“Grab What You Can Get, When You Can Get It”: A New Bankruptcy Law Of The Land (Siegel v. U.S. Trustee Program)

By: Donald L Swanson

Remember the old saying, “Grab what you can get, when you can get it”?

Well . . . that old saying is now the federal law of the land, applying exclusively to bankruptcy laws in Alabama and North Carolina. 

Here’s how.  Congress imposed bankruptcy fee increases on Chapter 11 debtors in every state and territory of these United States, other than Alabama and North Carolina.  As to similar fees in Alabama and North Carolina, the U.S. Supreme Court recently observed:  

• “Congress likely understood . . . that the Judicial Conference would impose the same fee increase” in Alabama and North Carolina that are applicable everywhere else; but
• Congress “did not require the Judicial Conference to impose an equivalent increase” in Alabama and North Carolina; and
• So, “It is is that congressional decision that led to the disparities at issue here.”[Fn. 1]

Translation:

• although everyone knew that disparate fees were constitutionally suspect, Alabama and North Carolina charged lower bankruptcy fees anyway; and
• such fee disparity is the fault and responsibility of Congress—not of those who actually charged the lesser fees in Alabama and North Carolina, knowing full well of Congress’s contrary expectation.

In other words, “grab what you can get, when you can get it” works and is now the law of the land for bankruptcy cases in Alabama and North Carolina. 

Siegel v. U.S. Trustee Program

The U.S. Supreme Court, in Siegel v. Fitzgerald, declares that lesser bankruptcy fees in Alabama and North Carolina are unconstitutional.  But it asks the lower courts to issue opinions on what the appropriate remedy might be.

One of those lower court opinions is from the Bankruptcy Court of Eastern Virginia in Siegel v. U.S. Trustee Program.[Fn. 2]  In this new opinion, the Bankruptcy Court requires a refund of fees by the U.S. Trustee Program (i.e., the U.S. Taxpayers).  In doing so, the Bankruptcy Court follows the Supreme Court’s grab what you can get, when you can get it ruling and declares:

• the problem is not an unconstitutional underpayment of fees in Alabama and North Carolina;
• the problem is an unconstitutional overpayment of fees everywhere else;
• the Virginia Debtor “has suffered an injury through the overpayment of fees under an unconstitutional statute”; and
• the Virginia Debtor “is entitled to be made whole” by a refund of overpaid fees.

For emphasis, the Bankruptcy Court opinion adds this grab what you can get, when you can get it summary (parroting the Supreme Court’s language):

• “the crux of the issue is not what the BA Districts did.  It is what Congress did”; and
• “Congress passed a statute that allowed for non-uniform fees.  That unconstitutional statute—not the actions of the Judicial Conference—is . . . the source of the constitutional injury.”

$300,000,000: Debtor Winners and Taxpayer Losers

The total amount that U.S. taxpayers will need to refund to bankruptcy debtors throughout the United States and its territories, if the Siegel v. U.S. Trustee Program result prevails, is more than $300,000,000. 

The U.S. Trustee Program makes this argument in Siegel v. U.S. Trustee Program:

• “there is no evidence that . . . Congress would opt to repay the millions it raised” under the increased fees law; and
• “Requiring the United States to return those funds—potentially over $300 million—would eviscerate this congressional enactment, undermine Congress’s goal to raise revenue, and once again threaten to impose costs of the bankrupotcy system on taxpayers” (Doc. 47, at 2).

The precise amount to be refunded by U.S. taxpayers, in the Eastern Virginia’s Siegel v. U.S. Trustee Program case, is explained by the December 15, 2022, opinion like this:

• Debtor “paid $632,542 in Quarterly U.S. Trustee Fees; and
• “Absent the fee increase,” Debtor “would have paid only $56,400” (at. 4).

Accordingly, the damages to be refunded by U.S. taxpayers to that one Eastern Virginia debtor is computed as, $632,542 – $56,400 = $576,142.00.

Conclusion

Alabama and North Carolina politicians are masters of the “grab what you can get, when you can get it” approach for bankruptcy.  And in addition to getting lower fees, they’re likely to stick the U.S. taxpayers with more than $300,000,000 . . . for good measure.

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Footnote 1.  These quotes are from U.S. Supreme Court’s Siegel v. Fitzgerald opinion (at 14, fn. 2, italics in original) of June 6, 2022.

Footnote 2.  This Siegel v. U.S. Trustee Program case is Adv. P. No. 19-03091 in Eastern Virginia Bankruptcy Court.  Its opinion was filed on December 15, 2022, (at Doc. 64) and is on appeal.

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