Sunday, October 16, 2011


I. History of Bankruptcy Law

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§1.1 Laws that provide for the distribution of a debtor’s property among creditors have been a part of civil jurisprudence since ancient times. Under the Code of Hammurabi, an insolvent debtor was often sold into slavery. In Celtic Ireland, a creditor would often “fast on” a debtor by placing himself or herself before the debtor’s doorway until the debt was paid. See generally Louis Edward Levinthal, The Early History of Bankruptcy Law, 66 U Pa L Rev 223 (1918).

In English and American legal history, bankruptcy laws have moved from facilitating the seizure and prompt distribution of debtors’ property to rehabilitating the insolvent debtor. Although the U.S. Constitution empowered Congress to enact “uniform Laws on the subject of Bankruptcies,” US Const art I, §8, cl 4, Congress did not pass such a law until 1800. Before the federal C

On November 6, 1978, President Jimmy Carter signed into law the Bankruptcy Reform Act of 1978I. History of Bankruptcy Law

This complete revision of the federal bankruptcy laws, which became effective on October 1, 1979, was the apogee of decades of reform efforts. Congress amended the Code in 1984 primarily to resolve the constitutional infirmities engendered by the broad grant of jurisdiction to the bankruptcy courts in the 1978 Code. 1986 amendments to the Code established the U.S. Trustee System nationally and created a new chapter providing special bankruptcy relief for family farmers. In 1990, Congress amended the Code to address, among other things, certain issues relating to discharge and the dischargeability of debts. In 1993, Congress made limited changes to the provisions of Chapter 12 of the Code and in 1994, enacted amendments to change certain provisions in all chapters and established a Bankruptcy Review Commission. Chapter 12 of the Bankruptcy Code was extended by Congress retroactively from January 1, 2004, to July 1, 2005. Pub L No 108-369, 118 Stat 1749 (2004). In October 2005, Congress made sweeping changes to the Bankruptcy Code through the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The most recent legislation affecting the Code is the Bankruptcy Technical Corrections Act of 2010 ( Pub L No 111-327, 124 Stat 3557 (2010).

The 2005 amendments changed over 100 years of bankruptcy law. Some of the important changes made by BAPCPA include the following:

requiring consumer debtors to undergo financial counseling before filing for bankruptcy, 11 USC 109(h), 521(b), and before discharge, 11 USC 727(a)(11), 1328(g)(1)

means testing for consumer debtors seeking to discharge debts under Chapter 7, 11 USC 707(b)

bars against repetitive filing through limitation of the automatic stay, 11 USC 362(c)(3)

elimination of the debtor’s ability to retain secured collateral without redemption or reaffirmation, 11 USC 521(a)(6)

In addition, BAPCPA made substantial changes in the provisions relating to business cases that had been recommended by the Bankruptcy Review Commission. BAPCPA’s prefiling requirement of credit counseling and debtor education and the enactment of the means test will be discussed in depth in the chapters addressing representation of the consumer debtor (see chapters 2 and 3). The 2005 amendments affecting business cases, such as expanded reclamation rights, award of administrative expenses for goods shipped just before filing, designation, and processes for small business cases and changes affecting exclusivity, will be addressed in the chapters discussing business bankruptcy issues (see chapters 6 and 7).

As a result of the changes effected by both electronic case filing and the 2005 amendments, the U.S. District Court for the Western District of Michigan adopted new local rules effective February 1, 2007, and the U.S. District Court for the Eastern District of Michigan adopted modified local rules on May 5, 2008.

