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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Avoiding Double-Dipping: U.S. Trustee Fees and Creditor Trusts

By Nicole M. Sweeney and Megan M. Wasson
September 01, 2024

The U.S. Trustee has begun to advance a novel argument that penalizes the beneficiaries of unsecured creditor trusts: that U.S. Trustee disbursement fees apply not only to disbursements made by debtors, but also disbursements made by creditor trusts formed under bankruptcy plans (commonly referred to as "GUC Trusts" or "Litigation Trusts"). Under 28 U.S.C. §1930(a)(6), the U.S. Trustee is entitled to a quarterly fee on any "disbursements" made by a debtor while its bankruptcy case remains open. While section 1930(a)(6) does not specify which entity must make these "disbursements," section 1930(a) indicates that "the parties commencing a case under title 11" must pay the enumerated fees.

There is little dispute that the transfer of assets by a debtor to a GUC Trust is a disbursement triggering U.S. Trustee fees. However, the U.S. Trustee has recently taken the position that GUC Trusts should be required to pay fees on account of their own disbursements to creditors, on the grounds that contingent assets (like litigation claims) are not "disbursed" when they are transferred to a GUC Trust, but rather when their proceeds are eventually distributed to creditors. Notably, the Bankruptcy Code does not define "disbursements," and this ambiguity paired with the lack of specificity in section 1930(a)(6) form the crux of the U.S. Trustee's argument.

The outcomes in three recent bankruptcy cases, Careismatic, Thrasio and Rite Aid, highlight different approaches to addressing the U.S. Trustee's argument: closing bankruptcy cases early, deferring the issue to a later date, or focusing on the distinction between contingent and non-contingent assets.

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