CHAPTER 8, A. Filing Fee Waivers in Chapter 7s

• Jurisdiction: United States

A. Filing Fee Waivers in Chapter 7s

Best Practices for Debtors and Case Trustees

ABI Journal

January 2019

Donald R. Lassman

Law Office of Donald R. Lassman

Needham, Mass.

Fee-waiver and installment-payment requests in individual chapter 7 cases are on the rise, putting increasing pressure on the budgets of the courts and chapter 7 trustees.¹ These requests require a balancing of seemingly competing interests: (1) the importance of ensuring funding for the maintenance and operation of the bankruptcy court system,² and (2) equal access to the relief afforded debtors by the bankruptcy laws to those lacking sufficient income to pay the bankruptcy filing fee. This article focuses on the essential elements of fee waivers, providing a framework for debtors' lawyers evaluating the propriety of seeking a fee waiver, and for chapter 7 trustees who are increasingly besieged with cases including fee-waiver requests.

A proceeding under title 11 gives rise to a plethora of fees, which can present a daunting burden for low-income debtors. Section 1930(a) provides for the payment of filing fees and, in chapter 11 cases, quarterly fees to the Office of the U.S. Trustee, while 28 U.S.C. § 1930(b) provides for additional fees in all cases filed under title 11 "as prescribed by the Judicial Conference." Unlike the federal district court, where the payment of fees is not a requirement for commencement of litigation,³ fee waivers historically were not permitted in bankruptcy proceedings because of congressional policy and the absence of a right to a discharge of debt in the U.S. Constitution.⁴

However, Congress changed its policy on fee waivers with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) by adding subsection (f) to § 1930. The first paragraph of subsection (f) states that a court may waive the filing fee, but only for cases filed by individual debtors and only for cases commenced under chapter 7. Moreover, an entitlement to a filing-fee waiver is not absolute.

First, using guidelines established by the Judicial Conference, the court must find under § 1930(f)(1) that (1) the debtor's income is less than 150 percent of the income poverty line for the family size involved, and (2) the debtor is unable to pay the filing fee in installments.⁵ Pointing to the permissive language in § 1930(f)(1) (i.e., the "court may waive..."), courts have concluded that while the "income" and "ability-to-pay" tests are necessary conditions for a waiver, courts might consider other factors when analyzing a fee-waiver application.⁶In addition, § 1930(f)(2) permits courts to waive all other fees for debtors who have received a filing-fee waiver under § 1930(f)(1), while § 1930(f)(3) permits the court to waive bankruptcy fees for any other debtor (i.e., a debtor who did not obtain a filing-fee waiver under § 1930(f)(1)) or creditor in accordance with Judicial Conference policy).⁷

General Principles

The decision to grant or deny a fee-waiver application is within the court's sound discretion.⁸ The debtor bears the burden of proof of establishing both § 1930(f)(1) elements by a preponderance of the evidence.⁹ Yet timing of the analysis is not so well settled.

Some courts have adopted a snapshot rule, ruling that the relevant facts and circumstances are determined on the date that the bankruptcy petition is filed.¹⁰ Other courts have adopted an analysis that includes consideration of future events because debtors have the option of paying the filing fee over a period of up to six months from the date that the bankruptcy petition is filed.¹¹ Other courts have adopted an analysis of the facts and circumstances when the fee-waiver application hearing is held.¹²

The Income Test

The income test is an arithmetic formula that ought to be straightforward in its application. Simply stated, it determines how the debtor's income for a family of a particular size compares to 150 percent of the applicable poverty level income. The applicable poverty level income guidelines, based on family/household size, are issued by the Department of Health and Human Services and are easy to find.¹³ However, § 1930(f) does not contain a definition of either "income" or "family" terms, and it is not clear what income measure is being used by the poverty guidelines.¹⁴

More specifically, the guidelines issued by the Judicial Conference can be helpful to close the definitional gap for the term "income," providing that the "income" to be used for comparison to the poverty income guidelines is "Total Combined Monthly Income" as reported on Schedule I,¹⁵ which is the debtor's income after all applicable deductions.¹⁶ Similarly, Line 2 of Official Form 103B references "take-home pay."

The guidelines also clarify the meaning of the phrase "family size," providing that it "may be defined as the debtor(s), the debtor's spouse (unless separated and not filing jointly) plus...