On September 27, 2017, the Senate passed the Bankruptcy Judgeship Act of 2017. The Senate’s bill is intended to ease the burden on certain overworked bankruptcy courts and also increase bankruptcy fees in larger cases. The House of Representatives passed a different version of the bill earlier in the year.
The process to increase bankruptcy judicial resources began last April when the Secretary for the Judicial Conference of the United States sent a letter to Speaker of the House Paul Ryan recommending that Congress authorize four additional permanent bankruptcy judgeships and convert 14 existing temporary judgeships to permanent status. The request was an effort to stave off the potentially crippling impact on the bankruptcy system if certain temporary judgeships were permitted to lapse. The Judicial Conference focused on Delaware as an example, indicating that five of those six judgeships were temporary and at risk of expiration in 2017.
Title 28, section 152 of the United States Code addresses the appointment of bankruptcy judges. Subsection (a) outlines how many judgeships are authorized in each federal district while subsection (b) directs the Judicial Conference of the United States to, among other things, submit recommendations to Congress regarding the number of bankruptcy judges needed and the districts in which such judges are needed. Following a formal survey of all judicial circuits, the Judicial Conference determined where resources were most needed based on criteria including court’s workload, case filing statistics, and geographic needs. The Judicial Conference’s April recommendation explained that although bankruptcy filings have been declining nationally in recent years, the districts included in the recommendations have seen significant increases in filings, straining judicial resources. The last time that additional bankruptcy judicial resources were authorized was in conjunction with passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and since then, the affected districts have seen weighted filings increase by 55 percent.
The original request in April was for the conversion of 14 temporary judgeships to permanent status and the addition of four permanent judgeships. In response, the House of Representatives passed HR 2266 on May 17, 2017, essentially granting the Judicial Conference’s request. Since then, the Senate has seen several different versions of the House Bill introduced. Senator Grassley, chair of the Judiciary Committee, offered the most recent version that was passed on September 27. The Senate version only extends the 14 temporary judgeships for five years, rather than converting each to a permanent position, as originally requested, and adds another four temporary five-year judgeships. Under the Senate’s bill, Delaware, Florida, Maryland, Michigan, Nevada, North Carolina, Puerto Rico, and Virginia will have their temporary judgeships extended while Delaware (2), the Middle District of Florida, and Eastern District of Michigan will receive new temporary five-year judgeships.
In addition to adding judicial resources, both the House and the Senate bills propose to authorize an increase in quarterly United States Trustee fees, but again the Senate version is temporary for five years. Under the fee proposal, if the balance of the United States Trustee System Fund as of September 30th of the most recent full fiscal year is less than $200 million, the quarterly fee payable in any quarter where a debtor’s disbursements are $1 million or more will be the lesser of 1 percent of the disbursements or $250,000. By way of example, under the current structure, $1 million and $30 million distributions would be subject to a $6,500 and $30,000 fee, respectively; while under the new proposal, those fees would be $10,000 and $250,000, respectively. In the event that the United States Trustee System Fund is running low, the cost to debtors (and creditors) in lager bankruptcies could be substantial.
The Senate and House versions of the Bankruptcy Judgeship Act of 2017 must now be conferenced to reconcile their differences. If successfully conferenced, and if President Trump signs the conferenced bill, overworked districts will see at least a temporary reprieve and larger bankruptcy cases may (again temporarily) be met with higher quarterly fees.