US Bankruptcy Court Boosted By Supreme Court Decision

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The U.S. Supreme Court announced a ruling on Wednesday that significantly expands the power of U.S. Bankruptcy Court judges.

In the Wellness International Network Ltd. v. Sharif case announced today, the Supreme Court reversed an appellate court decision that the bankruptcy court did not have the constitutional authority to decide whether certain property belonged to the bankruptcy estate because state laws took precedence.

The ruling means that now federal bankruptcy judges can make final decisions on disputes that arise in cases if all involved parties consent. A previous ruling had required that disputes be decided by a higher level federal judge.

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Details on the Wellness International Network Ltd. v. Sharif decision

“Adjudication based on litigant consent has been a consistent feature of the federal court system since its inception,” Justice Sonia Sotomayor, writing for the 6-3 majority, said. “Reaffirming that unremarkable fact, we are confident, poses no great threat to anyone’s birthrights, constitutional or otherwise.”

When Richard Sharif filed for bankruptcy, Wellness International Network (who Sharif owed half a million dollars) sued the Chicago man in bankruptcy court, claiming assets in a family trust tied to Sharif should be used to cover the debts.

The Seventh U.S. Circuit Court of Appeals eventually decided in favor of Sharif.

Legal historians note there have been discussions about the role of bankruptcy judges all the way back to 1978, when Congress passed a new bankruptcy statute. Under the new law, bankruptcy judges had a lower status than other federal judges who were appointed for life with a non-reducible salary. Of note, the U.S. Constitution requires that only senior appeals judges can make final decisions in cases that end up in federal court.

Supreme Court’s decision on the bankruptcy judge’s authority: Statement from legal analyst

“The Supreme Court’s decision is vitally important because it clarifies the bankruptcy judge’s authority to decide a broad variety of matters brought in the federal bankruptcy courts,” explained Dechert LLP bankruptcy lawyer G. Eric Brunstad Jr, who has extensive experience in the specialty, including arguing in front of the high court in another case in 2011.

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