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Civil Resource Manual

48. The Bankruptcy "Players" -- Outline

January 17, 1996


Bankruptcy has three general types of proceedings. Although the "players" are similar, their roles differ depending on the type of proceeding. To understand the roles of the players in the proceedings requires understanding the structure of the proceedings.

The simplest type of bankruptcy is liquidation under chapter 7 of the Bankruptcy Code. In liquidation, the DEBTOR'S property owned at filing of the bankruptcy becomes part of the bankruptcy estate, except for exempt property which is released to the debtor. In chapter 7 liquidations, the UNITED STATES TRUSTEE immediately appoints an INTERIM TRUSTEE from a standing panel of trustees in the district. This interim trustee can be replaced if the CREDITORS subsequently elect a PERMANENT TRUSTEE; if no permanent trustee is elected, the interim trustee continues to serve as the trustee. The trustee disposes of the estate's property. If property is collateral for a debt that is more than the value of the property, that collateral might be released to a SECURED CREDITOR. The proceeds from the trustee's sales are applied to pay the debts of the debtor after paying expenses of the bankruptcy proceeding. An individual debtor normally will be discharged of liability for all debts incurred before the petition was filed. A corporation, partnership, or other insolvent organization is simply dissolved.

In the second type of proceeding, the assets of the debtor need not be liquidated. Family farmers (using chapter 12) and individual "wage earners" (using chapter 13) can discharge their prepetition debts without losing all their property. To enjoy this benefit, they must dedicate all of their post-bankruptcy income (except that needed to support the debtor and his/her dependents) for a period of 3 to 5 years to the payment of their prepetition debts. Where a debtor otherwise has assets of little or no value, this type of proceeding may result in a higher payment to creditors than chapter 7. In these proceedings, a standing chapter 12 or 13 trustee for the district, appointed by the United States Trustee, serves as trustee for the case. However, the debtor also becomes a DEBTOR-IN-POSSESSION and remains in control of his or her assets. In chapter 13 cases, the debtor remains the debtor throughout the proceeding, albeit with some enhanced powers. In both chapter 12 and chapter 13 cases, the trustee retains payments made by the debtor/debtor-in-possession until the plan is confirmed; thereafter, the trustee pays off the creditors in accordance with the plan through monthly payments. In chapters 12 and 13 creditors have no vote on the debtor's plan.

Business organizations can avoid liquidation and reorganize under chapter 11. These organizations propose a plan for the payment of their creditors; confirmation of the plan usually requires acceptance by the various classes of creditors and stockholder interests of the debtor. Acceptance by a class is accomplished by a vote of the members of the class in specified majorities.

In chapter 11 the management of the old debtor remains in place. However, once the petition is filed, the old debtor becomes the new debtor-in-possession and continues to operate the business. To have a trustee appointed in reorganization cases in lieu of the debtor-in-possession, you must show that the current management is corrupt or hopelessly incompetent. This is difficult to do.

Two other major players are the UNSECURED CREDITORS and the SECURED CREDITORS. They assert claims and their interests can be very much at odds with one another and with the debtor-in-possession. In a corporate case, there are also EQUITY HOLDERS (e.g., stockholders). The creditors and equity holders can be organized into COMMITTEES. The role of committees varies greatly depending on the size of the case.

And, of course, a BANKRUPTCY JUDGE is there to resolve disputes.

B. The Debtor

1. The Bankruptcy Code allows persons, corporations, partnerships, and municipalities to file petitions:
(a) "debtor" means person or municipality concerning which a case under this title has been commenced, 11 U.S.C. § 101(13);
(b) "municipality" means political subdivision or public agency or instrumentality of a State, 11 U.S.C. § 101(40);
(c) "person" includes individual, partnership, and corporation, but does not include governmental unit that acquires an asset from a person as a result of operation of a loan guarantee agreement, or as receiver of liquidating agent of a person, 11 U.S.C. § 101(41);
(d) "corporation" includes (a) associations having a power or privilege that a private corporation, but not an individual or a partnership, possesses; (b) partnership associations organized under a law that makes only the capital subscribed responsible for the debts of such association; (c) joint stock companies; (d) unincorporated companies or associations; or (e) business trusts; but does not include limited partnerships, 11 U.S.C. § 101(9).
2. When the Federal Rules of Bankruptcy Procedure require an act to be performed by a "debtor" or when it is necessary to compel attendance of a "debtor" for examination and the debtor is not a natural person:
(a) if the debtor is a corporation, "debtor" includes, if designated by the court, any or all of its officers, members of its board of directors or trustees or of a similar controlling body, a controlling stockholder or member, or any other person in control;
(b) if the debtor is a partnership, "debtor" includes any or all of its general partners or, if designated by the court, any other person in control.

