US Courts Weigh Arbitration’s Rising Role in Bankruptcy Disputes

As more distressed borrowers enter bankruptcy with arbitration clauses in their financial agreements, judges are weighing whether such disputes can proceed before arbitrators or remain under the court’s control.

Arbitration and bankruptcy rules, the products of federal laws enacted decades apart, can be at odds. Allowing arbitration in a bankruptcy case could reshape the landscape and influence how quickly certain matters are resolved.

The Federal Arbitration Act establishes a national policy favoring arbitration when parties have agreed to it. The US bankruptcy code, by contrast, is designed to provide a collective, centralized resolution of a debtor’s financial affairs.

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