In the United States, there are two different government entities entrusted with overseeing the administration of cases under title 11 of the United States Code (the “Bankruptcy Code”). In all but two states, the Office of the United States Trustee, which is a part of the Department of Justice, oversees the administration of bankruptcy cases. In North Carolina and Alabama, the two states that do not have a United States Trustee system, a Bankruptcy Administrator, which is funded by and housed in the Judicial Conference, oversees the administration of bankruptcy cases. The U.S. Trustees and the Bankruptcy Administrators generally have the same role in bankruptcy cases. Moreover, both collect quarterly fees based on quarterly disbursements that debtors in cases under Chapter 11 of the Bankruptcy Code make to their creditors. From 2002 until January 2018 Chapter 11 debtors all paid the same fees in both systems based on the same disbursement formula.
In 2017, Congress changed the quarterly fee calculation for disbursements, codified in 28 U.S.C. § 1930(a)(6)(B) (the “2017 Amendment”) which increased quarterly fees in Chapter 11 cases only in those districts operating under the U.S. Trustee program. The Judiciary Committee report indicates this increase was because of the decline in bankruptcy filings that have traditionally funded a surplus of the U.S Trustee program. Congress, however, did not mandate this fee increase in those districts operating under the Bankruptcy Administrator program. Instead, Congress left the decision to the Judicial Conference to impose such fees in their discretion.
This divergent fee increase has resulted in numerous Constitutional challenges by debtors and the United States Supreme Court has granted certiorari to resolve the Constitutionality issue. This memorandum summarizes the Constitutional conflict between the courts that has arisen when addressing the uniformity issue under the Bankruptcy Clause of the Constitution. Part I discusses Congressional authority over bankruptcy laws under the Bankruptcy Clause. Parts II and III discuss the limitation on Congressional bankruptcy power. Part IV discusses the circuit split that has arisen over the 2017 Amendment.