Uncertainty lurks at the crossroads of arbitration and bankruptcy law. It is well settled that bankruptcy courts will permit arbitration of non-bankruptcy issues, but when it comes to "core" issues arising under bankruptcy law, the line becomes blurred. The overall arbitrability of bankruptcy issues is unpredictable, and recent case law highlights the tension between the policies underlying federal bankruptcy law and arbitration: bankruptcy courts attempt to apply the strong public policy in favor of arbitration, but recognize that such public policy must have its limits when bankruptcy principles are the predominant issue before the court.
Primer
Members of the legal community generally appreciate the benefits of arbitration, which is a speedy and cost-effective alternative to litigation. In 1925, Congress enacted the Federal Arbitration Act,1 codifying a now longstanding policy preference in favor of arbitration. The Federal Arbitration Act requires courts to honor arbitration agreements,2 and the U.S. Supreme Court has repeatedly enforced this mandate.3 The bankruptcy process, however, presents unique circumstances that may tilt the scales against favoring arbitration.
