For anyone with debts who is considering filing for bankruptcy, the process
can appear daunting. There are many quirks in the system, including the
fact that bankruptcy court judges do not have the same power as other
federal court judges. The basic rule is that federal court judges are
members of the judicial branch who, under Article III of the Constitution,
are nominated by the President, confirmed by the Senate, and hold their
office for life -- or until they retire. Bankruptcy judges, although they
are part of the federal court system, are different. They apply for the
job and are given seven-year terms that can be renewed. Because their
authority does not come from Article III of the Constitution, there are
limitations to what they can do.
So what does that mean in practice? That's a question that the Supreme
Court answered in a case called
Wellness International Network, Ltd., et al. v. Sharif. Mr. Sharif filed for chapter 7 bankruptcy. One of his creditors, Wellness
International, claimed that he was sheltering money in a family trust
that should go to pay his debts and thus argued that he was not entitled
to bankruptcy protection. The bankruptcy judge agreed, prompting Mr. Sharif
to appeal. He claimed that the bankruptcy judge only had the power to
decide whether he was eligible to have his debts discharged but did not
have authority to rule on the legitimacy of the trust, a question that
was governed by state law. The case went all the way up to the Supreme
Court which held by a 6-3 vote that bankruptcy judges could 1) rule on
state law matters if both parties agreed or 2) issue a recommended decision
to a district court judge appointed under Article III who could rule on
state and federal law, including the bankruptcy code.
What does that mean for anyone considering seeking bankruptcy protection?
If you have a straightforward case under chapter 7 or chapter 13 (personal
debts) or chapter 11 (business reorganization), the
Wellness case will probably have no impact. But if your case involves disputes
that go outside of bankruptcy law, such as a claim that you do not owe
a creditor any money because it breached the contract between you, then
the question of what the bankruptcy judge can decide will come into play.
Rather than puzzle over the Supreme Court's decision, we invite you
to contact the compassionate professionals at the
Law Offices of James C. Shields. We are knowledgeable about Supreme Court cases and offer reasonable fees
and payment plans. You can trust us to figure out the issues unique to
your case in a way that ensure the best possible outcome for you.