Supreme Court gives bankruptcy judges more power, could help speed up cases

Bankruptcy judges traditionally had less power to decide certain matters since 1978. A new U.S. Supreme Court decision in, Wellness International Network, Ltd. v. Sharif, now expands the power of bankruptcy court judges. Before this recent decision (May 25, 2015), bankruptcy court judges had to send certain elements of bankruptcy cases to higher level federal district court judges, who might no longer be needed when the litigants in a bankruptcy lawsuit agree and consent in certain decisions.

The U.S. Constitution controls the power of the judiciary; here is a brush-up civics lesson:

Within the U.S., Article III, Section 1 of the Constitution provides that “The judicial power of the United States, shall be vested in one Supreme Court, and such inferior courts as the Congress may from time to time ordain and establish.[i]” Congress used its power in establishing 94 federal district courts and 13 courts of appeal. The judges and justices in these established courts are appointed by the President of the U.S., and with the approval of the U.S. Senate. These judges (federal district courts) and justices (federal courts of appeal) are appointed for life and their pay is guaranteed and cannot be reduced.

The appointed federal court judges and appellate court justices would have been involved in bankruptcy cases, prior to this new U.S. Supreme Court decision, which now empowers bankruptcy judges to make final decisions on disputes that arise, in cases where all the parties consent[ii].

There had not been significant discussion about the power of bankruptcy judges since 1978 when Congress adopted a new bankruptcy statute. Bankruptcy judges were employed as lower status judges than other federal judges. The Constitution required that only senior judges could make final decisions that would end up in federal courts.

This case involves a bankruptcy litigant and money held in a family trust:

In this case, Wellness International Network, Ltd., v. Sharif, 575 U.S. ([No. 13-935]) (2015), opinion published May 26, 2016, Mr. Sharif was alleged to owe Wellness $500,000, and while Sharif was seeking a bankruptcy discharge of his duty to pay any debt to Wellness, its attorneys sought to take money and assets from a family trust, to collect on their claim.

The Supreme Court decided in Wellness v. Sharif, to reverse the 7th Circuit Court of Appeals’ decision that the bankruptcy court cannot hold the constitutional authority to decide whether certain property belonged to the bankruptcy estate. A main issue before the Supreme Court is was whether all disputes in bankruptcy lawsuits necessarily had to be decided by a higher-level federal court judge, particularly if consenting parties are involved.

Litigant consent is a historically prominent aspect of the federal court system.

Justice Sonia Sotomayor, writing the majority Supreme Court opinion, stated, “Adjudication based on litigant consent has been a consistent feature of the federal court system since its inception…Reaffirming that unremarkable fact, we are confident, poses no great threat to anyone’s birthrights, constitutional or otherwise.[iii]

Now, with broader authority on a variety of matters, bankruptcy judges are empowered to make decisions in bankruptcy lawsuits instead of sending those issues up to higher federal court judges. This means consumer bankruptcy cases can be handled more quickly and efficiently, by the bankruptcy court most familiar with the individual cases.

Joseph Wrobel, Ltd., works to educate clients and bring everyone bankruptcy and financial news they can use to better understand the laws and processes involved in consumer bankruptcy.

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[i] Cornel University Law School, U.S. Constitution, Article III, Section 1.

[ii], U.S. Bankruptcy Court Boosted By Supreme Court Decision, By Clayton Browne, May 27, 2015.

[iii] See HNii above.