Effective December 1, 2009, a number of amendments to the Code (under Pub L No 111-16, 123 Stat 1607 (2009)) and Bankruptcy Rules revised procedural deadlines to harmonize them with other federal rules governing time computation. The Eastern District has adopted amendments to conform with the Bankruptcy Rule amendments (, while the Western District made conforming changes to its rules by an administrative order ( The Eastern District has also posted a chart online ( that shows the various changes to the deadlines and time periods. Minor bankruptcy court rule changes also took effect December 1, 2010 (see, with others scheduled to take effect December 1, 2011 (see

II. Sources of Bankruptcy Law: The Bankruptcy Code and Rules

A. Structure of the Bankruptcy Code

§1.2 Most of the operative provisions of the Bankruptcy Code are located in Title 11 of the United States Code. This title is divided into nine chapters—1, 3, 5, 7, 9, 11, 12, 13, and 15. Some of them offer separate forms of relief to financially distressed debtors. Chapter 7 provides for the automatic appointment of a trustee who will liquidate all of the debtor’s nonexempt property and distribute the proceeds to creditors. Chapter 9 permits troubled municipalities to reorganize their affairs under the protection of the bankruptcy court. Chapter 11 allows for the reorganization of distressed debtors; this form of relief is often selected by troubled businesses that need some time to restructure their financial affairs. Chapter 12 permits family farmers to reorganize their farming operations under the protection of the bankruptcy court. Chapter 13 provides for the adjustment of debts of persons with “regular income.” This chapter expands the scope of the old wage-earner provisions contained in Chapter XIII of the Bankruptcy Act of 1898. Finally, Chapter 15 deals with ancillary and cross-border cases.

The remaining chapters of the Code generally apply to all forms of bankruptcy relief unless otherwise specified in the Code. Chapters 1, 3, and 5 contain these general provisions. In 1986, Congress enacted the Bankruptcy Judges, United States Trustees and Family Farmer Bankruptcy Act of 1986, which, among other things, repealed old Chapter 15 of the Bankruptcy Code and established the U.S. Trustee System throughout the country. HR 5316, 99th Cong, 2d Sess (1986).

A U.S. trustee was appointed for the region that comprises the Eastern and Western Districts of Michigan in 1988. In 2008, Daniel M. McDermott was appointed the U.S. Trustee for the region that includes Michigan and Ohio (Region 9). His office is located in Cleveland, Ohio. Assistant U.S. trustees have been appointed in the Eastern and Western Districts of Michigan to help the U.S. trustee perform his statutory duties. The assistant U.S. trustee for the Western District of Michigan is Matthew Cronin. In the Eastern District of Michigan, Marion Joseph Mack, Jr., is the Assistant U.S. Trustee. See §1.34 for a discussion of the U.S. Trustee System.

B. Rules Governing Bankruptcy Procedure: National and Local

§1.3 In 1983, the U.S. Supreme Court, acting pursuant to 28 USC 2075, adopted the Federal Rules of Bankruptcy Procedure (Bankruptcy Rules). These rules were drafted to conform with the provisions of the Code and govern procedure in all federal bankruptcy courts; they may not abridge, enlarge, or modify the substantive rights granted under the Code. 28 USC 2075. Recent revisions to the Bankruptcy Rules were made in 2003, 2008, 2009, 2010, and 2011 (effective December 1).

In addition to the Bankruptcy Rules, the bankruptcy courts for both the Eastern and Western Districts of Michigan have adopted local rules. The local bankruptcy rules supplement the Bankruptcy Rules and may not be inconsistent with them. Bankruptcy Rule 9029. These rules are cited in this book as LBR [number] (ED Mich) or LBR [number] (WD Mich). The bankruptcy courts for the Eastern and Western District of Michigan have also adopted several general orders to supplement the local rules. The local rules and general orders may be accessed at the Web sites for the Eastern ( and Western ( districts.

The U.S. District Court for the Western District of Michigan has enacted WD Mich LCivR 83.2 et seq., which address certain aspects of bankruptcy procedure. Finally, the U.S. District Court for the Eastern District of Michigan has adopted ED Mich LR 83.50, which also contains various provisions governing procedure in the bankruptcy courts.

