Statement on Issues Related to the U.S. Trustee Program
Subcommittee on Commercial & Administrative
House Committee on the Judiciary
October 9, 1997
ABI Vice PresidentResearch
Elsaesser, Jarzabek & Anderson Chtd.
Web posted and Copyright © October 8, 1997, American Bankruptcy
Mr. Chairman and members of the Subcommittee, my name is Ford Elsaesser, a member of the
firm of Elsaesser, Jarzabek & Anderson in Sandpoint, Idaho and the Vice President for
Research of the American Bankruptcy Institute (ABI). The ABI is the nations largest
organization of bankruptcy and insolvency professionals, with nearly 5,800 members
attorneys, accountants, trustees, judges, lenders, academics and others with an interest in the
bankruptcy system. The ABI is non-profit and non-partisan, and we generally take no advocacy
positions before Congress, although we frequently are asked to testify in an effort to assist your
understanding of bankruptcy issues and trends. To the extent I provide an opinion on the
operation of the U.S. Trustee System, I am speaking as a practicing lawyer and panel trustee,
rather than providing an official ABI position.
The ABI is the current recipient of a grant of less than $50,000 from the State Justice
Institute, to provide educational programs on bankruptcy law for state court judges. This grant
expires in 1997.
The U.S. Trustee System
The U.S. Trustee System was created by Congress as part of the Bankruptcy Reform Act of
1978. [ FN: P.L. 95-593, 92 Stat. 1549
(1978) ( "The Bankruptcy Code ").] Congress emphasis in
transferring certain administrative functions from the bankruptcy judges to that of a separate
entity within the Department of Justice was to enhance the integrity of the bankruptcy courts and
to improve their efficiency. [ FN: See H.R.
Rep. No. 595, 95 th Cong., 2d Sess. 88-89 (1978).] A pilot U.S. Trustee
program was created in 18 of the 94 federal judicial districts. The purpose of the pilot was to
measure the effects of the program before implementing the system nationwide.
After approximately six years of operation under the pilot program, Congress enacted the
Bankruptcy Judges, United States Trustees and Family Farmer Act of 1986 [ FN: P.L. 99-5554, 100 Stat. 3095
(1986)], providing for the nationwide expansion of the U.S. Trustee
Program in all districts except the judicial districts of Alabama and North Carolina. These six
districts were permitted to operate a separate Bankruptcy Administration program, and given
additional time (until October 1, 2002) to opt-in to the U.S. Trustee System.
Funding of the System
The U.S. Trustee System is funded by revenues paid by participants in the bankruptcysystem. The
program receives a portion of the filing fee paid by those commencing the case and, additionally,
receives quarterly fees paid by debtors-in-possession or trustees in chapter 11 cases. Revenues for
the program obtained from filing and chapter 11 quarterly fees are deposited into the United
States Trustees System Fund. From that fund, program expenditures are paid in a total amount as
specified in appropriation acts. Since 1989, Congressional appropriations for the U.S. Trustee
Program have grown. During the years of greatest bankruptcy activity where fees in excess of the
appropriate amounts were collected, approximately $46 million in program revenues were
transferred to the General Treasury pursuant to rules requiring revenues in the U.S. Trustee
System Fund in excess of 110% of the U.S. Trustees appropriation to be remitted to the
|U.S. Trustee System Revenues|
The U.S. Trustee System is designed to be paid for by those who use it, rather than the
taxpayers. The users are the debtors who pay a filing fee and in chapter 11 cases, a quarterly fee,
as well as the creditors in chapter 11 whose potential distributions are being used to pay the U.S.
In spite of the funds available to the U.S. Trustee Program through the bankruptcy fees, and
a substantial increase in the total number of bankruptcy filings, the Program is experiencing a
revenue shortfall. The recent drop in chapter 11 filings means that revenues in the Program
havefallen from the high of 118.7 million in 1993 to just $96.2 million in 1996. Since 1992,
expenses have increased from $81 million to $102 million in 1996. This financial pattern has
contributed to the inability of the Program to staff appropriately and manage its resources
The Programs heavy reliance on chapter 11 cases for its funding presents a dilemma.
