Overview
The United States Bankruptcy Courts are specialized federal courts that handle all cases filed under the federal Bankruptcy Code (Title 11 of the United States Code). Bankruptcy courts operate as units of the federal district courts, with each of the 94 federal judicial districts having a corresponding bankruptcy court. Despite their administrative attachment to the district courts, bankruptcy courts function largely independently, with their own judges, clerks, and procedures.
Bankruptcy courts handle cases filed under several chapters of the Bankruptcy Code, each designed for different situations. Chapter 7 provides for liquidation — a trustee sells the debtor's non-exempt assets and distributes the proceeds to creditors, after which most remaining debts are discharged. Chapter 11 allows businesses (and sometimes individuals with substantial debts) to reorganize while continuing operations, proposing a plan to repay creditors over time. Chapter 13 enables individual debtors with regular income to develop a repayment plan to pay back all or a portion of their debts over three to five years.
One of the most powerful features of bankruptcy is the automatic stay, which takes effect the moment a bankruptcy petition is filed. The automatic stay halts virtually all collection actions against the debtor, including lawsuits, wage garnishments, foreclosures, and creditor harassment. This gives the debtor breathing room to reorganize finances or liquidate in an orderly manner. Creditors who violate the automatic stay may be held in contempt and subject to sanctions.
Bankruptcy courts also handle adversary proceedings — essentially lawsuits within the bankruptcy case — that address disputes such as whether a particular debt is dischargeable, whether a transfer was fraudulent, or whether a creditor's lien is valid. These proceedings follow rules similar to regular civil litigation but are tailored to the bankruptcy context.
Jurisdiction
Bankruptcy courts have exclusive jurisdiction over all cases under Title 11 of the United States Code. They also have jurisdiction over civil proceedings arising under the Bankruptcy Code, arising in a bankruptcy case, or related to a bankruptcy case. Under the Supreme Court's decision in Stern v. Marshall (2011), however, bankruptcy courts' authority to enter final judgments is limited in certain categories of cases — particularly those involving state-law claims between private parties that do not necessarily arise under the Bankruptcy Code. In such cases, the bankruptcy court submits proposed findings of fact and conclusions of law to the district court, which enters the final judgment. Core proceedings — those that directly involve the Bankruptcy Code, such as determining dischargeability of debts or confirming plans — may be finally adjudicated by the bankruptcy court.
Composition
Bankruptcy judges are appointed by the United States Courts of Appeals for 14-year renewable terms. They are Article I judges, meaning they do not have the life tenure protections of Article III judges. Each federal district has at least one bankruptcy judge, with busier districts having many more. Bankruptcy judges are assisted by standing trustees (in Chapter 7 and 13 cases) appointed by the United States Trustee, an arm of the Department of Justice that oversees the administration of bankruptcy cases. The United States Trustee monitors cases for fraud and abuse and ensures that the bankruptcy system operates efficiently.
How Cases Get Here
A bankruptcy case begins when a debtor files a voluntary petition with the bankruptcy court, along with schedules listing all assets, liabilities, income, and expenses. In some cases, creditors may file an involuntary petition to force a debtor into bankruptcy under Chapter 7 or Chapter 11, though this requires a minimum number of creditors and a showing that the debtor is generally not paying debts as they come due. Individual debtors must complete credit counseling before filing and a financial management course before receiving a discharge. The means test determines whether an individual debtor qualifies for Chapter 7 or must file under Chapter 13. Corporate debtors are not subject to the means test and may choose between Chapter 7 liquidation and Chapter 11 reorganization.
Key Facts
Governing Law
Title 11 of the United States Code (Bankruptcy Code)
Main Chapters
Chapter 7 (liquidation), Chapter 11 (reorganization), Chapter 13 (individual repayment)
Number of Courts
One per federal judicial district (94 total)
Judge Appointments
Appointed by Courts of Appeals for 14-year terms
Judge Type
Article I (no life tenure)
Cases Filed Annually
~400,000–500,000
Automatic Stay
Immediate halt to all collection actions upon filing
Important to Know
- The automatic stay is one of the most powerful tools in bankruptcy — it immediately stops all collection actions, lawsuits, foreclosures, and garnishments the moment a petition is filed.
- Bankruptcy judges are Article I judges with 14-year terms, not Article III judges with life tenure, which limits their authority to enter final judgments in certain types of proceedings.
- Stern v. Marshall (2011) significantly limited bankruptcy courts' authority by holding that they cannot enter final judgments on certain state-law counterclaims, even those classified as core proceedings by statute.
- Not all debts are dischargeable in bankruptcy — student loans, most tax debts, child support, alimony, and debts obtained through fraud generally survive bankruptcy.
- Chapter 11 reorganization is available to businesses of all sizes, from small sole proprietorships to Fortune 500 corporations.
- The means test, introduced by the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, prevents higher-income individuals from filing Chapter 7 when they could afford a Chapter 13 repayment plan.
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