Rule 9001(5), Fed. R. Bankr. P.

3. In chapter 13 cases, the debtor has, with some exceptions, the powers of a trustee, 11 U.S.C. § 1303, including the power to operate the business if he or she is self-employed, 11 U.S.C. § 1304.

C. Debtor-In-Possession

1. "Debtor-in-possession" ("DIP") means the debtor except when a trustee has been appointed. 11 U.S. C. § 1101(1). With limited exceptions, the DIP has all the rights, powers and performs all the functions of a trustee. 11 U.S.C. § 1107.
2. Before bankruptcy, the debtor's management is a fiduciary to the corporation and the shareholders. After filing the petition, the management serving as the DIP is a fiduciary to the estate and its creditors as well. Commodities Futures Trading Commission v. Weintraub, 471 U.S. 343, 355 (1985); In re Bowman, 181 B.R. 836, 842-46 (Bankr. D. Md. 1995) (comprehensive discussion of the fiduciary duty of a debtor-in-possession); In re Johns Manville Corp., 52 B.R. 879, 885 (Bankr. S.D.N.Y. 1985) (the DIP is "required to take good faith actions in the best interests of the estate, not the best interests of the shareholders of the corporation"). The DIP owes the duties of care, loyalty, and impartiality among beneficiaries to the estate and its creditors. In re Bellevue Place Assocs., 171 B.R. 615, 623-24 (Bankr. N.D. Ill. 1994) (debtor-in-possession must avoid self dealing); Bogart, Liability of Directors of Debtors in Possession: "Don't look back - Something may be Gaining on You", 68 Am. Bankr. L. J. 155 (1994) (comprehensive discussion of liability of management and directors of a DIP).

