§ 37.6 — Filing Fees, Installments and Waiver after BAPCPA
Revised: September 24, 2010
Prior to the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),1 the filing fee for a Chapter 13 case (and for a Chapter 7 case) was $155.2 To this fee was added a $39 “miscellaneous administrative fee,” for a total of $194 in Chapter 13 cases.3 An additional $15 was added in Chapter 7 cases for payment to the Chapter 7 trustee.4
In the 109th Congress, the legislation that eventually became BAPCPA originated in the Senate as S. 256.5 Included in S. 256 was authorization for 28 new bankruptcy judgeships that had been sought by the Judicial Conference of the United States for more than a decade. The new judgeships had been held hostage over the years as a pawn in the struggles over substantive changes to bankruptcy law.
When S. 256 was debated in the Senate, a “point of order” was raised concerning the provision for 28 new bankruptcy judgeships: S. 256 contained no mechanism for funding the new judgeships.
To solve the problem, the Senate leadership came up with the idea of increasing the filing fee for bankruptcy cases. Amendments to S. 256 were hastily drafted to increase filing fees to pay for the additional judges and, incidentally, to reallocate collected fees to increase the funding of the United States Trustee System Fund. As passed by the Senate, the filing fee in Chapter 7 cases was increased from $155 to $200. The filing fee for Chapter 13 cases was actually reduced by $5 from $155 to $150. S. 256 then went to the House of Representatives.
When S. 256 arrived in the House, someone did the math and realized that the filing fee increase for Chapter 7 cases was so large that it would generate substantially more revenue than was needed to pay for the new judgeships. In fact, the Congressional Budget Office estimated that over the first five years, the increased filing fees in S. 256 would produce something like $150 million in net revenue for the federal government, notwithstanding the $5 reduction in the filing fee for Chapter 13 cases.
These events had the unanticipated effect of putting the constitutionality of S. 256 into question. Under Article 1, Section 7, Clause 1 of the Constitution, revenue measures must originate in the House of Representatives. S. 256 originated in the Senate. To fix this problem, an amendment was quickly drafted to wholly unrelated legislation pending in the House of Representatives—the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror and Tsunami Relief 2005, H.R. 1268—to amend the bankruptcy fee schedule in 28 U.S.C. § 1930. Rather than reduce the filing fee increase to match the cost of the new judgeships, the House passed S. 256 as it was received from the Senate with the positive revenue provisions unchanged. The result is that BAPCPA, as enacted, increased the filing fee in Chapter 7 cases to $200, decreased the filing fee in Chapter 13 cases to $150 but remained hugely revenue positive.6
H.R. 1268 was amended several times before it too was passed by Congress. In its final form, H.R. 1268 actually raised the Chapter 7 filing fee again from the $200 in BAPCPA to $220. The filing fee for Chapter 13 cases remained at $150 as in BAPCPA.7 The effective date for these new filing fee amounts was ambiguous in H.R. 1268.8
One way to look at all of this is that BAPCPA gave Chapter 13 debtors a $5 break and punitively increased the filing fee for Chapter 7 debtors by $65. Government fee revenues in bankruptcy cases were increased by hundreds of millions of dollars in the process.
Within a few months after the effective date of the filing fee changes in BAPCPA, Congress acted yet again to increase the cost of access to the bankruptcy courts. Effective on and after April 9, 2006, the Deficit Reduction Act of 20059 increased the Chapter 13 filing fee to $235 ($274 in total with the $39 administrative fee) and increased the Chapter 7 filing fee to $245 ($299 in total with the $39 administrative fee and $15 case trustee fee). There seems to be no limit to the willingness of Congress to mine consumer bankruptcy cases for revenue.
