Core and Non-Core Proceedings in Bankruptcy

A bankruptcy court can't resolve just any matter. The judge's power is limited to "core proceedings" that are directly related to bankruptcy, and "non-core proceeding" issues that aren't technically bankruptcy matters, but that will impact the bankruptcy case. In this article, you'll learn more about the differences between core and non-core proceedings.

Core Bankruptcy Proceedings

Only a bankruptcy judge has the power to preside over bankruptcy matters, and a core proceeding resolves issues that arise exclusively in a bankruptcy case, such as:

• Estate administration. The court oversees the bankruptcy trustee's duties in administering the estate.
• Creditors' claims. The court decides disputes regarding a creditor's claim to bankruptcy proceeds.
• Debtor exemptions. If the trustee objects to a debtor's claim that an exemption protects property, the court will decide the matter.
• Obtaining credit during bankruptcy. In a Chapter 13 case, the debtor or trustee must seek court permission before incurring debt.
• Property turnover. If another person is holding the debtor's property, the court can order that person to turn that property over to the trustee.
• Preference payment recovery. The court has jurisdiction over a trustee action to recover money the debtor paid to creditors before bankruptcy (known as preferential debt payments).
• Fraudulent transfer avoidance or recovery. If the trustee seeks to recover money the debtor fraudulently transferred, the court will have jurisdiction over the matter.
• Automatic stay motions. A creditor or a debtor must ask the judge to modify the automatic stay by filing a motion.
• Dischargeability proceedings. If a creditor objects to debt discharge, the bankruptcy court would hear the objection.
• Lien claims. The court decides proceedings to determine the validity, extent, or priority of liens.
• Confirmation hearings. The court must confirm (approve) bankruptcy plans, such as a Chapter 13 repayment plan.
• Bankruptcy property use and transfer. Matters concerning the sale, use, or lease of bankruptcy estate property must go before the judge.

This list doesn't include every core proceeding that someone might bring before the bankruptcy court. A core proceeding also includes any issue affecting the sale of a debtor's assets or the relationship between a debtor and creditor, except for a personal injury or wrongful death action.

Non-Core Bankruptcy Proceedings

A non-core proceeding resolves any issue that isn't a core matter that could positively or negatively "…alter the debtor's rights, liabilities, options, or freedom of action…" or impact on "…the handling and administration of the bankrupt estate." (In re Fietz (9^th Cir 1988) 852 F2d 455.)

The definition covers a large variety of cases—even those that don't directly include the debtor. Being related to and having an impact on the bankruptcy case is sufficient.

Non-core proceedings often involve matters typically handled in a state court. For instance, a debtor reorganizing under Chapter 13 or Chapter 11 might need the court to decide a state-law breach of contract case first. Or a debtor might need a decision regarding the validity of a debt under state law. But state law involvement isn't the sole criteria. The significant similarity is that a non-core proceeding involves an issue that must be decided before the bankruptcy case can conclude.

The bankruptcy judge's decision cannot become a final judgment in a non-core proceeding unless all parties consent (agree). If the parties don't consent, the bankruptcy judge submits proposed findings of fact and conclusions to the district court.

Matters the Bankruptcy Judge Won't Hear

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.