D. Case Trustee

1. Chapter 7. There is always a trustee in chapter 7 cases. 11 U.S.C. §§ 701 (appointment of interim trustee by United States Trustee), 702 (election of permanent trustee by creditors), 703 (successor trustee); 28 U.S.C. § 586(b) (US Trustee appoints standing trustees subject to approval of Attorney General). Once appointed, the chapter 7 trustee (1) becomes the sole representative of the debtor's estate, (2) pursues all pre-petition causes of action belonging to the debtors, and (3) pursues trustee's own causes of action to recover money or property under the trustee's avoiding powers. In re Pearson Indus., Inc., 178 B.R. 753, 761 (Bankr. C.D. Ill. 1995); In re Lansberry, 177 B.R. 49, 55-56 (Bankr. W.D. Pa. 1995). The chapter 7 trustee represents the interests of the unsecured creditors, and is a fiduciary of the secured creditors with the duty to exercise reasonable care as custodian of the properties which serve as collateral for the secured claims. Matter of Esco Mfg., Co., 33 F.3d 509, 514 (5th Cir. 1994) (chapter 7 trustee has a fiduciary obligation "to preserve the estate's assets in order to maintain the most advantageous liquidation of the estate for the interest of its creditors"); Pearson Indus., 178 B.R. at 761; In re Arnold, 176 B.R. 13, 15 (Bankr. E.D. Tex. 1995) (chapter 7 trustee has a duty to attempt to achieve desired end result of chapter 7: distribution to creditors). This is generally accomplished by collecting and reducing to money the nonexempt property of the estate that is not subject to liens. Therefore, the chapter 7 trustee must close the estate as expeditiously as is possible. Esco Mfg., 33 F.3d at 514.
2. Chapter 12/13. There is always a trustee in chapter 12 and 13 cases. 11 U.S.C. § 1202 (appointment of trustee by United States Trustee); 11 U.S.C. § 1302 (same); 28 U.S.C. § 586(b) (US Trustee appoints standing trustees subject to approval of Attorney General). Chapter 12 and 13 trustees do not take possession of property of the estate. 11 U.S.C. §§ 1202, 1302. Instead, the trustee receives the regular payments of the debtor and distributes the funds to creditors according to the terms of the plan.
3. Chapter 11. A trustee is rarely appointed in chapter 11 cases. In re Bellevue Place Assocs., 171 B.R. 615, 623 (Bankr. N.D. Ill. 1994) ("appointment of a trustee is an extraordinary remedy that requires proof by clear and convincing evidence"). However, the court may appoint a trustee in a chapter 11 case (a) for cause, including fraud, dishonesty, incompetence or gross mismanagement of the debtor either before or after the filing, or (b) if appointment of a trustee is in the best interests of creditors, equity security holders, or other interests of the estate. 11 U.S.C. § 1104; Petit v. New England Mortgage Servs., Inc., 182 B.R. 64, 69-71 (D. Me. 1995) (court may appoint a bankruptcy trustee in a chapter 11 case where the debtor-in-possession "cannot be properly entrusted with the [required] fiduciary duties" or where there is a "deep-seeded conflict and animosity between a debtor and its creditors."); Bellevue Place Assocs., 171 B.R. at 622-25. The court may appoint a trustee sua sponte. In re Bibo, Inc., 76 F.3d 256 (9th Cir. 1996).
4. Generally, the case trustee owes the duties of care, loyalty, and impartiality among beneficiaries to the estate and its creditors. The specific duties of a trustee differs under different chapters. Compare 11 U.S.C. §§ 704; 1106; 1202(b); 1302(b). For example, under chapter 11, the trustee has the power to operate the debtor's business, 11 U.S.C. § 1108, a power and duty not within the scope of a chapter 7 trustee, unless specifically authorized, 11 U.S.C. § 721. Additionally, a chapter 7 trustee's powers extend only over property of the estate. 11 U.C. § 704. In all cases, the enumerated statutory duties of a bankruptcy trustee are not exclusive. See 11 U.S.C. §§ 704, 1106; Holywell Corp. v. Smith (In re Holywell Corp.), 112 S. Ct. 1021, 1027 (1992) (trustee obligated to file tax returns); Midlantic Nat'l Bank v. New Jersey Dep't of Envtl. Protection, 474 U.S. 494 (1986) (chapter 7 trustee must conform with various health and safety regulations in administering estate property); Matter of Esco Mfg., Co., 33 F.3d 509 (5th Cir. 1994) (trustee must take control of and terminate a debtor's pension plan); Hays and Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1154-62 (3d Cir. 1989) (bankruptcy trustee must comply with statutorily imposed obligation to arbitrate); In re Petit, 172 B.R. 706 (Bankr. D. Me. 1994) (individual chapter 11 trustee may convene § 341 meeting).
5. Individual trustees are obliged to report any criminal activities and assist in any subsequent prosecutions. 18 U.S.C. § 3057; 28 U.S.C. § 586(a)(3)(F). The trustee must also (a) investigate the debtor's financial affairs, 11 U.S.C. §§ 704(4), 1106(a)(3), 1202(b)(2) (only if ordered), 1302(b)(1); (b) oppose discharge where appropriate, 11 U.S.C. §§ 704(6), 1202(b)(1), 1302(b)(1); and (c) furnish information concerning the estate as requested by party in interest, 11 U.S.C. § 704(7).
6. A case trustee may be removed for cause by the court after notice and a hearing. The US Trustee can also remove a standing trustee. 11 U.S.C. § 324; Richman v. Straley, 48 F.3d 1139 (10th Cir. 1995) (chapter 12/13 trustee removed by UST); In re Drinkwater, 178 B.R. 590 (Bankr. D. Mass. 1995) (chapter 13 trustee); In re Reed, 178 B.R. 817, 821-22 (Bankr. D. Ariz. 1995) (chapter 7 trustee).

