from going bankrupt and will continue to pile up debt again, when all they could do is declare bankruptcy and then go through the process all over again, cheating people out of the debt they owe them.

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