Chapter 7 debtors get one bone thrown by BAPCPA with respect to filing fees: under procedures prescribed by the Judicial Conference, a bankruptcy court may “waive the filing fee in a case under chapter 7 of title 11 for an individual if the court determines that such individual has income less than 150% of the income official poverty line . . . applicable to a family of the size involved and is unable to pay that fee in installments.”10 The Judicial Conference implemented this amendment in Bankruptcy Rule 1006(c) and a new Official Form 3.11
The waiver of filing fees authorized by BAPCPA applies only in Chapter 7 cases. But enactment of the waiver had a small spillover effect on filing fees in Chapter 13 cases. One of the conditions for waiver of fees in Chapter 7 cases is a declaration that the debtor is unable to pay the filing fees in full or in installments.12 Prior to BAPCPA, one of the conditions for payment of a filing fee in installments was that the filing fee had to be paid in full before the debtor or the Chapter 13 trustee could make any payments to an attorney for services in connection with the case.13 Fearing that payment of an attorney’s fee would render many debtors ineligible for installment payments—thus enhancing their eligibility for the new Chapter 7 fee waiver—Bankruptcy Rule 1006(b)(3) was amended to read: “All installments of the filing fee must be paid in full before the debtor or chapter 13 trustee may make further payments to an attorney or any other person who renders services to the debtor in connection with the case.”14 The application to pay filing fees in installments—Official Form 3—was modified to reflect the new Rule.15
The net of all these changes is that a Chapter 13 debtor can make payments to an attorney (or bankruptcy petition preparer) for services in connection with the case without forfeiting the right to pay the filing fee in installments. But if an application to pay the filing fee in installments is filed, then neither the debtor nor the Chapter 13 trustee can make “further” payment of fees until the filing fee is paid in full.
Perhaps a moot point, there is no statutory support in BAPCPA—or, for that matter, in the Code before BAPCPA—to subordinate the payment of attorneys’ fees to the payment of filing fees. A cynic might wonder why the rules drafters didn’t prohibit paying car notes in Chapter 13 cases until the filing fee is paid.
The new waiver of the Chapter 7 filing fee in 28 U.S.C. § 1930(f)(1) collided with conversion to Chapter 13 in In re Kauffman.16 The debtor in Kauffman qualified for the filing fee waiver in § 1930(f)(1) and later converted from Chapter 7 to Chapter 13. The bankruptcy court found that conversion to Chapter 13 was evidence that the fee waiver had been improvidently granted and should be revoked:
[A] bankruptcy court may revoke a fee waiver if: . . . facts or circumstances are discovered during the administration of the case which demonstrate the waiver was unwarranted . . . . [T]he Court weighs the import of the Debtor’s voluntary conversion of her case to chapter 13, where she is acknowledging the ability to make monthly payments to creditors and fund an individual reorganization plan. . . . Since the Court has concluded that the fee waiver was not warranted, principles of equity require the Debtor to pay the chapter 7 filing fee, rather than the chapter 13 filing fee, in order to return the Debtor and the case trustee to the financial positions they would have been in from the outset of the case if the IFP relief were not granted.17
The debtor in Kauffman ended up paying the higher Chapter 7 filing fee after conversion to Chapter 13. Just another (small) reason to start in Chapter 13 in the first place.
Section 1307(c)(2) states as one cause for conversion or dismissal of a Chapter 13 case “nonpayment of any fees and charges required under chapter 123 of title 28.”18 Filing fees in a Chapter 13 case are required by Chapter 123 of Title 28, and the failure to pay a filing fee can be cause for conversion or dismissal. In In re Domenico,19 the bankruptcy court concluded that the fees or charges “required under chapter 123 of title 28” for § 1307(c)(2) purposes include unpaid filing fees from a prior Chapter 13 case. The debtor in Domenico was instructed to pay unpaid filing fees from a prior dismissed Chapter 13 case or face dismissal of the subsequent case.
