The Abstention Factor in Bankruptcy Proceedings
As you prepare to present documentation to the bankruptcy court for your client, be aware of the fact that the court does have the authority to abstain from hearing issues presented in the bankruptcy case or the whole case entirely. This action is called an abstention and this authority is granted to the bankruptcy court under Title 11, United States Code, Section 305. As a practitioner, it is essential that you understand the concept of the abstention. Get ready for your crash course.
The Motion
The motion for an abstention by the bankruptcy court must be filed within 20 days following the date of the first meeting of creditors. If the motion to abstain is for an adversary proceeding, the filing deadline is not later than the date for filing an answer or within 20 days from the filing of an application for removal.
Types of Abstentions
There are two types of abstentions the bankruptcy court may grant - a mandatory abstention or a discretionary abstention.
Mandatory Abstention: If there is an issue before the bankruptcy court based upon a state law cause of action, you may want to move for a mandatory abstention if:
- The action is related to the bankruptcy case, but does not arise under Title 11;
- The action could not have been brought in federal court, but for the bankruptcy; and
- The proceeding is commenced, and can be timely adjudicated in a state forum.
Prior to making a decision on the mandatory abstention, the court must first decide if the issue presented is non-core in nature.
Discretionary Abstention: Under 28 U.S.C. Section 1334(c)(1), the discretionary abstention will apply to all categories of civil proceedings. The bankruptcy court will look (using a flexible standard) to see if a particular proceeding would be handled best outside its jurisdiction. The discretionary abstention is applicable to both core and non-core matters before the court.
The majority of bankruptcy courts follow the philosophy that the abstention should only be granted where the suspension of the action is in the best interest of the debtor(s) and the creditors. So, if you are preparing to present a Motion for Abstention to the court or submitting an objection, it is best to weigh all factors that could possibly affect the court's decision.