E. Committees

1. Official committees of creditors and equity security holders are accorded substantial roles in bankruptcy cases, 11 U.S.C. §§ 705, 1102, including consultation with the debtor-in-possession or trustee, participating in formulation of the plan, objecting to the claims of other general unsecured creditors, and some litigation, 11 U.S.C. §§ 705, 1103(c); In re EBP, Inc., 171 B.R. 601, 603 (Bankr. N.D. Ohio 1994). The use of a committee to represent similarly situated creditors reduces the aggregate cost to creditors of representation. In addition to being more efficient, this process allows creditors whose claims would have been relatively too costly for them to pursue individually to be represented effectively as part of the class of creditors to which they belong.
2. The committees ordinarily consist of persons who hold claims against the estate of the type represented by the committee. 11 U.S.C. §§ 705 (elected committee of 3-11 creditors holding allowable unsecured claims), 1102(b)(1) (appointed or self-selected committee of 7 largest creditors); 1102(b)(2) (appointed committee of 7 largest equity holders). Other committees which represent particular classes of creditors are also authorized. 11 U.S.C. § 1102(a). Whether creditors committees owe a duty to the estate and the debtor, or only to the represented creditors is subject to controversy. Compare Pan Am Corp. v. Delta Air Lines, Inc., 175 B.R. 438, 513-15 (S.D.N.Y. 1994) (creditors committee owes "fiduciary duty only to the class of creditors it represents, not to the Debtor, or any other party in the bankruptcy case") with In re National Liquidators, Inc., 171 B.R. 819, 826 (Bankr. S.D. Ohio 1994) ("Like debtors, they also serve as fiduciaries and are required to act in a manner to serve the best interest of the estate and its creditors."). At a minimum, creditor committees must protect the interests of the group they represent, rather than acting in a manner which serves only the best interests of the individual members. Id.
3. The court must appoint a committee of retired employees if (1) the debtor seeks to modify retiree benefits, and (2) a motion for such a committee is filed. 11 U.S.C. § 1114(c)(2), (d).
4. Only unofficial committees were recognized under the Bankruptcy Act and they continue to be recognized in chapter 11 cases.
5. Official committees enjoy a qualified immunity extending to "conduct within the scope of the committee's statutory or court-ordered authority." Pan Am Corp. v. Delta Air Lines, Inc., 175 B.R. 438, 514 (S.D.N.Y. 1994).

F. Counsel

1. Counsel for the debtor-in-possession/trustee, unlike the debtor's counsel, has a fiduciary duty to the post bankruptcy entity and not to "the stockholder, director, officer, employee representative or other person connected with the entity." In re Bellevue Place Assocs., 171 B.R. 615, 626 (Bankr. N.D. Ill. 1994). Thus, counsel for the debtor-in-possession/trustee owes its fiduciary responsibility to the postpetition entity -- not the prepetition entity or its principals. Counsel for the debtor-in-possession/trustee must not hold or represent an interest adverse to that its client. In re Sidco, Inc., 173 B.R. 194 (E.D. Cal. 1994); In re Bellevue Place Assocs., 171 B.R. 615, 626-27 (Bankr. N.D. Ill. 1994) (comprehensive discussion of meaning of "adverse interest"); see generally 11 U.S.C. §§ 327 - 329. For example, § 327 prohibits an attorney from simultaneously representing a creditor and a trustee as a general counsel. However, counsel for a creditor may represent the trustee as special counsel for specific and limited purposes. In re Maynard, 172 B.R. 353, 355 (Bankr. M.D. Fla. 1994). Counsel for a chapter 11 debtor can only perform limited duties for the trustee if the case is converted to chapter 7. In re Pine Valley Mach., Inc., 172 B.R. 481, 486-88 (Bankr. D. Mass. 1994).
2. Committees may retain professionals, including counsel, to assist them. 11 U.S.C. § 1103. These counsel can be paid by estate assets. However, professionals hired by unofficial committees may only be compensated if they make a "substantial contribution" within the meaning of 11 U.S.C. §§ 503(b)(3)(D), (b)(4), rather than under the more lenient standard of 11 U.S.C. §§ 330, 331, applicable to professionals employed by official committees. All counsel "must be free of any personal interests or connections that are at odds with the interests of the entities they intend to represent," including free from representing parties with adverse interests. See In re National Liquidators, Inc., 171 B.R. 819, 826 (Bankr. S.D. Ohio 1994); In re EBP, Inc., 171 B.R. 601 (Bankr. N.D. Ohio 1994) (representation of individual creditor by counsel for creditor's committee does not per se create conflict of interest). Counsel for the committee must act in the best interest of the class of creditors they represent, not the individual members of the committee. National Liquidators, 171 B.R. at 826; EBP, 171 B.R. at 602 (counsel can file objection to plan even if class votes in favor of plan).
3. Counsel for interested parties (creditors, third parties, postpetition business parties) have an obligation to report felonies, 18 U.S.C. § 4 (misprision of felony), and are subject to prohibitions against using existence of felony violation for private gain, 18 U.S.C. § 873 (blackmail); 18 U.S.C. § 875(d) (extortion).
4. Federal agencies are represented in bankruptcy proceedings by a host of attorneys. The Corporate/Financial Debt Recovery Section of DOJ's Commercial Litigation Branch personally represents the government in many large, multi-agency proceedings and provides assistance generally on bankruptcy issues. DOJ's Tax Division focuses on issues involving the IRS, while issues involving the EPA are represented by DOJ's Environment and Natural Resources Division. The United States Attorney's Office will have Assistant United States Attorneys who regularly practice in the local bankruptcy court. Agencies which are regularly involved in litigation may have Special Assistant United States Attorneys who also appear in bankruptcy court. Finally, every agency has agency counsel who assist, in varying degrees, in the litigation of bankruptcy proceedings.