While chapter 11 cases are responsible for the bulk of the Programs funding, they
represented only 1.5 percent of the total bankruptcy caseload in FY 1995. In 1996, the percent of
chapter 11 cases in relation to the total bankruptcy caseload declined to 1.3 percent. Thus, a
decline in a relatively small portion of the Programs caseload has a disproportionate effect
on the Programs revenues. For example, chapter 11 filings declined by 20 percent in FY
1995 with a commensurate decline in the Programs revenues. At the same time, total
bankruptcy filings grew by 5.8 percent. An even greater disparity occurred in 1996 when the
bankruptcy caseload overall grew by 21.3 percent for the 12 months ending June 30, 1996, while
the chapter 11 caseload declined by 2.7 percent over the same period. Overall, the total
bankruptcy caseload is at an all-time high, and expected to exceed 1.3 million filings for calendar
Chapter 11 debtors pay quarterly fees to the U.S. Trustee System in the 88 districts where
the program operates, pursuant to the following schedule:
[ FN: The quarterly fee schedule was
restructured by Public Law 104-208, the FY 1997 Consolidated Omnibus Appropriations Act.
The Act raised the maximum fee to $10,000 and created finer distinctions within the fee ranges,
pursuant to suggestions made in 1995 by the National Academy of Public
$0 to $14,999.999
$15,000.00 - $74,999.99
$75,000.00 - $149,999.99
$150,000.00 - $224,999.99
$225,000.00 - $299,999.99
$300,000.00 - $999,999.99
$1,000,000.00 - $1,999,999.99
$2,000,000.00 - $2,999,999.99
$3,000,000.00 - $4,999,999.99
$5,000,000.00 and above
Prior to January 1996, the statute authorizing the collection of quarterly fees [ FN: 28 U.S.C. §1930 (a)
(b)]] provided as follows:
"A quarterly fee shall be paid to the United States trustee...in each case under chapter 11 of
title 11 for each quarter (including any fraction thereof) until a plan is confirmed or the case is
converted or dismissed, whichever occurs first...."
Post Confirmation Fees
After confirmation of the chapter 11 plan, there are a number of steps to be completed. First, the
confirmation of the plan brings with it a discharge of various claims and allows property of the
estate to be vested in the debtor and subsequently, the reorganized entity, free and clear of all
claims and interests, except those created under the plan. Further, the proponent of the plan will
normally have the duty to make the distributions provided for under the plan. The proponent will
also have the burden of executing the plan and insuring completion of the consummation process.
Until January 1996, chapter 11 debtors paid quarterly fees only until the reorganizationplan
was confirmed. However, the decline in funding available through quarterly fees led the U.S.
Trustee Program to seek fees in post-confirmation chapter 11 cases.
On January 26, 1996, Congress amended section 1930 (a)(6) pursuant to Public Laws
104-91 and 104-99, to provide as follows, with the language stricken by Public Law 104-99
redlined in the text:
In addition to the filling fees paid to the clerk, a quarterly fee shall be paid to the United States
trustee in each case under chapter 11 of title 11 for each quarter (including any fraction thereof)
a plan is confirmed or] the
case is converted or dismissed, whichever occurs first....
[ FN: This section is adapted from "ABI 1997
Northeast Bankruptcy Conference Educational Materials " on file with the ABI and available to
subscribers in ABI On-Line.]
A number of Courts addressed the issue of whether the application of amended section 1930
(a)(6) to debtors with plans confirmed prior to enactment of Public Law 104-99 constituted an
impermissible retroactive application of that amendment.
