Legal Definitions - core proceeding

A core proceeding in bankruptcy law refers to a legal action or dispute that is central and fundamental to the administration of a bankruptcy case. These proceedings directly involve the debtor, their creditors, and the assets of the bankruptcy estate. Because they are so integral to the bankruptcy process, a bankruptcy court has the full authority to hear these matters, conduct trials, and issue final judgments, rather than simply making recommendations to a higher court.

Here are some examples to illustrate what constitutes a core proceeding:

• Determining the Validity of a Creditor's Claim: Imagine a small business files for bankruptcy. One of its suppliers submits a claim for a large sum, but the bankrupt business disputes the amount, arguing that some invoices were for goods never received. This dispute over the validity and amount of the supplier's claim is a core proceeding.

  How it illustrates the term: This matter directly impacts how much money will be distributed from the bankruptcy estate and to whom. The bankruptcy court must resolve this dispute to properly manage the estate and ensure a fair distribution among all creditors, making it central to the bankruptcy process.

• Authorizing the Sale of Major Assets: A bankrupt real estate development company owns several undeveloped land parcels. To generate funds to pay its creditors, the company proposes to sell one of its most valuable properties. A group of creditors objects, believing the proposed sale price is too low.

  How it illustrates the term: The sale of significant assets belonging to the bankruptcy estate is a core proceeding. The bankruptcy court has direct oversight to ensure the sale is conducted properly, at a fair market value, and in the best interest of all creditors, as it directly affects the funds available for distribution.

• Deciding on a Debtor's Discharge: An individual files for Chapter 7 bankruptcy, seeking to be released from their debts. However, a bank, which holds a substantial loan, files an objection, alleging that the debtor intentionally concealed assets before filing for bankruptcy.

  How it illustrates the term: The question of whether a debtor qualifies for a discharge – the legal release from their debts – is a core proceeding. This issue is fundamental to the purpose of bankruptcy law, and the bankruptcy court must determine if the debtor has met all requirements and has not engaged in any conduct that would prevent them from receiving a discharge.