Consumer Bankruptcy

Proposal #6: Continued Evaluation of Bankruptcy Fee Waiver Program

During a plenary session at the Commission’s June, 1997 meeting, the Commission heard testimony on the Congressionally-mandated bankruptcy fee waiver pilot program, [ FN: "The Judicial Conference of the United States shall carry out in not more than six judicial districts, throughout the 3-year period beginning on October 1, 1994, a program under which fees payable under section 1930 of title 28, United States Code, may be waived in cases under chapter 7 of title 11, United States Code, for debtors who are individuals unable to pay such fees in installments. " P.L. 103-121, §111(d) (October 27, 1993).] which was implemented by the Judicial Conference of the United States and is being evaluated by the Federal Judicial Center. The Federal Judicial Center has issued an interim report, to be followed by a final report that the Judicial Conference is scheduled to submit to Congress in April, 1998. The interim report and the feedback from the bench and bar that have been involved with the pilot program suggest that the program and its costs and benefits warrant serious consideration.

The Recommendation

The Commission should recommend that Congress continue its consideration of a bankruptcy fee waiver program in light of the ultimate findings and conclusions of the study of the pilot fee waiver program overseen by the Committee on the Administration of the Bankruptcy System of the Judicial Conference and conducted by the Federal Judicial Center.

Reason for the Recommendation

To prevent citizens from being denied access to courts of the United States solely because of poverty, [ FN: Denton v. Hernandez, 112 S. Ct. 1728, 1733 (1992), citing Adkins v. E.I. DuPont de Nemours & Co., 335 U.S. 331, 342 (1948). ] Congress has provided that indigent individuals can file civil actions in federal courts without paying the filing fee by submitting an affidavit showing their inability to pay the fee. [ FN: 28 U.S.C. §1915. ] Bankruptcy petition filing fees are excluded from the scope of this fee waiver provision. [ FN: 28 U.S.C. §1930. However, parties may be able to waive the filing fee for adversary proceedings. See, e.g.,In re McGinnis, 155 B.R. 294 (Bankr. D. N.H. 1993)(waiving fee for non-debtor party to file nondischargeability action against debtor). But seeIn re Perroton, 958 F.2d 889 (9th Cir. 1992) (affirming BAP ’s dismissal of debtor ’s appeal for failure to pay appellate filing fees because bankruptcy court was not "Court of the United States " and thus did not have power to waive fees under 28 U.S.C. §1915(a)).] The United States Supreme Court held in 1973 that the bankruptcy court was not empowered to waive bankruptcy filing fees and that an individual had no fundamental right to file a bankruptcypetition. [ FN: United States v. Kras, 409 U.S. 434 (1973). In a strong dissent, Justice Marshall stated that "I find nothing in the majority ’s opinion to convince me that due process is afforded a person who cannot receive a discharge in bankruptcy because he is too poor. " Id. at 460 (Marshall, J., dissenting).] Shortly after the Supreme Court issued that decision, the Commission on the Bankruptcy Laws of the United States recommended that indigent debtors be authorized to file bankruptcy petitions in forma pauperis because "it is anomalous that the benefits of the [Bankruptcy] Act should be denied to one because he is so bankrupt that he lacks even the fee." [ FN: Report of the Commission on the Bankruptcy Laws of the United States, H.R. Doc. No. 93-137, 93d Cong., 1st Sess., Part I, 9 (1973).] A subsequent House bill contained a provision authorizing in forma pauperis filings, the Senate version did not, [ FN: See generally Henry J. Sommer, "In Forma Pauperis in Bankruptcy: The Time Has Long Since Come, " 2 Am. Bankr. Inst. L. Rev. 93, 95 (1994).] and the Bankruptcy Reform Act of 1978 ultimately did not include an authorization for in forma pauperis bankruptcy filings. [ FN: "Notwithstanding section 1915 of this title, the parties commencing a case under title 11 shall pay to the clerk of the district court or the clerk of the bankruptcy court . . . the following fees. " 28 U.S.C. §1930.] The issue was raised again in 1983, but no provision was included the Bankruptcy Amendments and Federal Judgeship Act of 1984. [ FN: S. Rep. No. 333, 98th Cong., 1st Sess. (1983), cited in Michael C. Markham & Bethann Scharrer, "In Forma Pauperis: An Unnecessary Privilege In Bankruptcy, " 2 Am. Bankr. Inst. L. Rev. 73, 76 (1994).] The Bankruptcy Code and Federal Rules of Bankruptcy Procedure permit individual debtors to pay the filing fee in installments under certain circumstances. [ FN: "An individual commencing a voluntary case or a joint case under title 11 may pay such fee in installments. " 28 U.S.C. §1930(a)(6). See also Fed. R. Bankr. P. 1006(b) (delineating procedure for accepting application to pay filing fee in installments).] Apparently, judicial districts differ in their interpretation of the requirements for such installment payments, which makes the financial prerequisite to filing for bankruptcy less onerous in some districts than others.

In the appropriation bill for the judiciary for fiscal year 1994, Congress directed the Judicial Conference of the United States to create a pilot program, which is scheduled to conclude in October, 1997, and to study the effect of waiving the filing fee for individual chapter 7 debtors. [ FN: See supra, note 1.] The Committee on the Administration of the Bankruptcy System has overseen the implementation of the six-district pilot program, and the Judicial Conference will submit a final report to Congress on the program by March of 1998. In the meantime, the Federal Judicial Center has been conducting an evaluation of the program for the Committee and has issued a preliminary interim report. In addition to providing preliminary findings, the interim report includes a discussion of the factors to be considered when attempting to forecast the implications of a nationwide fee waiver system, such as the overall increase in bankruptcy filings, changes in courts’ standards for waiver eligibility, and interdistrict disparities. It also delineates a broadcross-section of considerations essential for any assessment of the true costs and benefits of a nationwide bankruptcy in forma pauperis program.

Bankruptcy court access by impoverished individuals is a subject of tremendous relevance in any discussion of the consumer bankruptcy system. The empirical feedback from the pilot districts and the intensive and detailed study undertaken by the Federal Judicial Center should be studied carefully when Congress ultimately considers whether to enact a fee waiver authorization for bankruptcy petition filings.