Can Bankruptcy Courts Override Arbitration Agreements? Supreme Court Will Decide
On Friday, Nov. 6, the U.S. Supreme Court agreed to hear a case about when a bankruptcy court can set aside the Federal Arbitration Act and refuse to enforce an arbitration agreement. The case, Goldman Sachs Bank USA v. Brown, No. 25-1408, asks the Court for guidance on how far the Federal Arbitration Act reaches.
The question, in Goldman’s words, is “[w]hether, and under what circumstances, a bankruptcy court may override the FAA and refuse to honor a valid arbitration agreement with respect to [11 U.S.C.] Section 362(k) claims.” (Cert. Pet. i.) In plain terms, the Fourth U.S. Circuit Court of Appeals held that debtors’ private damages claims for violating the bankruptcy automatic stay cannot be sent to arbitration, no matter what the parties’ contract says, because it would “interfere and conflict with the strong and established policies and purposes of the Bankruptcy Code.” Goldman Sachs Bank USA v. Brown, 170 F.4th 249 (4th Cir. 2026) (available at https://bit.ly/4iFBnG7).
The dispute started with two Apple Card holders, Rhea Ann Brown and Gregory Kevin Maze. The cards are issued by Goldman Sachs Bank USA, where issuance is contingent on a customer agreement with an arbitration clause. After filing for bankruptcy in 2023, both Brown and Maze alleged that Goldman Sachs continued attempting to collect their pre-bankruptcy debts.
Under 11 U.S.C. § 362, filing for bankruptcy generally triggers an automatic stay, which prohibits creditors from taking certain collection actions against debtors. Brown and Maze filed suit under 11 U.S.C. § 362(k), seeking injunctive relief, damages, and other relief for alleged violations of the stay. They also sought to represent a proposed class of similarly situated debtors. (Pet. at 4–7.)
Goldman moved to compel arbitration, relying on the arbitration clauses in the customers' credit card agreements. The bankruptcy court denied the motion, and the district court affirmed. In March 2026, a divided Fourth Circuit panel also ruled against Goldman, concluding that arbitration would conflict with the Bankruptcy Code's purposes.
In its petition, Goldman argues that the Fourth Circuit's decision conflicts with the Second Circuit's ruling in MBNA America Bank N.A. v. Hill, 436 F.3d 104 (2d Cir. 2006), which allowed a bankruptcy-related stay claim to proceed in arbitration. Goldman further argues that the Fourth Circuit improperly allowed general bankruptcy policies to override the FAA without a clear congressional directive. Furthermore, Goldman maintains that Congress must provide a “clear and manifest” command before another federal statute can displace the FAA.
Brown and Maze oppose Goldman's position, arguing that arbitration would undermine bankruptcy courts' authority to enforce the automatic stay and protect debtors from continued collection efforts.
The Court's decision could have implications beyond this dispute, particularly for consumer credit agreements that routinely include arbitration provisions. Goldman warns in its petition that the Fourth Circuit's decision “imperils the enforceability of arbitration agreements” in consumer bankruptcy cases. (Pet. at 33.) The Court's ruling will help clarify how federal arbitration law applies in creditors’ bankruptcy rights cases.
The case is not yet scheduled, but is expected to be heard in the current Court term, during a session in 2027, and decided before the term ends next June.
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The author is the CPR Institute’s 2026-2027 academic year intern from the Howard University School of Law ADR Program in Washington, D.C., where she is a second-year student.
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