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Landmark Legislation: U.S. Bankruptcy Courts

Text of Document

92 Stat. 2657
November 6, 1978

The Bankruptcy Reform Act of 1978 established United States Bankruptcy Courts in each federal judicial district and made the new panels courts of record with their own clerks and other staff. The reform act also revised and codified Title 11 of the U.S. Code which contained the substantive and procedural laws of bankruptcy.

Three times during the nineteenth century, Congress, acting on the constitutional authority to establish uniform laws on bankruptcy, approved bankruptcy acts to be administered by the federal trial courts. Each act was then repealed within a few years. In 1898, Congress approved a fourth act that, with revisions, governed bankruptcy proceedings for 80 years. The act of 1898 established the position of referee, to be appointed by the district court judges and to serve as an administrator for bankruptcy cases. A succession of statutes, most notably the Chandler Act of 1938 (52 Stat. 840), expanded the judicial responsibilities of the referees, who assumed more and more of the bankruptcy work of the district judges. In 1946, compensation by fees was replaced by a fixed salary in keeping with the full-time duties of the position. In 1973, the rules issued by the Supreme Court recognized the judicial character of the office by changing the title from referee to bankruptcy judge.

The inefficiencies of a system formulated in an age with relatively few bankruptcies and almost no consumer bankruptcies, coupled with a widely-perceived conflict between the referees' judicial and administrative responsibilities, contributed to calls for sweeping reform of the nation's bankruptcy law. The report of a commission established by Congress provided the basis for a legislative proposal introduced in 1973. The National Conference of Bankruptcy Judges drafted an alternative bill that was jointly considered by Congress during a long and complicated legislative process extending over 5 years.

The debate in Congress, where a large majority supported the establishment of separate bankruptcy courts, focused on conflicting proposals for the organization of the courts and such questions as whether the bankruptcy judges should serve during good behavior or for fixed terms, whether the judges should be appointed by the president or the circuit judicial councils, and whether the office supervising the administrative officers for bankruptcy proceedings (trustees) should be placed in an executive department or in the Administrative Office of the U.S. Courts. The act authorized the president to nominate bankruptcy judges who would be confirmed by the U.S. Senate and serve a term of 14 years. The office of the trustees was placed under the direction of the Department of Justice.

A Supreme Court ruling in 1982 questioned the constitutionality of the grant of bankruptcy jurisdiction to independent courts with judges who served limited terms. In 1984, Congress responded to the ruling with an act (98 Stat. 333) that declared the bankruptcy courts to be units of the U.S. district courts and provided for the appointment of bankruptcy judges by the U.S. courts of appeals.