Congress has vested all jurisdictions over bankruptcy matters in the U.S. district courts. The district courts have exclusive original jurisdiction over the bankruptcy case itself and original, but nonexclusive, jurisdiction over civil proceedings arising in, arising under or related to a bankruptcy case.
Federal district courts are directed to abstain and allow state courts to proceed in civil matters where comity or the interest of justice indicates that a state court should hear the matter. Section 1334 of Title 28, U.S. Code, also mandates abstention upon timely motion by a party (1) where the federal courts, absent bankruptcy, would lack jurisdiction over the proceeding, and (2) the proceeding is either (a) pending in a state court at the time the motion is filed, or (b) the proceeding arises under state law and can be timely adjudicated in state court.
Federal district courts are authorized to refer bankruptcy matters, with limited exceptions, to bankruptcy courts, which operate as a unit of the district courts. Although Article III of the U.S. Constitution provides that federal judges be appointed for life, bankruptcy judges are appointed for 14-year terms by the U.S. Court of Appeal for the circuit in which they are located. Thus, there are some limits as to the proceedings that may be held before bankruptcy courts, the matters on which bankruptcy courts may issue final or appealable orders, and which bankruptcy courts must make recommendations to district courts subject to de novo review. Bankruptcy courts may enter final, finding orders as to “core proceedings” and must prepare findings of fact and conclusions of law for de novo review by district courts in “related proceedings.”
All district courts have standing orders of reference under which all bankruptcy cases are automatically referred to the bankruptcy courts. Consequently, bankruptcy courts initially hear motions to abstain subject de novo review by the district courts. Nevertheless, the district courts always have discretion to withdraw the reference of any case from the bankruptcy court. If the proceeding involves interpretation of both bankruptcy law and federal statutes regulating interstate commerce, withdrawal of the reference is mandatory. An additional limitation is that bankruptcy claims arising out of personal injury and wrongful death cannot be tried in bankruptcy court. These claims must be brought in federal district court and are not subject to mandatory abstention under 28. U.S.C. §§157(b)(4) and (5).
Bankruptcy court decisions may be appealed to the U.S. district court, the circuit’s Bankruptcy Appellate Panel (BAP) or the circuit court of appeals. Currently there are BAPs in the First, Sixth, Eighth, Ninth and Tenth Circuits. Nonetheless, any party to an appeal may require that the appeal be heard by the district court rather than the BAP. Decisions of BAPs and district courts may be appealed to the circuit court of appeal and, ultimately, to the U.S. Supreme Court. In addition, the 2005 amendments allow direct appeal from bankruptcy court to the circuit court of appeals if the bankruptcy court, district court or BAP certifies that the appeal meets certain requirements and the circuit court authorizes the direct appeal. The precedential value of decisions below circuit level is limited.