Sunday, July 10, 2011

Federal District Court and Bankruptcy

Surprisingly, you may encounter many bankruptcy issues at the Federal District Court Level.

First, when a litigant determines to take an appeal from an order of the Bankruptcy Court, they have the option to appeal to the Federal District Court or the Bankruptcy Appellate Panel for the First Circuit. 

If you take your appeal to the District Court, the case will be assigned to one District Court Judge to hear and determine the appeal.  If you choose to appeal to the Bankruptcy Appellate Panel, your appeal will be determined by a panel of three bankruptcy judges from the First Circuit, and the judge who decided your case may not participate in that particular panel.

Strategically, there are many reasons why one would choose the Bankruptcy Appellate Panel over the District Court, or vice versa,  to hear and determine an appeal.

Secondly, where challenges to the debtor's discharge of debt are normally adjudicated by the Bankruptcy Court (under the standing order of reference), the District Court may hear them as well in certain circumstances.  For example, the Internal Revenue in foreclosing a federal tax lien on real property would file its complaint at the District Court, and may in that ligation challenge the debtor's discharge under 11 U.S.C. Section 523(a)(1)(C) for alleged, willful tax evasion.  That particular piece of litigation for a bankruptcy debtor is a "double whammy" i.e. the IRS is foreclosing a federal tax lien to take the home, and then is alleging that the taxes that would otherwise have been discharged are not discharged by the discharge order entered in the bankruptcy case.

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