On February 5, 1996, the U.S. Bankruptcy Court for the Eastern District of Michigan adopted a list of civility principles governing the conduct of bankruptcy judges and the attorneys who practice before them (available online at Similar principles have been adopted by the Bankruptcy Court for the Western District of Michigan (available online at

III. Bankruptcy Courts

A. Structure

1. Federal District Courts

§1.4 The jurisdictional provisions in the Bankruptcy Amendments and Federal Judgeship Act of 1984 (the 1984 amendments) resolved a constitutional problem (see Northern Pipeline Constr Co v Marathon Pipe Line Co, 458 US 50 (1982)) with the status of bankruptcy judges. These provisions, which are contained in 28 USC 1334, grant to federal district judges the power to administer bankruptcy cases and all civil proceedings connected to them. Thus, the district court is granted original and exclusive jurisdiction over all bankruptcy cases. 28 USC 1334(a). The district court is also granted original, but not exclusive, jurisdiction over all civil proceedings “arising under,” “arising in,” or “related to” bankruptcy cases. 28 USC 1334(b). However, the district court may abstain from deciding these civil proceedings “in the interest of justice, or in the interest of comity with State courts or respect for State law.” 28 USC 1334(c)(1). Finally, the district court is granted exclusive jurisdiction over all property of the debtor and property of the estate, wherever that property is located. 28 USC 1334(e).

2. Bankruptcy Judges

2. Bankruptcy Judges

§1.5 Even though Congress allocated to the federal district courts the power to administer bankruptcy cases and to adjudicate controversies connected to those cases, they generally do not exercise these powers. Rather, these matters are automatically referred to the bankruptcy judges appointed in each district court. 28 USC 151. Bankruptcy judges may exercise the powers delegated to the district court “with respect to any action, suit, or proceeding,” except as otherwise provided by law or district court order. Id. In the Eastern District of Michigan, which encompasses approximately the eastern half of the Lower Peninsula, ED Mich LR 83.50(a)(1) refers all bankruptcy cases and proceedings to the bankruptcy judges of that district. WD Mich LCivR 83.2(a) does the same with respect to bankruptcy cases and proceedings filed in the Western District of Michigan. Although the issue has not yet been finally resolved, the U.S. District Court for the Western District of Michigan has held that a bankruptcy judge lacks the power to conduct criminal contempt proceedings and to impose criminal contempt sanctions. In re Lawrence, 164 BR 73 (WD Mich 1993); see also In re Hake, No 06-8014, 2006 Bankr LEXIS 2428 (6th Cir BAP Oct 3, 2006) (stating that there is serious question whether bankruptcy court has power to impose criminal contempt sanctions). Note that it has been held that a bankruptcy judge may impose civil contempt sanctions. In re Burkman Supply, 217 BR 223 (WD Mich 1998). Under certain circumstances, the reference may be withdrawn. See §§1.11–1.14.

The Bankruptcy Reform Act of 1994, Pub L No 103-394, amended section 105 of the Bankruptcy Code by specifically authorizing bankruptcy judges to conduct status conferences in cases and proceedings on the court’s own motion or on the request of a party in interest. 11 USC 105(d)(1). At this conference, the bankruptcy judge may issue orders to ensure that the bankruptcy case “is handled expeditiously and economically.” 11 USC 105(d)(2). For example, in a Chapter 11 case, the bankruptcy judge may fix a date by which a debtor must file a disclosure statement and plan. 11 USC 105(d)(2)(B)(i).

In the Eastern District in Michigan, Phillip J. Shefferly is the Chief Judge. Marci B. McIvor, Steven W. Rhodes, Walter Shapero, and Thomas J. Tucker are judges in the Southern Division, while Daniel J. Opperman sits in Bay City and Flint to administer cases filed in the Flint and Bay City administrative units.

In the Western District of Michigan, three bankruptcy judges sit in Grand Rapids and administer all the cases filed in that district. They ride the circuit and administer cases from the cities of Grand Rapids, Kalamazoo, Lansing, Traverse City, and Marquette. James D. Gregg, Jeffrey R. Hughes, and Scott W. Dales fill these positions.

B. Core and Related Proceedings

1. The Significant Distinction

§1.6 When litigating in the bankruptcy court, the practitioner must be keenly aware of the distinction made in the jurisdictional provisions of the Bankruptcy Code between core and noncore (or related) proceedings. This distinction is important primarily because in related proceedings, bankruptcy judges may not enter final orders and judgments without the consent of the litigants.

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