Courts have been finding ways to avoid hearing bankruptcy cases for a long time. This practice distinguishes bankruptcy from other types of federal cases. The federal district courts operate under the twin principles that they are courts of limited jurisdiction and have a “virtually unflagging” obligation to exercise it. But those twin principles are inverted in bankruptcy. That is because bankruptcy courts do more than just resolve disputes; they solve problems.
Bankruptcy jurisdiction is expansive and dramatic. When a debtor commences a bankruptcy case, the bankruptcy court has jurisdiction not only over the case itself and proceedings “arising in” the case, but also a broad swath of cases “related to” the bankruptcy proceedings. Yet, unlike their district court relatives, bankruptcy courts have much broader authority to dismiss or abstain from hearing cases before them, as well as to reshape the contours of a bankruptcy case by lifting the stay or by allowing custodians to maintain control of property of the estate.
Bankruptcy courts wield that authority in a host of pragmatic, equitable, and surprising ways: pulling back when the case lacks a bankruptcy purpose, policing against a range of forum-shopping practices, abstaining when other insolvency proceedings are underway, and (most strikingly) stepping back when debtors and creditors are engaged in informal, out-of-court workouts. This Article refers to all these abstention or abstention-adjacent decisions as “bankruptcy abstention,” a mix of permissive and mandatory rules that provide contours to the jurisdiction of the bankruptcy courts by limning out bankruptcy’s “negative spaces.”
This Article maps out three situations when the bankruptcy courts pull back, explores what this unusual practice tells us about bankruptcy as an area of law, suggests how bankruptcy abstention might be refined, and proposes some lessons about the nature of courts along the way. While federalism principles can explain much of bankruptcy abstention, bankruptcy courts also pull back from re-adjudicating out-of-court workouts that they deem fair and efficient — even when the matters have not yet seen the inside of a courtroom. Bankruptcy courts also pull back when they perceive that the tools at their disposal are a poor fit for the problem they are being asked to solve. Bankruptcy abstention thus goes beyond federalism principles and demonstrates the character of the bankruptcy courts as courts of equity — courts that nurture what Alexander Bickel called the “passive virtues.” The Article suggests that we can rethink some of bankruptcy’s most contentious doctrines through that lens, coins the phrase “bankruptcy ripeness,” and provides new insight into the debate over bankruptcy exceptionalism. This reframing can, in turn, suggest guidance to attorneys, judges, and policymakers for how best to fine-tune the bankruptcy system — as well as provide lessons for other courts of equity in the American legal system. Finally, the Article proposes that bankruptcy abstention represents a new battlefield for old debates about bankruptcy theory and suggests that bankruptcy scholars think of institutionalism as a third way of theorizing bankruptcy law.
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