G. An ExaminerThe court may appoint an examiner to investigate allegations of fraud, dishonesty, or gross mismanagement of the debtor of or by current or former management of the debtor, 11 U.S.C. § 1104(b), or to investigate acts, conduct, assets, liabilities, and the financial condition of the debtor, the operation of the debtor's business and the desirability of continuance of such business, 11 U.S.C. § 1106(b). See generally In re National Liquidators, Inc., 171 B.R. 819 (Bankr. S.D. Ohio 1994) (good example of the role of an examiner in bankruptcy proceedings). Examiners provide a less disruptive remedy for creditors than a trustee. Recently, examiners have been appointed with "special powers," such as participating in specific aspects of the business (perhaps assisting in the sale of a major portion of a company). But see In re Patton's Busy Bee Disposal Serv., Inc., 182 B.R. 681, 685-87 (Bankr. W.D.N.Y. 1995) (court discusses the limited authority of an examiner to conduct litigation where the examiner's appointment order made no mention of such powers; court noted that it "look[s] askance upon attempts to cloak an examiner with all the attributes of a trustee other than the title.").

H. United States Trustee

1. The United States Trustee ("UST") program was designed to relieve the bankruptcy judges of certain administrative matters. The UST has broad statutory standing in chapter 11 including the right to raise any issue and to be heard on any issue raised by others, 11 U.S.C. § 307, and also have a variety of powers under other provisions of the Code, as well as extensive duties imposed by 28 U.S.C. § 586(a)(3), including appellate standing. In re Columbia Gas Systems Inc., 33 F.3d 294, 296-99 (3d Cir. 1994). Courts have recognized that the UST "serve[s] as the vanguard, especially on those issues that impact upon the integrity of the [bankruptcy] process." In re National Liquidators, Inc., 171 B.R. 819, 825 (Bankr. S.D. Ohio 1994).
2. USTs are appointed under 28 U.S.C. § 581. They are obligated to report any criminal offenses and assist in any subsequent prosecutions. 18 U.S.C. § 3057; 28 U.S.C. § 586(a)(3)(F). The duties of the UST include (1) monitoring applications for compensation and reimbursement; (2) monitoring plans and disclosure statements in chapter 11 cases; (3) making sure that all reports, schedules, and fees required to be filed by the debtors are in fact filed; (4) monitoring the functioning of creditor's committees; (5) notifying the U.S. Attorney of possible crimes uncovered and cooperating with the U.S. Attorney in subsequent prosecutions; (6) monitoring the progress of bankruptcies and keeping cases moving; and (7) monitoring the employment of professional persons in bankruptcy cases. In re Columbia Gas Systems Inc., 33 F.3d 294, 296 (3d Cir. 1994).

I. Interested partiesThe Code and the Rules use the term "party in interest" throughout, including numerous provisions in Chapter 11. See, e.g., 11 U.S.C. § 1109(b) ("a party in interest ... may raise and may appear and be heard on any issue"). However, the term is not defined and the "determination calls for a case by case analysis, ... that takes into consideration ... 'the particular purposes of the provision in question.'" In re Peachtree Lane Assocs., Ltd., 188 B.R. 815, 824 (N.D. Ill. 1995) (comprehensive examination of the precedent on what satisfies the standard for being a party in interest); accord In re Johns-Manville Corp., 36 B.R. 743 (Bankr. S.D.N.Y. 1984) (party in interest "must be determined on an ad hoc basis"). It certainly includes creditors and shareholders but may not include a party with an indirect or remote interest. It is "'generally understood to include all persons whose pecuniary interests are directly affected by the bankruptcy proceedings.'" Thirteen Chapter 7 Cases Of Former Trustee Germain, 182 B.R. 375, 377-78 (Bankr. D. Conn. 1995) (quoting In re Hutchinson, 5 F.3d 750, 756 (4th Cir. 1993)). It also includes entities which are not creditors but which have a "practical" or "sufficient" stake in the outcome of the proceedings so that "fundamental fairness requires ... [they] be afforded an opportunity to be heard on the issues that affect them." Peachtree Lane Assocs., 188 B.R. at 827 (non-creditor which is the defendant in an adversary proceeding may challenge the venue of a bankruptcy case because the creditor "has a legally protectible interest in the venue of the adversary proceeding .... [which] in turn, gives them a direct interest in the proper venue of the underlying ... case ....").

