Bankruptcy Judges, U.s. Trustees and Family Farmer Bankruptcy Act of 1986
| Publication year | 1987 |
| Pages | 221 |
| Citation | Vol. 16 No. 2 Pg. 221 |
1987, February, Pg. 221. Bankruptcy Judges, U.S. Trustees and Family Farmer Bankruptcy Act of 1986
The bankruptcy laws of the United States were totally overhauled with the adoption of the Bankruptcy Reform Act of 1978 ("Bankruptcy Code").(fn1) Since then, there have been strong arguments for change in the provisions of the U.S. trustees pilot program and for creating a special bankruptcy chapter for the distressed family farmer. Those efforts have been successful with the passage by congress of what is known as the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986 ("1986 Act").(fn2) The purpose of this article is to provide practitioners with an initial analysis of its provisions.
The three principal areas covered by the 1986 Act include the addition of new bankruptcy judges, the establishment of a permanent nationwide U.S. Trustees Program and the new Chapter 12, which deals with family farmer bankruptcies.
The 1986 Act provides for the appointment of fifty-two new bankruptcy judges; unfortunately, Colorado is not among the states which will receive new bankruptcy judge appointments.(fn3) In this region, Oklahoma will get two bankruptcy judges, which should help alleviate the heavy docket caused by the oil industry and farm crises in that state. Also, Utah will pick up a third bankruptcy judge to handle its overload problems.
In 1979, as part of the Bankruptcy Code, a pilot program was established for new administrative officers known as United States Trustees. It was felt that such an administrative official was needed so that bankruptcy judges did not have potential conflicts of interest. A number of pilot districts were established, including the District for Colorado and Kansas for which Delores Kopel served as U.S. Trustee. Chapter 15 was added to the Bankruptcy Code, which, in effect, amended other parts of the Bankruptcy Code to accommodate those districts having pilot U.S. Trustees Program. After what seemed to be constant questions as to whether the program would continue or would be funded from year to year, with passage of the 1986 Act, Congress finally decided to make it a nationwide program.
Congress did not elect to make permanent the same pilot districts it had established in 1979. Colorado will no longer be teamed with Kansas; instead, the 1986 Act provides for the establishment of a U.S. Trustee for a judicial district established in Colorado, Utah and Wyoming (including those portions of Yellowstone National Park situated in the states of Montana and Idaho).(fn4) In the Rocky Mountain region, there will also be two other U.S. Trustees: one will cover the judicial district established for the states of Alaska, Idaho, Montana, Oregon and Washington,(fn5) and another will be appointed for the judicial districts of Kansas, New Mexico and Oklahoma.(fn6)
The U.S. Attorney General will appoint these U.S. Trustees for terms of five years.(fn7) In addition, the Attorney General may appoint an Acting U.S. Trustee for any region in which there is a vacancy. Therefore, these appointments will, in fact, allow whatever political party is in control of the White House to make new appointments. This, in turn, may have an impact on how relatively creditor-oriented or debtor-oriented bankruptcy cases are administered.
The duties of the U.S. Trustee will include monitoring applications for compensation and reimbursement, and monitoring plans,
disclosure statements, creditors committees and the progress of cases, as well as taking "such action as the United States Trustee deems to be appropriate to ensure that all reports, schedules and fees required to be" are properly and timely filed.(fn8)
In addition, the 1986 Act provides for the appointment of one or more individuals to serve as standing Trustees and Assistant U.S. Trustees.(fn9) Chapter 15 has been stricken from the Bankruptcy Code because the new nationwide trustee program essentially replaces the original pilot U.S. Trustees Program adopted in 1979.
A new filing fee schedule has been established whereby Chapter 7 bankruptcy filings will now cost $90 instead of the present $60. Also, the new family farmer bankruptcy provisions of Chapter 12 can only be initiated with the payment of a $200 filing fee.
The Chapter 11 filing fee has been raised from $200 to $500. There are new quarterly fees based on plan disbursements for each case under Chapter 11 until confirmation, conversion or dismissal. These fees are as follows: $150 when quarterly disbursements are less than $15,000; $300 for quarterly disbursements which are from $15,000 to $149,999; $750 for quarterly disbursements of between $150,000 but less than $300,000; $2,250 for disbursements between $300,000 but less than $3 million dollars; and $3,000 for each quarter in which disbursements are $3 million dollars or more. There will also be a new fee of $400 for requesting conversion of a case from Chapter 7 or Chapter 13 to a case under Chapter 11.(fn10)
Congress hopes that these increases will help make the new nationwide U.S. Trustees Program self-sustaining by making it a pre-requisite to confirmation of a Chapter 11 plan that all fees be paid or provisions be made for payment on the effective date of the plan.
Hopefully, the nationwide U.S. Trustees Program will eliminate potential conflicts of interest and provide for more effective administration of bankruptcy cases.
There has been some controversy as to whether bankruptcy judges have the right to raise issues sua sponte to implement its own orders. To make it clear that the judge has such power, Congress has amended the Bankruptcy Code to state:
No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the Court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement Court orders or rules, or to prevent an abuse of process.(fn11)
The new Chapter 12 is a result of eighteen months of effort by both the House and Senate Judiciary Committees. It creates an experimental, separate chapter modeled after the existing Chapter 13, solely for use by family farmers with up to $1.5 million in debt. The Farmers's Home Administration and the American Bankers' Association withdrew their original opposition to the legislation despite strong concerns of congressional bankruptcy experts that it would place an unfair burden on agricultural lenders.(fn12)
The "family farmer" is generally defined under Chapter 12 as an individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $1.5 million, with at least 80 percent of the debts and 50 percent of their gross income coming from farming operations. If the family farmer is a corporation or partnership, (1) more than 50 percent of the outstanding stock must be held by one family; (2) more than 80 percent of the value of the assets must be related to the farming operation; (3) its aggregate debts must not exceed $1.5 million, with not less than 80 percent arising out of farm operations; and (4) the stock cannot be publicly traded.(fn13)
In addition, to be eligible for Chapter 12, the family farmer must have "regular income," which means that the farmer's annual income is sufficiently stable and regular to enable him to make payments under Chapter 12.(fn14) If the farmer meets these threshold requirements, he is eligible under the new Chapter 12.
There is speculation that both the husband and wife may be able to file "individual" Chapter 12 petitions so that the aggregate debt limit could be raised as high as $3...
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