Those of us unfamiliar with the creation of the American court system, may be surprised to learn that there are actually two types of courts in state and federal jurisprudence: one of law and one of equity. Bankruptcy courts are courts of equity. This system has its origins in late Middle Ages in English jurisprudence.
Today’s bankruptcy courts are derived from the English Court of Chancery, which had jurisdiction over matters of equity. See Recent Bankruptcy Court Decisions of Statutory Interpretation Reiterate the Importance of Equitable Consideration in Bankruptcy Cases.
The Court of Chancery itself has its origin in religious ecclesiastical courts administered by the church. Today’s bankruptcy courts have no religious authority, of course, but still look for guidance to precedents of the English Court.
However, in our system, the concept of distinct courts of equity and courts of law is mostly obscured.[1] Domestic relations courts are an example, along with bankruptcy courts, which mostly sit in equity. Delaware specifically titles one of its courts “Court of Chancery.”[2] Some state courts also designate judge as “sitting in Chancery.”[3]
An issue which sometimes arises in bankruptcy is whether a jury trial is permitted. This issue arises because bankruptcy courts are courts of equity and bankruptcy judges are not Article III judges, with lifetime tenure.[4]
In the United States, 28 U.S.C. 157(e) “permits a non-article III bankruptcy judge to conduct a jury trial only when authorized by the district court and only when all of the parties to the litigation have consented.”[5]
The Constitution provides a right to a trial by jury in the Seventh Amendment.[6] The Supreme Court created a three-part test to determine whether a Seventh Amendment right to a jury trial may be permitted in a bankruptcy case over a fraudulent conveyance action in the case Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989). The Supreme Court established three steps to examine.
The Supreme Court explained that the analysis comprises of three steps. “First, we compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, we examine the remedy sought and determine whether it is legal or equitable in nature. If. . .these two factors indicate that a party is entitled to a jury trial under the Seventh Amendment, we must decide whether Congress may assign and has assigned resolution of the relevant claim to a non-Article III adjudicative body that does not use a jury as factfinder.”[7]
The Court explained that the second stage (determining whether the remedy sought is legal or equitable in nature), is more important than the first.[8]
The crux of the Supreme Court’s analysis relies on a combination of 18th-century English law and whether the remedy is legal or equitable in nature. Although the Supreme Court used this analysis on a fraudulent conveyance action, this analysis has been followed by other courts, including the Second and Seventh Circuits, regarding other causes of action.
For example, in Matter of Hallahan, the Seventh Circuit found that a debtor did not have a Seventh Amendment right to a jury trial in a dischargeability claim because such proceedings are equitable in nature and historically tried without juries in 18th-century English law.[9]
However, in Germaine v. Connecticut Nat. Bank, the Second Circuit upheld a Chapter 7 Trustee’s right to a jury trial for claims against a bank, which included claims for tortious interference and misrepresentation.[10] The Court explained that the Trustee’s action retained its legal character and was not transformed into an equitable issue merely because it arose during bankruptcy proceedings.[11]
As we can see, whether a jury trial may be permitted on certain causes of action in the bankruptcy court is analyzed on a case by case basis. However, despite the ever-evolving changes in the law, the Court continues to go back to its roots found in English Law.
Please note this is a general overview of developments in the law and does not constitute legal advice. Nothing herein creates an attorney-client relationship between the sender and the recipient. If you have any questions regarding the provisions discussed above, or any other aspect of bankruptcy law, please contact Michael H. Traison (mtraison@cullenllp.com) at 312.860.4230 or Kelly McNamee (kmcnamee@cullenllp.com) at 516.296.9166.
Thank you to Sharlene Cubelo, a Law Clerk pending New York bar admission, who assisted in the preparation of this alert.
Footnotes
[1] It should be noted that Delaware still has Courts of Chancery, and the courts have continued to “adapt principles of equity developed centuries ago to ever-changing circumstances and relationships.” See A Short History of the Court of Chancery - Court of Chancery - Delaware Courts - State of Delaware (June 14, 2025).
[2] Id.
[3] See About the Courts - State of Mississippi Judiciary (June 16, 2025).
[4] As a reminder, Article III judges are nominated by the President and confirmed by the U.S. Senate. Article III of the United States Constitution “governs the appointment, tenure, and payment of Supreme Court justices, and federal circuit and district judges.” See https://www.uccourts.gov/about-federal-courts/types-federal-judges (June 12, 2025) . Bankruptcy judges are not considered Article III judges as they are appointed by the U.S Court of Appeals for each circuit and do not have the same protections as an Article III judge. See https//www.fjc.gov/node/7486.
[5] 1 Collier on Bankruptcy P. 3.08; See also 28 U.S.C. § 157(e).
[6] U.S. Const. Amendment VII.
[7] Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42 (1989).
[8] Id.
[9] Matter of Hallahan, 936 F.2d 1496, 1505-06 (7th Cir. 1991).
[10] Germain v. Connecticut Nat. Bank, 988 F.2d 1323, 1325 (2d Cir. 1993).
[11] Id. at 1329.