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What does SCOTUS ruling mean for commercial bankruptcy?

On Behalf of | Jun 6, 2022 | Bankruptcy

A unanimous ruling by the United States Supreme Court in early June could have significant implications for Kentucky companies that will soon file for commercial bankruptcy. Although the ruling called the vast discrepancy in bankruptcy fees unconstitutional, the SCOTUS opinion offered no remedy for the disparate situation.

Administrative fees violates provisions for uniform laws on bankruptcies

Ruling in Siegel vs. Fitsgerald, SCOTUS indicated a significant fee increase for commercial bankruptcy filings in 1986 where only debtors in two states were exempt from the high costs imposed by the U.S. Trustee Program in the Department of Justice. Only two states, North Carolina and Alabama, use trustees appointed by the judicial branch to administer bankruptcy costs. The U.S. Trustee Program is legally obligated to charge fees that defray the cost of administering those cases. This practice has resulted in significantly higher bankruptcy costs in the 48 states, including Kentucky, which requires the usage of the U.S. Trustee Program. In at least one case filed in Virginia, the company declaring bankruptcy paid $500,000 more in fees than if it had been filed in the adjacent state of North Carolina.

One of the reasons SCOTUS gave for ruling the law unconstitutional is that charging such exorbitant mandatory fees leaves less money available for payment to creditors, thereby affecting the essential substance of a bankruptcy proceeding. Essentially, the ruling states that the Bankruptcy Clause does not allow Congress to subject debtors in different states to different fees.

Will commercial bankruptcy fees be reduced?

While some of the language in the SCOTUS opinion seems to suggest the fees imposed by the U.S. Trustee Program are excessively high, it’s unclear whether the changes will go toward the lower charges. Lowering the costs incurred could potentially save businesses from completely liquidating their assets and file Chapter 13 instead.

If your business is laden with high debts, restructuring what you owe may help save your company. Thoroughly evaluating all your options has the potential to set you on the right path and make your business profitable in the future.