Unlike some courts that handle a wide variety of matters, the bankruptcy court serves one purpose—to hear bankruptcy cases. Bankruptcy judges solve problems that come up during the bankruptcy process. Even so, a bankruptcy court can decide a matter that isn’t technically a bankruptcy issue as long as it relates to the bankruptcy case in some way.
In bankruptcy, a disagreement that directly impacts the bankruptcy case is a “core” matter. Core matters often arise when those involved don’t agree on how to apply the bankruptcy code and rules of procedure. 28 U.S. C. § 157 outlines the types of cases that are core proceedings and includes matters concerning:
In a bankruptcy case, it’s often necessary or efficient for the people involved in a lawsuit to litigate matters that aren’t directly related to the administration of a bankruptcy case. Non-core matters affect, not so much the bankruptcy itself, but rather the rights of people involved in a bankruptcy. They consist of disputes that for the most part could have been brought in another court if the bankruptcy case hadn’t been filed. Some examples of non-core matters include:
Although non-core matters can usually be filed in a state court (or possibly another federal district court), many non-core cases get filed in or moved to the bankruptcy court (or a federal court).
Removal often happens to conserve judicial resources or to consolidate complicated litigation in one court under one judge. For instance, a potential creditor could bring a lawsuit claiming that the debtor defrauded him. Hearing it in the bankruptcy court could be more efficient because the outcome of the case will determine whether the debtor is liable on the claim and whether the claim will be discharged.
(If you’d like to learn more, see What Is Bankruptcy Litigation?)
Because the bankruptcy court is a court of limited jurisdiction (the court is authorized to hear bankruptcy cases exclusively), the bankruptcy judge can enter final judgments in core matters only. If the case is a non-core issue, the bankruptcy court can hear the matter if it is related to the bankruptcy but enter a final judgment only if the parties consent.
Otherwise, the non-core matter can be heard by the U.S. District Court (the district court withdraws the reference). Or the bankruptcy judge will hear the matter and produce a document called "Findings of Fact and Conclusions of Law" for consideration by a district court judge, who can then enter the final judgment.
Some matters bear so little relation to the bankruptcy case that the bankruptcy judge will never hear them. Examples include divorce, child custody, and probate cases. Those will be brought and remain in state courts with appropriate jurisdiction. Under 11 U.S.C. Sec. 157(b)(5), the U.S. District Court will hear personal injury tort and wrongful death claims filed in a bankruptcy case.
Some cases can present a combination of core and non-core issues, requiring that the bankruptcy judge determine the court’s authority and jurisdiction on an individual case basis.