The U.S. Supreme Court agreed yesterday to decide the constitutionality of the higher bankruptcy fees charged temporarily in 2018 in 48 states, a legal issue that could affect hundreds of millions of dollars doled out by troubled companies to the Justice Department, WSJ Pro Bankruptcy reported. The justices will weigh a federal law that resulted in corporate debtors paying higher fees to the U.S. Trustee Program, a Justice Department unit monitoring the nation’s bankruptcy courts, for nine months during 2018. Companies that filed for chapter 11 in Alabama and North Carolina didn’t pay higher fees until later because those states opted out of the U.S. Trustee Program and instead have administrators who perform a similar watchdog function but are overseen by the federal judiciary. The legal issue was raised by the person who has worked as the liquidating trustee for Circuit City Stores Inc., the electronics retailer that went out of business more than a decade ago after filing for bankruptcy in Virginia. The chapter 11 fee hike resulted in a significant increase in administrative costs incurred as the bankruptcy continued to wind down, according to the liquidating trustee. Bankrupt companies affected by the federal law overall paid in excess of $100 million more than corporate debtors in Alabama and North Carolina during the monthslong gap in 2018, the Circuit City liquidating trustee said in a court filing. Circuit City’s bankruptcy estate paid about $632,000 in U.S. Trustee fees for the first three quarters of 2018, a substantial increase compared with the roughly $833,000 in total fees the estate paid in the seven years before the federal law took effect, court papers say. Companies in Alabama and North Carolina bankruptcy courts no longer pay lower fees. The Judicial Conference of the U.S., the governing body that sets policy for federal courts, agreed in September of 2018 to impose the same fee increase for bankruptcy courts in those two states. Last year, Congress amended the fee statute to streamline any future increases in every state, according to court papers. However, the latest change wasn’t retroactive, meaning the unequal cost bankrupt companies bore in states monitored by the U.S. Trustee was never addressed, according to court papers filed on behalf of Alfred Siegel, the Circuit City liquidating trustee.
