What’s the Difference Between Core and Non-Core Bankruptcy?

Posted by CourthouseDirect.com Team - 04 December, 2013

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bankruptcyIn the popular consciousness, bankruptcy tends to be a black-or-white affair: When you're insolvent, you declare bankruptcy and allow your creditors to take what they please. Of course, this is an overly simplistic conceptualization of a fairly complicated area of the law. In addition to the better-known distinction between reorganization and liquidation, the bankruptcy code makes another key differentiation between "core" and "non-core" bankruptcy proceedings. It's crucial for filers and their families to understand the difference between the two.

Bankruptcy Basics


Individuals who need to declare bankruptcy have two well-known options: Chapter 13 reorganization and Chapter 7 liquidation. The former provides filers with a great deal of leeway. Under the supervision of a certified bankruptcy judge, Chapter 13 filers work with their existing creditors to restructure their debts and draw up repayment schedules with which all parties can live. On the other hand, Chapter 7 filers are often forced to sell or forfeit big-ticket assets to settle secured debts like mortgages, car loans and student loans.

Core Bankruptcy Issues


"Core" bankruptcy proceedings are duties that the country's bankruptcy code explicitly reserves for bankruptcy courts. In other words, these are duties and issues that fall outside of the province of any other type of court. Most directly concern the actual bankruptcy process. Others deal with tangentially related procedures that nevertheless affect the outcome of most bankruptcy cases. Since bankruptcy judges expect filers to prepare for the proceedings before their initial court appearances, it's crucial for anyone who wishes to declare bankruptcy to have a full understanding of core bankruptcy issues.

Key Examples


In light of the complex nature of the bankruptcy code, there are dozens of core proceedings with which borrowers may have to deal. These include:
  • The creation and administration of bankruptcy estates
  • The determination and certification of valid and invalid creditor claims against a given bankruptcy estate
  • The establishment of a plan to deal with said claims and any filer-initiated counterclaims
  • The distribution of estate-held property to claimants or sale of said property to raise funds for other creditors
  • The "preferential listing" and certification of individual claimants with respect to a given estate
  • All issues that surround the automatic stay, including its termination or continuance
  • All issues that pertain to debt discharge
  • Issues that relate to the liquidation or restructuring of debts with the exception of certain tort claims against creditors

Non-Core Bankruptcy Issues


By contrast, non-core bankruptcy proceedings aren't explicitly reserved for bankruptcy courts and generally exist independently of a given bankruptcy case. However, non-core issues generally have some bearing on the outcomes of bankruptcy cases. They usually involve significant sums of money or have the potential to affect filers' relationships with their creditors.

Key Examples


By definition, there are many issues that aren't explicitly covered by existing bankruptcy law. In practice, there are a few non-core issues that repeatedly present themselves during the course of typical bankruptcy cases. These include:
  • Tort cases that have been brought by filers or creditors, including personal injury and wrongful death claims
  • Probate issues
  • All issues that pertain to divorce proceedings
  • Certain foreclosures or home repossessions that don't directly arise from the ongoing bankruptcy case


Final Thoughts: A Core Distinction in the Bankruptcy Code

The distinction between core and non-core bankruptcy issues is simultaneously obvious and academic, but it's nevertheless crucial to master. While bankruptcy judges handle and dismiss core issues as a matter of routine, jurisdiction over non-core issues is far more difficult to establish. Before you assume that your bankruptcy judge will be willing or even able to handle non-core proceedings, contact a qualified bankruptcy attorney to review your options.

Topics: Finance


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