U.S. Bankruptcy Courts

The Constitution gives Congress power to make uniform laws on bankruptcies, so bankruptcy is entirely a federal matter. The modern system dates from the Bankruptcy Reform Act of 1978, which created bankruptcy courts with broad powers. In 1982 the Supreme Court held in Northern Pipeline v. Marathon that Congress had given too much judicial power to judges without Article III life tenure, and the 1984 amendments restructured the courts as units of the federal district courts, which formally refer bankruptcy cases to them.

There is a bankruptcy court in each of the ninety-four federal judicial districts except a few that share one, staffed by about 350 bankruptcy judges. These judges are appointed by the regional courts of appeals for fourteen-year terms rather than by the President, which makes them Article I judges. They handle cases under the chapters of the Bankruptcy Code: Chapter 7 liquidation, Chapter 13 repayment plans for individuals, Chapter 11 reorganization for businesses, Chapter 9 for cities, as in Detroit's 2013 case, Chapter 12 for family farmers, and Chapter 15 for cross-border cases.

Several hundred thousand bankruptcy cases are filed each year, the vast majority by individuals. Large Chapter 11 cases have concentrated in a few districts, such as Delaware, the Southern District of New York, and the Southern District of Texas, prompting debate over forum shopping. Appeals go to the district court, a bankruptcy appellate panel in some circuits, or directly to the court of appeals.