Superdelegation and Gatekeeping in Bankruptcy Courts
Volume 87, No. 4, Summer 2015
By Melissa B. Jacoby, Graham Kenan Professor of Law, University of North Carolina at Chapel Hill [PDF]

America’s bankruptcy court system runs on delegation, all the way down. The Judicial Code expressly authorizes federal district judges to make a wholesale hand off of bankruptcy cases and related adversary proceedings to bankruptcy judges. Many observers, including justices on the U.S. Supreme Court, doubt this arrangement with non–Article III judges is fully constitutional. Some district judges even try to offload appeals from bankruptcy court decisions onto their non–Article III magistrates. But delegation of work by bankruptcy judges to other actors has escaped the attention of Congress, federal courts of appeal, and even the “fastidious carping of scholars.”

In a volume of scholarship celebrating Professor Bill Whitford, this Article considers the allocation of government oversight in Chapter 13, a type of bankruptcy about which Professor Whitford has much expertise. Chapter 13 bankruptcy is available to individuals with regular income as long as their debts are not too large. It offers special tools for protecting co-debtors and dealing with property encumbered by security interests or mortgages. Systematic empirical studies illustrate strongly rooted localized practices for Chapter 13. Although filing ratios vary by location, Chapter 13 remains the second most populous type of bankruptcy nationally, behind Chapter 7.

To manage the volume of cases, some bankruptcy judges hand over their courtrooms to Chapter 13 trustees, who then supervise plan confirmation hearings in the courtroom without a judge present. According to a finding in an extensive survey of judges, nearly one-third of judges in the early 1990s reported some version of this method. Yet, this particular subset of the practice of deference to the positions of Chapter 13 trustees seems to have escaped sustained attention from, or even detailed description by, legal scholars. Likewise, I cannot find appellate court treatment of the practice. That absence is consistent with the disconnect between what justices on the U.S. Supreme Court think bankruptcy judges do and the reality.

In some districts, therefore, individual debtors have passed through the bankruptcy system possibly believing that the Chapter 13 trustees are, in fact, the federal judges. But the addition of the “super” to the term “delegation” comes from the cross-branch structure of the handover. Congress assigned oversight of the plan confirmation process to the federal judiciary rather than to an executive agency. As already noted, Congress expressly authorized Article III judges to pass along bankruptcy work to bankruptcy judges, not to trustees. Who appoints trustees? In all states but two, they are appointed and overseen by the United States Trustee, part of the U.S. Department of Justice. Thus, this little-studied convention and its variations should be of interest to administrative law and federal courts scholars as well as to the bankruptcy world.

At the other end of the philosophy spectrum, some judges are such active gatekeepers that they impose hurdles on Chapter 13 that are difficult to locate in the Bankruptcy Code. Especially before the Bankruptcy Code’s 2005 amendments, it was well known that some judges refused to confirm plans unless they promised particular percentage payments to unsecured creditors. But recent examples are even more intriguing. I have heard a rumor of a judge in Kentucky who conditioned Chapter 13 plan confirmation on a debtor quitting smoking. And a judge in California is systematically seeking to heighten the bar not only to plan confirmation, but also to the receipt of a discharge after plan completion. Such practices are difficult to counter through the expensive, and one-case-at-a-time, appellate process, particularly if there is no absolute right to appeal an order denying plan confirmation. As distinct from superdelegation, judges who impose extra requirements to the most fundamental element of bankruptcy—the discharge of debt—arguably overconsume the gatekeeping authority Congress gave them. Of course, many, if not most, courts fall in between these two poles.

This Article proceeds as follows. Section I considers the baseline expectations of judges in the Bankruptcy and Judicial Codes, coupled with the interpretive overlay of the Supreme Court and appellate courts. Section II examines cross-branch delegation of Chapter 13 gatekeeping, featuring an example I observed in a bankruptcy court in 2012. Section III considers gatekeeping that goes beyond Congress’s or the Supreme Court’s expectations for exercising the judicial role.