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WHAT IS 'Bankruptcy Court'

Bankruptcy court is a term that refers to specialized federal courtrooms in the United States.

BREAKING DOWN 'Bankruptcy Court'

A bankruptcy court is a specific kind of courtroom in the United States. The federal government created these courtrooms to settle all types of personal and corporate bankruptcy cases. Unlike the federal court, which U.S. Constitution established in 1781, the bankruptcy court system did not exist until 1978, when congress established the system as part of the Bankruptcy Reform Act.

While most criminal, civil and family cases are heard in state courts, bankruptcy must be filed in a federal court. The laws that govern bankruptcy are part of federal law, not state law, so in order to start bankruptcy proceedings, an individual must work within the federal court system. There are 94 federal judicial districts throughout the United States, and each district has a bankruptcy court. Federal law requires that a bankruptcy case be filed and heard in the judicial district that is the primary residence, place of business or site of the principal assets of the filer. Though the cases take place within individual states, the Federal Rules of Bankruptcy Procedure govern the bankruptcy process, in order to maintain consistency from state to state. The United States Court of Appeals appoints bankruptcy judges, who serve 14-year terms.

Bankruptcy itself refers to an instance in which a person or business cannot repay their debts. Once the debtor files the petition, the following proceedings are decided by the bankruptcy courts. The court measures and evaluates the debtor's situation, and then returns a process and plan for how the debtor’s assets may be used to repay a portion of outstanding debt. The decision is overseen by a bankruptcy judge, and that judge is able to decide whether or not the debtor should be discharged of their debts. This means that the debtor will no longer be responsible or personally liable for the debts associated with the filing. However, some debts are ineligible for discharge, including tax claims, child support or alimony payments and personal injury debts. An individual also cannot be discharged from any debt on any secured property, and any creditor can still enforce a lien on a debtor’s property.  

When You Disagree With the Bankruptcy Court’s Decision and Where to Go Next

If an individual disagrees with the bankruptcy judge’s decision, and wishes to contest the judge’s ruling, the filer has the option of filing an appeal and beginning the appeal process.  An appeal court generally handles bankruptcy appeals; in fact there are many judicial circuits which have their own bankruptcy-specific appellate courts to handle such disputes.

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