By Ed Boltz, 30 March, 2026

Available at: https://ssrn.com/abstract=6198338

Abstract:

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 cousins, 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.

Summary:

Christopher Hampson’s article, “Bankruptcy Abstention,” explores a paradox that anyone practicing in bankruptcy court quickly learns: bankruptcy courts possess some of the broadest jurisdiction in the federal system, yet they also exercise extraordinary discretion to decline hearing cases altogether.

Unlike ordinary federal courts—where judges have a “virtually unflagging obligation” to exercise jurisdiction—bankruptcy courts routinely dismiss, abstain, lift the stay, or otherwise step back when they believe bankruptcy is the wrong forum or the wrong time.

Hampson argues that this pattern reflects the distinctive character of bankruptcy courts. They are not merely adjudicating disputes between parties; they are problem-solving courts, and when bankruptcy is not the right tool for the problem, judges often decline to proceed.

The article identifies three primary situations where bankruptcy courts “pull back.”

1. When the Case Lacks a Bankruptcy Purpose

Bankruptcy is designed to address two basic problems:

debtors who cannot pay, or
debtors who will not pay.

When neither condition exists, courts may conclude that bankruptcy is being used for something else—often tactical litigation advantage.

For example, courts have increasingly scrutinized filings by solvent debtors, particularly in large corporate restructurings.

The Third Circuit’s decision in In re LTL Management illustrates the point. There, Johnson & Johnson attempted a “Texas Two-Step” restructuring, placing mass-tort liabilities into a subsidiary that then filed bankruptcy. The court dismissed the case, holding that bankruptcy requires real and immediate financial distress, not simply a strategic attempt to manage litigation.

Hampson suggests that courts might better frame these cases not as bad-faith filings under §1112, but as abstention decisions under §305, which explicitly allows dismissal when the interests of creditors and the debtor would be better served outside bankruptcy.

2. When Bankruptcy Cannot Solve the Problem (Futility)

Bankruptcy courts also step aside when reorganization is impossible or pointless.

If a debtor has:

no viable business,
no meaningful assets,
or no realistic prospect of confirming a plan,

the court may dismiss the case rather than supervise a doomed restructuring.

Futility can also arise at the asset level. When collateral is fully encumbered and not necessary for reorganization, the Bankruptcy Code requires lifting the automatic stay to allow foreclosure.

When enough of the debtor’s assets fall into that category, continuing the case makes little sense.

In short, if bankruptcy cannot produce a better outcome than state law remedies, the court may simply decline to host the process.

3. When Bankruptcy Is Being Used for Forum Shopping

Another recurring theme is forum shopping.

Courts may abstain when bankruptcy is used to evade:

state court litigation,
regulatory enforcement,
multidistrict litigation,
or other insolvency proceedings such as receiverships or assignments for the benefit of creditors.

In those situations, bankruptcy judges sometimes conclude that the filing is less about restructuring debt and more about changing the playing field.

4. When the Parties Are Already Working It Out

Perhaps the most surprising category arises when creditors and debtors are successfully negotiating outside bankruptcy.

Courts have occasionally abstained when:

a consensual workout is underway, and
bankruptcy would only disrupt an efficient private restructuring.

The idea is simple: if the parties are solving the problem themselves, there may be no need for the court’s intervention.

Commentary

Hampson’s article highlights something practitioners often sense intuitively but rarely articulate: bankruptcy courts regulate not only what happens inside bankruptcy, but also when bankruptcy should not happen at all.

Several observations stand out.

1. Bankruptcy Judges Act Like Institutional Gatekeepers

Unlike ordinary federal courts, bankruptcy judges routinely ask a threshold question:

Is bankruptcy actually the right forum for this dispute?

If the answer is no, the court may dismiss the case, abstain, lift the stay, or simply allow another forum to proceed.

That flexibility reflects the hybrid nature of bankruptcy courts as both statutory courts and courts of equity.

2. Abstention Is the “Negative Space” of Bankruptcy Law

Most scholarship focuses on the tools bankruptcy courts use:

the automatic stay
cramdown
avoidance powers
discharge.

Hampson instead focuses on what courts do when they decline to use those tools.

Those abstention decisions often shape the bankruptcy system just as much as the cases that proceed.

3. The Debate Over “Financial Distress” Is Just Beginning

The most contentious modern battleground involves solvent debtor filings, particularly in mass-tort restructurings.

The Third Circuit’s decision in LTL Management imposed a financial-distress requirement that does not appear explicitly in the Bankruptcy Code.

Meanwhile, the Fourth Circuit recently rejected a constitutional insolvency requirement in the Bestwall asbestos case—though the issue may not be settled.

Expect this debate to continue.

4. Consumer Bankruptcy Raises Different Issues

Hampson focuses primarily on business bankruptcies, and that limitation is important.

Consumer bankruptcy rarely presents the same abstention concerns because individuals generally cannot resolve their debts through:

receiverships,
assignments for the benefit of creditors, or
out-of-court workouts.

For most consumers, bankruptcy remains the only practical path to a discharge.

Bottom Line

Hampson’s article reminds us that bankruptcy courts wield not only powerful restructuring tools but also powerful brakes.

They intervene when bankruptcy is necessary to resolve financial distress.
But when the case is unnecessary, premature, or tactical, bankruptcy courts may simply step aside.

In that sense, the real lesson of bankruptcy abstention may be this: