Prof. Warren informs us of a cute little valentine Congress included in the "reform" act it just passed, a 30% increase in the filing fee for debtors. Ostensibly to finance the appointment of 28 new judges to the Bankruptcy Court, which will be all-the-more necessary to deal with what the bill's sponsors promised would be a steep decline in filings under the new law, the professor points out that the math just doesn't add up.

Although she sees the surplus from the fee hike going into general revenues, acting as a hidden "tax increase" upon the segment of the population most vulnerable, there is another explanation as to how the money will be spent. In the past, filing fees have gone up in direct correlation with the increase in the minimum assessment paid out in what are called "no asset" cases to the Chapter 7 Trustee, the court-appointed administrator who oversees the debtor's estate in every filing. The Trustee makes money off the big estates that he liquidates on behalf of creditors, for which he receives a pre-set percentage, but his office keeps afloat on what he earns from the "no asset" cases, which constitute the overwhelming majority (say, at least 80% of the cases assigned to him). When there are a lot of estates to administer, that assessment is a steady source of income, and if it's too low, the ability of the Trustee to go after estates with larger assets suffers.

Bankruptcies, of course, are likely going to go down, at least initially, when the act goes into effect in five and a half months. In addition, asset cases will become a rarity under the new law, since debtors with substantial assets free and clear of liens will be forced (along with everyone else whose income exceeds the local average) into Chapter 13, where creditors are repaid through a court-approved plan, or even into the more expensive (and complicated) Chapter 11.
So why the increase? Clearly, Chapter 7 Trustees will continue to play a vital role in the new system; I suspect that the U.S. Trustee will be forced to rely on them to bring many of the motions called for under the new law, including those that seek to convert or dismiss many of the cases that have now been defined as having been filed in "bad faith". But with fewer filings, those administrators will have less money to work with, while incurring exponentially higher costs. In fact, it is precisely this additional paperwork that will make bankruptcy law even more lucrative for its practitioners.

Thus, the seemingly ludicrous fee increase is being promoted to finance some of the chaos that will ensue at the end of the year, when the new law goes into effect. The Trustees are going to see their minimum assessments increased, the court administration will see an increase in its funding, and judges will receive a reduction in their workload, thanks to the appointment of the 28 new judges. And of course, lawyers like myself are going to do quite well under the new law. The only people who lose are going to be the poor suckers who are forced to resort to the bankruptcy courts for relief from their debts. But then again, that's the whole point, isn't it?