The statutory language of amended section 1930 (a)(6) did not expressly address its
application to cases with previously confirmed plans. The legislative history demonstrated,
however, that the amendment was intended to apply to all cases, including those with confirmed
- S. Rep No. 104-139, 104th Cong., 1st Sess. at 15 (1995)("extension of the quarterly
fee payments made under chapter 11 to include the period after a reorganization plan
has been confirmed by the bankrupcty court until the case has been dismissed.)
- H.R. Conf. Rep. 104-378, 104th Cong., 1st Sess., 141 Cong. Rec. H13894 (December
4, 1995)("extension of post-confirmation quarterly fee payments made under chapter 11 as
proposed in both the House and Senate bills and expect thatthese fees will apply to all pending
chapter 11 cases with confirmed reorganization plans." (emphasis added).
- H.R. Conf. Rep. 104-378, 104th Cong., 1st Sess.; 141 Cong. Rec. H13899 (December
4, 1995) ("extends the quarterly fee payments for debtors under chapter 11...to include the
period from when a reorganization plan is confirmed...until the case is converted or dismissed.
The conferees intend that this fee will apply to both pending and new cases.")
A number of courts agreed with the United States Trustees that amended section 1930 (a)(6)
was intended to apply to all cases, including those with previously-confirmed plans. Below is a list
of the reported cases holding to that effect:
McLean Square Associates, C.P., 201 B.R. 436, 439 (Bankr. E.D. Va. 1996)(holding the
plain language of amended section 1930(a)(6) requires payment of quarterly fees in
previously-confirmed cases; no retroactive effect of applying amendment to confirmed cases;
amendment justified by legitimate government purpose of ensuring adequately self-funded
In re Foxcroft Square Co., 198 B.R. 99, 103 (Bankr. E.D. Pa. 1996)(legislative
history clearly indicates that Congress intended the amended statute to apply to a debtor with a
confirmed reorganization plan; amendment justified by the valid purpose of increasing revenues
for U.S. Trustee program).
In re Flatbush Associates Inc., 198 B.R. 75,77 n.1 (S.D.N.Y. 1996)(legislative
history indicates that amendment to section 1930 (a)(6) "will apply as of the effective date
to all pending chapter 11 cases with confirmed reorganization plans.")(citing
H.R. Conf. Rep. No. 104-378 and Central Florida Electric Inc.)
In re Upton Printing, 197 B.R. 616-618 (Bankr. E.D. La. 1996)("the plain
meaning of the Conference Report [for Public Law 104-99] provides that the new fees set forth in
the amended statute are to apply to pending chapter 11 cases with confirmed reorganization
Central Florida Electric, 197 B.R. 380, 381 (M.D. Fla. 1996)(legislative history
indicates Congress intended the Amended Statute to include all pending chapter 11 cases
including all cases with or without confirmed chapter 11 reorganization plans).
A number of other bankruptcy courts, however, held that amended section 1930 (a)(6) was
retroactive as applied to debtors with previously confirmed plans. A widely cited opinion inthis
regard was In re Precision Autocraft Inc., 197 B.R. 901 (Bankr. W.D. Wash. 1996). In
that case, the bankruptcy court held that confirmation of a plan was a completed transaction in
that it vested the rights of the parties. Because requiring payment of post-confirmation quarterly
fees by debtors with the confirmed plans would impose new obligations with respect to a
completed transaction, the bankruptcy court held application of amended section 1930(a)(6) to
debtors with confirmed plan was retroactive. Applying the presumption against retroactive
application, the bankruptcy court concluded that requiring debtors with confirmed plans to pay
post-confirmation fees was impermissible because Congress had not clearly manifested, either in
statute or its legislative history, its intent that the statute be applied retroactively. Other cases on
In re Hudson Oil Company Inc., 200 B.R. 52 (Bankr. D. Kan. 1996)(following the
reasoning of the bankruptcy court in In re Precision Autocraft).
In re CF&I Fabricators of Utah Inc., 199 B.R. 986 (Bankr. D. Utah
1996)(holding, inter alia, that application of amended section 1930 (a)(6) to
debtor with confirmed plan is retroactive and impermissible due to lack of clear Congressional
intent that it be so applied).
