The Federal Arbitration Act (FAA) was enacted to require courts to enforce parties’ contractual agreements to arbitrate disputes. In bankruptcy cases. judges will consider if sending parties to arbitration in light of the specific claims asserted conflicts with bankruptcy jurisdictional rules.
A recurring issue that litigants raise is whether a conflict exists between the FAA and requirements of the U.S. Bankruptcy Code. For instance, courts wrestle with how the assertion of bankruptcy-derived core claims and non-bankruptcy noncore claims impacts whether they should enforce an arbitration clause.
Core claims are those that derive from the Bankruptcy Code, such federal fraudulent transfer claims. Noncore claims are those that would exist between parties even outside of bankruptcy, such as breach of contract claims governed by state law.
Bankruptcy judges can issue final judgments on core claims, but not on noncore claims absent parties’ consent. On noncore claims, bankruptcy judges make recommended findings to the federal district court for a final running.
Typically, judges are less likely to yield jurisdiction to arbitration over core matters than noncore matters. But the core vs. noncore distinction is not dispositive. Judicial discretion matters.
If jurisdictional concerns are satisfied, courts also analyze if the parties seeking to arbitrate claims have the authority to pursue them.
That leads to this question: can a debtor in bankruptcy lack authority to arbitrate core bankruptcy claims when it is a party to a valid agreement to arbitrate?
Consider what occurred in a recent case in Illinois. In re Acjk, Inc., Adv. P. Nos. 25-03000 and 25-03008, 2026 Bankr. LEXIS 450 (Bankr. S.D. Ill. Feb. 23, 2026).
The debtor filed chapter 11 in January 2023 and confirmed a plan in March 2024. The plan set up a litigation fund for the debtor to pursue causes of action.
In January 2025, the debtor filed an adversary complaint against several entities. The complaint asserted the following claims: fraudulent conveyance under Bankruptcy Code section 548, state law fraudulent conveyance claims under Bankruptcy Code section 544, improper post-petition transfers under Bankruptcy Code section 549, turnover under Bankruptcy Code sections 542 and 550. Defendants moved to compel arbitration.
The court noted that even if some of the claims asserted were noncore, the court had the statutory authority to resolve “preliminary matters” that do not result in final judgments.
“The authority to enter orders on such preliminary matters includes determinations of whether an enforceable arbitration clause governs.” 2026 Bankr. LEXIS 450, at *10-11, citing Lordstown Motors Corp. v. Hon Hai Precision Indus. Co. (In re Nu Ride Inc.), 666 B.R. 510 512 (Bankr. D. Del. 2024); Johnson v. S.A.I.L. Inc. (In re Johnson), 649 B.R. 735, 741 (Bankr. N.D. Ill. 2023); In re EPD Inv. Co., 821 F.3d 1146, 1151 (9th Cir. 2016). The court concluded that the parties had entered into a valid agreement to arbitrate.
The debtor-plaintiff opposed arbitration, asserting an inherent conflict between the FAA and the Bankruptcy Code. But the court put aside that argument to address another issue: was the debtor entitled to arbitrate the claims it had asserted in its adversary proceeding?
All the claims asserted were bankruptcy avoidance claims: federal and state law fraudulent transfer claims, improper post-petition transfer claims, and Bankruptcy Code turnover claims.
Those claims belong to bankruptcy trustees and creditors. The Bankruptcy Code allows debtors in possession in a bankruptcy case (to be distinguished from the debtor itself) to assert those avoidance claims as if standing in the shoes of bankruptcy trustees and creditors.
Significantly, the court in In re Acjk observed that trustees and creditors were not parties to the arbitration agreement. The debtor was “not bound by the arbitration agreement for purposes of the claims asserted in these proceedings.” 2026 Bankr. LEXIS 450, at *21.
As a result of this analysis, the court denied the motions to compel arbitration. The debtor could not be forced to arbitrate claims that belonged to other entities that were not parties to the arbitration agreement.
The court summed up its ruling this way: “The claims asserted against the Defendants are derived from the Bankruptcy Code and may only be brought by a trustee or debtor in possession on behalf of the Debtor’s creditors. As neither the creditors nor the trustee in whose shoes the Debtor stands were parties to the Debtor’s prepetition agreement to arbitrate disputes, they are not bound by the agreement and the Debtor therefore cannot be compelled to arbitrate the claims asserted on their behalf.” Id., at *23-24.
Having reached this decision, the court did not need to consider the debtor’s argument that an inherent conflict exists between the FAA and the Bankruptcy Code. The debtor was allowed to pursue its claims against the defendants in an adversary proceeding.
