Filing Fee and Pension Premium Increases Pending as Second Session Begins

<p>Congress had a flurry of legislative activity
before leaving for the Christmas recess on Dec. 22, completing action
on some legislation changing the legal landscape on bankruptcy.
However, several bills affecting the bankruptcy process, including an
increase in bankruptcy filing fees, as well as pension termination
surcharges on companies emerging from bankruptcy, remain pending.
Scheduled to return at the end of January 2006, Congress is expected
to act quickly on the legislation containing the filing fee increases
and pension termination surcharges.</p><p> Congress did enact “The
Violence against Women and Department of Justice Reauthorization Act
of 2005” (P.L. 109-162). In reaction to congressional concern
that the number of criminal referrals on bankruptcy cases had dropped
by 50 percent in recent years, Congress is now requiring the U.S.
Trustees Office to report on both criminal referrals for bankruptcy
cases, as well as the Trustee Office’s efforts to prevent
bankruptcy fraud and abuse. The new law requires the U.S. Trustee to
prepare an annual report to Congress detailing the number, types and
outcomes of criminal referrals. In addition, as the legislation requires

the report to address the U.S. Trustees Program’s effort to
focus on the establishment of uniform internal controls to detect
common, higher-risk frauds, such as the debtors’ failure to
disclose all assets, plans may well be subject to increased
scrutiny.</p><p> Practitioners should also be aware that statutory changes
have been made to assure uniform treatment of discharges in bankruptcy

with regard to signing bonuses and re-enlistment incentives for the
military services. Title 37 of the U.S. Code specifies pay and
allowances for the uniformed services. New amendments to §303a in

the National Defense Authorization Act for Fiscal Year 2006 provide
that a discharge in bankruptcy will not relieve individuals from their

liability to repay the United States for signing bonuses and similar
benefits if a member of the military fails to satisfy the requirements

and conditions for receipt of the benefit. This new standard will
apply to bankruptcy discharge orders if the order is entered less than

five years after the date of termination of the agreement or contract
or the service on which the debt is based. In the absence of an
agreement or contract, the standard will apply based on the date of
the termination of the service on which the debt is based. As
regulations will need to be promulgated implementing the law,
compliance with these changes is likely to be required in the late
spring or early summer of 2006.</p><p> As noted above, legislation
increasing bankruptcy filing fees stalled at the end of the session
due to partisan bickering over unrelated issues. These fee increases,
contained in the Conference Report on the Deficit Reduction Omnibus
Reconciliation Act of 2005, were designed to increase filing fees as
follows:</p><p>• Chapter 7 fees would be raised from $220 to $245.<br>

• Chapter 13 fees would be raised from $150 to $335.<br> •

Chapter 9 fees would be raised from $1,000 to $2,750.</p><p> These fees
would go into effect 60 days after enactment of the reconciliation
legislation, perhaps as early as the end of March. The proposed changes
to chapter 9 fees were an inadvertent drafting error, as Congress
intended to raise chapter 11 filing fees instead. While the error has
been recognized by Congress, it is unclear at this time whether
Congress will be able to make corrections increasing the fees for
chapter 11 filers in the Deficit Reduction Act Conference Report or
will do so in subsequent technical corrections legislation. Revenue from

these fees will go to support the U.S. Court System.</p><p> The pending
Conference Report on the Deficit Reduction Omnibus Reconciliation Act
of 2005 also establishes a employer-paid termination premium of $1,250
per plan participant for three consecutive years for companies that
terminate their pension plans while in bankruptcy (§8201). The
termination premium provision would be effective for cases filed after

Oct. 18, 2005, and will sunset after five years. A Statement of
Managers accompanying that Deficit Reduction bill also requests a
study by the Government Accountability Office (GA0) regarding the
effect of the premium on plan sponsors and members. GAO is expected to
report back to the Congress within 2007.</p><p> Although the
Reconciliation conference report contains premium increases for
ongoing plans and plans terminated through bankruptcy, and the Senate
and House have passed pension reform bill, Congress adjourned without
completing action on sweeping pension reform. Comprehensive pension
reform (S. 1783), the Pension Security and Transparency Act, which
passed the Senate in mid-November, does not contain the termination
premium, although companion House legislation does contain that fee.
Conference Action on the major reform legislation is now anticipated
to be completed in April.</p>