A number of courts held particularly that the removal of the words "a plan is confirmed
or," from 28 U.S.C. § 1930(a)(6) had the effect of limiting a chapter 11
debtors obligation to pay post-confirmation quarterly fees to only those cases which are
dismissed or converted.
In re C n B of Florida Inc., 198 B.R. 836 (Bankr. M.D. Fla. 1996)(holding
that on the face of the amended statute alone quarterly fees are permitted only after a case is
either dismissed or converted).
In re CF&I Fabricators of Utah Inc. 199 B.R. 986, 993 (Bankr. D. Utah
1996)(relying, in part, on In re C n B of Florida Inc.).
In re Boone, 201 B.R. 499 (Bankr. W.D. Tenn. 1996)(same).
But see In re Burke, 205 B.R. 778 (Bankr. M.D. La. 1977)(criticizing the
reasoning of In re C n B of Florida and those cases following that
line of reasoning.
The 1997 Legislation
In response to such cases as In re Precision Autocraft and In re C n B
of Florida Inc., Congress enacted clarifying legislation pursuant to Title I of the Omnibus
Appropriations Act for Fiscal Year 1997. Public Law 104-208, 110 Stat. 3009 (September 30,
1996). Section 109(d) of the General Provisions for the Department of Justice contained in Title I
provides as follows:
Section 101(a) of Public Law 104-91, as amended by Section 211 of Public Law 104-99, is
further amended by inserting: "Provided further, That, notwithstanding any other
provision of law, the fees under 28 U.S.C. 1930 (a)(6) shall accrue and be payable from
and after January 27, 1996, in all cases (including, without limitation, any cases pending
as of that date), regardless of confirmation status of their plans" after
"enacted into law." Pub. L. 104-208, 110 Stat. 3009 (September 30, 1996) (emphasis
Section 109(d) was enacted to "clarify that fees collected under post-confirmation
status are to be assessed in all pending chapter 11 cases." H.R. Conf. Rep. No. 3620, 104th
Cong. Sess., 142 Cong. Rec. H11644, H11850 (daily ed. September 28, 1996). Thus, pursuant to
amended section 1930 (a)(6), quarterly fees now accrue and are payable from and after January
27, 1996, in all pending chapter 11 cases, with or without confirmed plans until the case is closed,
converted, or dismissed, whichever occurs first.
With the enactment of this clarifying legislation, no court has declined to require payment of
post-confirmation quarterly fees on retroactivity grounds. Neither have courts continued to follow
the construction of amended section 1930(a)(6) espoused by the bankruptcy court in In re
C n B of Florida. Instead, the courts recognize that Congress has
clearly manifested its intent that the amendment should be applied to all pending cases, including
those with previouslyconfirmed plans. Illustrative cases include:
United States Trustee v. Precision Autocraft Inc., et al., 207 B.R. 692 (W.D. Wash.
1997)(reversing bankruptcy court and holding that amended section 1930(a)(6), as clarified by
Public Law 104-208, clearly manifests Congress intent that quarterly fees be collected in
all pending cases, including those with previously confirmed plans).
United States Trustee v.In re CF&I Fabricators of Utah Inc., District
Court No. 2:96-CV-920 C (D. Utah, April 24, 1997)(unpublished decision)(relying on legislative
history of January 1996 amendment and clarifying legislation contained in Public Law 104-208 in
holding that amended 1930(a)(6) applies to all cases, including those with previously confirmed
plans), reversing In re CF&I Fabricators of Utah Inc., 199 B.R. 986, 993 (Bankr. D.
In re Driggs, et al., No. 91-4-2718-PM (Bankr. D. Md., Jan. 27, 1997)(Bankruptcy
Court, sitting en banc, held that application of amendment to § 1930(a)(6)
to cases with plans confirmed before effective date was prospective only).
