The Forced Use of Inadmissible Hearsay Evidence in Bankruptcy Court

Abstract

In bankruptcy courts across the land, the hearsay rule is violated daily. Bankruptcy courts have created a huge, largely undefended, de facto hearsay exception. In those courts it is common practice to receive evidence via affidavit. The practice may vary from one district to the next, but typically it is this: As long as the witness is available for cross-examination and redirect, the court can order that the witness’s direct testimony be received in the form of an affidavit - and can do so over objection. The affidavit and the promise of redirect replace direct examination. The hearsay rule applies in proceedings “before United States bankruptcy judges.” The affidavit is, of course, an out-of-court statement and here it is offered to prove the truth of the matter asserted. It most certainly is hearsay. Nonetheless, bankruptcy judges typically allow, and even order, testimony submitted by affidavit. If the parties agree to submit testimony by affidavit, then there is no error. If evidence is submitted via affidavit and there is no timely and specific objection, then there is no reviewable error. Bankruptcy courts can grant summary judgment if affidavits are submitted in support of a motion for summary judgment and the affidavits do not raise any issues of material fact. This Article is not about any of that. It is about the practice in bankruptcy court that the parties can be ordered to submit a witness’s evidence via affidavit, even over a timely and specific hearsay objection, and the judge can base the judgment on that affidavit evidence. It is also about the implications this has for all other federal trial courts.

Keywords: Bankruptcy, evidence, hearsay, affidavit, hearsay exception

JEL Classification: K40, K41