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Bankruptcy Administration Improvement Act of 2020 Extends Temporary Judgeships and Amends UST Quarterly Fee Calculation

Written by: Scott D. Jones

On December 9, 2020, Senators Lindsey Graham and Chris Coons introduced the Bankruptcy Administration Improvement Act of 2020 (the “Bankruptcy Act of 2020”) in the 116th Congress.  That same day, the Bankruptcy Act of 2020 was passed in the Senate by unanimous consent and was sent to the House of Representatives.  On December 21, 2020, the Bankruptcy Act of 2020 was passed by the House of Representatives, without objection, in identical form as the Senate version.  The bill was signed by President Trump on January 12, 2021, and became law.

Importantly for Delaware, and the country as a whole in the wake of the COVID-19 pandemic, the Bankruptcy Act of 2020 extended the judgeships for 25 temporary bankruptcy court judges for an additional five years.  The extensions of the judgeships contained in the Bankruptcy Act of 2020 apply to all seven temporary judges assigned to the United States Bankruptcy Court for the District of Delaware.  “In these challenging times, our legal system shouldn’t be another source of uncertainty for business and workers.  This common-sense bill will ensure our courts, including those in Delaware, have the adequate resources to fairly and expeditiously process bankruptcy cases,” Senator Tom Carper, a co-sponsor of the bill, said in a statement.  Senator Carper further elaborated “[s]pecifically, this bill will maintain the number of judgeships in Delaware’s bankruptcy courts, which remain some of the busiest and handle some of the important cases in our country.”

In addition to extending the judgeships for the 25 bankruptcy court judges, the Bankruptcy Act of 2020 also amends the calculation of quarterly fees assessed by the United States Trustee (the “Quarterly Fees”).  Pursuant to 28 U.S.C. § 1930(a)(6), each debtor in a chapter 11 case, except small businesses under a Subchapter V filing, are required to pay Quarterly Fees to the United States Trustee Fund (the “Fund”).  The Quarterly Fees are based on, inter alia, the reported disbursement history of the debtor for the current quarter.  Pursuant to the Bankruptcy Judgeship Act of 2017 (the “2017 Act”), as amended by the Consolidated Appropriations Act, the Quarterly Fees assessed by the United States Trustee for fiscal years 2018 through 2022 were increased if the Fund fell below a specified amount established by the 2017 Act.  At each measuring point, the Fund was below the established minimum funding level.  Thus, the current Quarterly Fees are now assessed on a sliding scale depending on the total disbursements of the debtor.  This ranges from a flat fee of $325 to 1% of the quarterly disbursements or $250,000, whichever is less.

The Bankruptcy Act of 2020 will amend the formula for calculating the Quarterly Fees beginning on April 1, 2021 through and including December 31, 2025.  As stated supra, the current Quarterly Fees range from a flat fee of $325 up to 1% of the total disbursements for a given quarter or $250,000, whichever is less.  Under the Bankruptcy Act of 2020, the assessed Quarterly Fees will now be the greater of 0.4% of disbursements or $250 for disbursements totaling less than $1,000,000.  For disbursements of at least $1,000,000, the Quarterly Fees will be calculated at 0.8% of disbursements but not to exceed $250,000.  The amended range has a significant variance from the Quarterly Fees now assessed to debtors.  By way of example, currently, a debtor making a quarterly disbursal amount of $900,000 is assessed a Quarterly Fee of $4,875.  Under the new fee structure, that same debtor will now be assessed 0.4% of the $900,000 disbursement for a Quarterly Fee of $3,600.  The difference between the fee structures is even more evident when disbursements for a given quarter are significantly higher.  Under the current fee structure, a debtor making $10,000,000 worth of disbursements for a given quarter will be assessed 1% of the $10,000,000 for a Quarterly Fee of $100,000.  That same debtor, effective April 1, 2021, will now only pay 0.8% of the $10,000,000 for a Quarterly Fee of $80,000.  This important change will allow for a more efficient reorganizational process.  As Senator Rubio stated, “[a]s America’s businesses struggle with the challenges of operating during the COVID-19 pandemic, the ability for businesses to efficiently reorganize in bankruptcy is critical.”

Below is the Quarterly Fee Schedule effective April 1, 2021:

TOTAL QUARTERLY DISBURSEMENTS QUARTERLY FEE
$0 to $62,624 $250
$62,625 to $999,999 0.4% of quarterly disbursements
$1,000,000 to $31,249,937 0.8% of quarterly disbursements
$31,249,938 or more $250,000

 

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