How Judges Are Assigned to Chapter 11 Bankruptcy
Judges are assigned to Chapter 11 bankruptcies through a process that is intended to be random and impartial. However, recent research has suggested that this process may not always be as random as claimed.
Official Process:
- Random Assignment: The official stance is that judges are randomly assigned to bankruptcy cases to ensure fairness and prevent forum shopping. 14
- Court Procedures: Each bankruptcy court has its own procedures for assigning cases, but the principle of random assignment is generally upheld to maintain the integrity of the judicial process.
Challenges to Random Assignment:
- Research Findings: A study analyzing US corporate bankruptcy filings between 2010 and 2020 found evidence that the assignment of judges to Chapter 11 cases may not be entirely random. The research suggested that hedge funds can influence judicial assignments based on their lending decisions, indicating a potential bias in the system. 7
- Influence of Hedge Funds: The study showed that unsecured hedge fund creditors are more likely to be assigned judges with a history of favorable outcomes for unsecured creditors, such as higher recovery rates and a lower likelihood of converting Chapter 11 cases to Chapter 7 liquidations.
Policy Implications:
- Randomization: To address these concerns, policymakers could implement a truly randomized process for assigning judges to bankruptcy cases.
- Increasing Judge Numbers: Another proposal is to increase the number of bankruptcy judges, which could reduce predictability and make the system fairer even if assignment is not fully randomized. 7