Wednesday, July 29, 2015

Choice of Law in a Bankruptcy Case

When a person files for bankruptcy in Florida and owes a gambling debt in Nevada, which state's law apply in determining the various issues about the claim for gambling debt? In the bankruptcy case there may be issues as to the allowability of the claim or whether the claim should be dischargeable or nondischargeable?  A 2006 Florida bankruptcy ruling dealt with this issue.

The Bankruptcy Court reviewed that normally a federal court hearing a matter pursuant to diversity jurisdiction must apply the law of the state in which it sits, but that such rule does not apply to a bankruptcy court as it is not sitting as a federal court with jurisdiction based on diversity. The bankruptcy court reviewed that the choice of which state's law applies should in part be based on which state's law more logically relates to the claim and the "significant relationship" test.