J. The Securities and Exchange Commission

The SEC has the right to raise and appear on any issue in a chapter 11 case, but may not appeal from any adverse decision. 11 U.S.C. § 1109(a). However, the SEC's role in reorganization cases under the former Bankruptcy Act has been greatly reduced under the Bankruptcy Code. See generally SEC v. United States Realty & Improvement Co., 310 U.S. 434 (1940) (role of SEC under the Bankruptcy Act).

K. Individual Creditors

1. One purpose of bankruptcy is -- at least in theory -- creditor protection. The idea: once the petition is filed, creditors shouldn't be able to improve their positions but -- on the other hand -- their positions shouldn't be diminished. The Code protects creditors as well as the debtors by proscribing a creditor's gaining an advantage by making a quick grab for assets.
2. The Code, at least in theory, intends that a creditor's property interests be maintained. Thus, for example, a creditor may demand adequate protection if the trustee wants to use its property, 11 U.S.C. § 363, set off mutual debts with court permission, 11 U.S.C. § 553, or ask the court to compel the assumption or rejection of an executory contract, 11 U.S.C. § 365.
3. In addition, creditors having similar claims generally are treated similarly. A class of creditors having superior claims are provided priority treatment -- thus, e.g., unsecured creditors should be paid in full before equity holders are paid.

L. Federal Creditor AgenciesAll federal agencies are participants in bankruptcy proceedings. Agencies can have claims against, and debts to, corporations and persons in bankruptcy based on "garden variety" contractual relationships (i.e., a DOD contract with an airline for transport of military personnel or a contract with a shipbuilder for the construction of a Navy vessel), federal programs which result in contracts (i.e., Medicare contract between HHS and hospital or small business contract between SBA and contractor) or on a purely statutory relationship (i.e., tax obligation owed to IRS or tax overpayment owed to taxpayer). Contractual relationships also entangle federal agencies in bankruptcy proceedings to the extent that federal programs or needs are affected by protections given to bankrupt entities (i.e, automatic stay against termination of government contracts).

M. Individual Shareholders

Equity shareholders are players in bankruptcy proceedings, albeit players with little leverage. They usually recover little, if anything, of their investment.

N. The Bankruptcy Court

1. Bankruptcy Judges are appointed by the Circuit Courts of Appeals and serve fourteen year terms of office. 28 U.S.C. § 152. The bankruptcy court is an "adjunct" of the district court and has the authority to hear and decide cases arising under the Bankruptcy Code under the supervision of the district court. Cases are "referred" to the bankruptcy court by the district court through standing orders of referral. They are not Article III courts and have limited grants of jurisdiction. However, they also have considerable equitable powers. 11 U.S.C. § 105. Naturally, they have an obligation to report bankruptcy crimes. 18 U.S.C. § 3057.
2. The bankruptcy court has its own clerk and clerk's office staff. They can be a valuable source of documents and information.

O. The District Court

1. The district court has original and exclusive jurisdiction over all bankruptcy "cases," 28 U.S.C. § 1334(a), and over all property of the debtor and estate, 28 U.S.C. § 1334 (d). The district court has original but not exclusive jurisdiction over all "civil proceedings" arising under the Code, or arising in or related to a bankruptcy case. 28 U.S.C. § 1334(b). Proceedings arising under the Code are proceedings seeking relief affordable only under a substantive Bankruptcy Code provision; proceedings arising in a case under the Code are those involving the administration and structuring of the estate that would have no existence but for the bankruptcy case. The scope of "related to" cases is subject to controversy but is fairly broad.
2. As noted above while federal district courts have original jurisdiction, they rarely actually handle bankruptcy cases. Instead, by standing orders, they refer them to bankruptcy judges for handling. Thereafter, the district court's role is generally limited to hearing appeals from bankruptcy court orders although occasionally when important issues involving non-bankruptcy issues arise, the district court can "withdraw its reference" and hear a matter in the first instance.

P. Federal Investigatory Agencies

Various federal investigative agencies can be involved in bankruptcy proceedings, including "big picture" organizations such as the FBI and smaller agency organizations such as HHS's Office of Inspector General (healthcare fraud) or DOD's Office of Inspector General, the Army's Criminal Investigation Command, and the Air Force's Office of Special Investigations (contract fraud).

[updated November 1998] [cited in JM 4-4.410]