Effect of Retroactive Quarterly Fees
Bankruptcy lawyers, bankruptcy judges, and even U.S. Trustees were caught off-guard by the
decision to assess quarterly fees on confirmed chapter 11 cases and to do so retroactively on
existing confirmed cases. It was a consensus view of many within the bankruptcy system,
including several U.S. Trustees, that the retroactivity was unfair. Successful, confirmed chapter
11 debtors are usually on a very strict budget and the fees assessed are, one way or the other,
going to be funded by creditors receiving distributions in those cases.
The Rush to "Closure"
The surprising enactment of the law in January 1996 created a stampede of chapter 11 debtors
moving to close confirmed chapter 11 cases. At the same time, most experienced members of the
chapter 11 bar began to work toward closing of the chapter 11 case eithercontemporaneous with
or very shortly after the effective date of confirmation, and structuring chapter 11 plans to ensure
that significant distributions to creditors would occur "post-closing." These tactics
have two potentially negative impacts: (1) cases are closed before they should be closed,
i.e. at a time when continued scrutiny by the Bankruptcy Court and the U.S.
Trustees Office would be appropriate; and (2) distributions to creditors may be
substantially delayed (even with creditors consent) to avoid the imposition of a fee.
What Does"Closing" Mean in a chapter 11 Case?
In a great number of chapter 11 cases, particularly large and complex cases, as well as ones
involving a trustee or liquidating agent, post-confirmation litigation often ends up as a substantial
source of distribution to creditors. In addition, real and personal property of the debtor may be
sold, post-confirmation, with the efficiencies of a "sale free and clear of liens" under
Section 363 of the Bankruptcy Code. Often, bankruptcy court jurisdiction is
"retained" for numerous other purposes. Although some courts have ruled that
continued litigation in the bankruptcy courts is not hampered by the closing of a chapter 11 case,
certainly, the substantial retention of bankruptcy court jurisdiction over matters, such as
allowance of claims, determination of fees, and recovery of improper payments under Bankruptcy
Code provisions would seem to be inconsistent with the idea of a "closed case."
However, that is what may be happening in a number of cases simply to avoid the U.S. Trustee
At this time, there is no uniform system of how to close a chapter 11 case, or even who is
responsible for it. In some jurisdictions, as a matter of efficiency, the Clerk of the
BankruptcyCourt notices a proposed order to close a case unless parties object. In other districts,
courts take no action to close a case unless a party makes a motion to do so.
Suggested "Fee for Service" Approach to Post-Confirmation Fees
It is probably unrealistic to expect Congress to repeal or substantially modify the
post-confirmation U.S. Trustees fees, simply because, as previously noted, the revenues
are essential in funding the U.S. Trustee system. However, it is reasonable to ask that the U.S.
Trustees Offices perform meaningful post-confirmation monitoring in exchange for these
No one seriously disputes that many chapter 11s, from the smallest to the large,
publicly-traded cases, need post-confirmation monitoring. Creditors are reluctant to do this work,
with the fear of losing good money after bad, coupled with exhaustion from the pre-confirmation
A simple and fair methodology of post-confirmation monitoring of chapter 11 cases could be
developed that provides a benefit to those provided for in the plan. Stepped up oversight does not
mean, however, that the U.S. Trustee would improperly intrude on the parties ability to
effectuate the plan. One way to reduce tactics aimed solely at reducing the impact of
post-confirmation fees is to impose a flat fee rather than one based on the percentage of
distribution. In any event, the U.S. Trustees Offices need to be able to enhance its
capability to share data between U.S. Trustee Offices, and to permit both the U.S. Trustee and
chapter 11 debtors to be on-line. With such modernization, the U.S. Trustees Offices
could monitor compliance by both the pre-confirmation and post-confirmation chapter 11 entity,
and in the case of substantial defaults, would be able to act directly rather than requiring the
substantial costs and energy of creditors to do so.
The ABI commends the Subcommittee for its interest in the operation of the bankruptcy
system and stands ready to assist in any way the Subcommittee deems fit.