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Supreme Court Finds 2017 Bankruptcy Fee Increases Unconstitutional But Leaves Remedy Unclear
In June, the U.S. Supreme Court, by unanimous decision, resolved a split amongst five circuits and determined that a 2017 Congressional amendment to the bankruptcy fee provisions was unconstitutional as violating the Bankruptcy Clause of the US. Constitution. See, Siegel v. Fitzgerald, 142 S. Ct. 1770 (2022). The Bankruptcy Clause of the U.S. Constitution empowers Congress to establish "uniform laws on the subject of Bankruptcies throughout the United States." U.S. Const. art. I, §8, cl. 4. The meaning of "uniform" became the subject of debate in the Siegel case. The Supreme Court concluded that because the 2017 amendments exempted debtors located in two States, it was not "uniform" as it did not apply equally to all debtors regardless of where they were situated and, therefore, the statute was unconstitutional. Siegel, 142 S. Ct. 1770 (2022). A discussion of the Supreme Court's decision in Siegel, and relevant factual backdrop precipitating such decision, appears below.
The United States Trustee Program and Administrator Program
In 1986, Congress created the United States Trustee Program (UST Program) to ease what was previously an administrative burden on bankruptcy judges and assigned responsibility to U.S. Trustees, a component of the Department of Justice. At this time, six judicial districts in North Carolina and Alabama were given permission by Congress to opt out of the UST Program. In these six districts, the bankruptcy courts appoint bankruptcy administrators to perform the administrative functions that would otherwise have been performed by the UST Program but for the election to opt-out. For these six districts, the administrative system is referred to as the Administrator Program. The Administrator Program was scheduled to phase out, but in 2000, Congress permanently exempted the six districts from the requirement to transition to the UST Program. While the functions of the UST Program and the Administrator Program are largely identical, their funding sources are not. The UST Program is funded by user fees paid to the United States Trustee System Fund. These user fees are primarily comprised of fees paid by debtors who file cases under Chapter 11 of the Bankruptcy Code. By contrast, the Administrator Program is funded by the Judiciary's general budget. Funding source differences aside, from 2001 to 2017, all districts within the UST Program and Administrator Program paid identical user fees.
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