Bankruptcy Rule 1017(b)(1) goes perhaps a small step further than § 1307(c)(2) to provide: “If any installment of the filing fee has not been paid, the court may, after a hearing on notice to the debtor and the trustee, dismiss the case.”20 It is the practice in some districts that the bankruptcy court clerk monitors the payment of filing fees in installments and issues a “notice of deficiency” when an installment is missing. Failure to quickly pay the missing installment has resulted in dismissal of the Chapter 13 case.21
1 Pub. L. No. 109-8, 119 Stat. 23 (2005).
2 28 U.S.C. § 1930(a)(1) prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
3 The miscellaneous administrative fee is set forth in the Appendix to 28 U.S.C. § 1930.
4 The additional $15 is provided for in the Appendix to 28 U.S.C. § 1930.
5 See § 361.1 [ A Short History, Including “Legislative History,” of BAPCPA ] § 2.2 Brief History, Including “Legislative History,” of BAPCPA.
6 Just a footnote to this nonsense, S. 256, as passed and signed by the President, also got the percentages wrong for division of the new filing fee revenues between the Judiciary and the United States Trustee System Fund. As enacted, BAPCPA required distribution of 113% of the Chapter 7 fees collected. This mistaken distribution calculation was also “corrected” by H.R. 1268, as discussed in the text.
7 See § 6058 of H.R. 1268, Emergency Supplemental Appropriations Act for Defense, the Global War on Terror and Tsunami Relief 2005.
8 Section 6058 of H.R. 1268 states that the filing fee changes in bankruptcy cases are effective “immediately after the enactment” of BAPCPA. Was the Chapter 7 filing fee raised to $220 and the Chapter 13 filing fee reduced to $150 effective on April 21, 2005? The Administrative Office of the United States Courts instructed the bankruptcy courts that the answer to this question was no. Instead, the Administrative Office took the position in memos to the clerks of the bankruptcy courts that the new filing fees apply on and after the October 17, 2005, effective date of most other provisions of BAPCPA.
9 Pub. L. No. 109-171, 120 Stat. 4 (2006).
10 28 U.S.C. § 1930(f)(1).
11 See Fed. R. Bankr. P. 1006(c) and Official Form 3.
12 See 28 U.S.C. § 1930(f)(1) and Official Form B3B, ¶ 19.
13 See Fed. R. Bankr. P. 1006(b), prior to BAPCPA, discussed in §§ 36.6 [ Application to Pay Filing Fee in Installments ] § 36.29 Application to Pay Filing Fee in Installments and 38.3 [ Filing Fee and Option to Pay in Installments ] § 37.5 Filing Fee and Option to Pay in Installments.
14 Fed. R. Bankr. P. 1006(b)(3).
15 See Official Form 3A, Line 3 (“Until the filing fee is paid in full, I will not make any additional payment or transfer any additional property to an attorney or any other person for services in connection with this case.”).
16 354 B.R. 682 (Bankr. D. Vt. Oct. 24, 2006) (Brown).
17 354 B.R. at 684–85.
19 364 B.R. 418 (Bankr. D.N.M. Mar. 2, 2007) (Starzynski).
20 Fed. R. Bankr. P. 1017(b)(1).
21 See, e.g., In re Kelly, No. 06-71019-JB, 2006 WL 6591613, at *1 (Bankr. N.D. Ga. Nov. 28, 2006) (Bihary) (Citing Bankruptcy Rules 1006 and 1017(b), failure to timely pay filing fee installment results in clerk’s notice of deficiency and order of dismissal; motion to reopen is denied when debtor still has not paid entire filing fee. “Debtor failed to pay the installment due on October 5, 2006 and the Clerk’s office sent a deficiency notice on October 11, 2006 notifying debtor that the installment was not paid, instructing him to pay the installment within ten days, and notifying him that the case would be dismissed if the installment was not paid. . . . On October 27, 2006, the case was dismissed for failure to pay the filing fee. . . . Federal Rule of Bankruptcy Procedure 1006 requires a debtor to pay a filing fee and permits that fee to be paid in installments. If an installment of the filing fee is not paid, Rule 1017(b) allows the court to dismiss the debtor’s case. In the present case, debtor did not pay his filing fee, was notified of the deficiency and consequences of his failure to pay and still has not paid the remaining installments on his filing fee. If debtor’s failure to pay the filing fee were the only problem in this case, debtor might be permitted to re-open the case and pay the filing fee.”).