Congressional Campaigning Leaves Tithing Trustee Fee and Judges Salary Increases Hanging

Congressional Campaigning Leaves Tithing Trustee Fee and Judges Salary Increases Hanging

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The House and Senate sprinted to recess for the Nov. 7 elections without completing action on several pending clarifications to bankruptcy law. Bills covering issues ranging from the treatment of tithing to an increase in chapter 7 trustee fees and reforms pertaining to the netting of certain financial transactions were left unfinished.

Early in the morning of Sept. 30, 2006, the Senate passed S. 4044, the Religious Liberty and Charitable Donation Clarification Act of 2006, just minutes after the House recessed. The bipartisan bill, sponsored by Sens. Orrin Hatch (R-Utah) and Barack Obama (D-Ill.), was drafted in response to an Aug. 28, 2006, decision in the Northern District of New York, In re Diagostino. The Senate bill clarifies that chapter 13 debtors with above-median incomes can continue to tithe.

In the Diagostino decision, the court found that above-median income debtors in chapter 13 repayment plans could not deduct charitable contributions as expenses in calculating their disposable income under the means test. The legislation emphasizes Senate concern about this issue and follows up on a letter sent to Attorney General Alberto Gonzales in mid-September by the three key Republican authors of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Sens. Charles Grassley (R-Iowa) Jeff Sessions (R-Ala.) and Hatch. The letter cited congressional intent expressed in the Religious Liberty and Charitable Donation Protection Act of 1998 (PL 105-183) and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (PL 109-8). The letter instructed the attorney general to specifically direct chapter 13 trustees not to object to the inclusion of reasonable charitable contributions in a repayment plan if the contribution met the requirements of the law. The senators also directed the attorney general to "file court papers in appropriate cases to correct this misinterpretation, as well as issue mandatory guidelines to the trustees so they do not object to reasonable charitable contributions in future cases." The Department of Justice (DOJ) has not issued a response that is publicly available, but the DOJ's authority to instruct private chapter 13 trustees may be questioned.

The House of Representatives also passed several other bills that were left hanging in the Senate. While the House approved a $40 increase in the amount of compensation paid per case to chapter 7 trustees as part of H.R. 5585, the Financial Netting Improvements Act, Sens. Russ Feingold (D-Wis.) and Richard Durbin (D-Ill.) purportedly objected to this provision largely because it was opposed by various consumer groups, as it would have effectively forced chapter 7 debtors to fund this increase by having to pay a higher filing fee—i.e., the filing fee and related fees would effectively increase from $299 to $339. The fee hike would have been the fourth in a year.

Although the Senate version of the Finanical Netting Improvements Act stripped the fee increase from the version of H.R. 5585, which passed the Senate on Sept. 30, the changes to bankruptcy law to address issues with netting were passed and could be finalized in November.

Judges' cost of living salary increases for 2007 received swift action in the House during the last week of session. However, the legislation failed to pass the Senate.

With the exception of the trustee fee increases, none of this legislation is particularly partisan. However, it may well remain hostage to the vagaries of a lame duck session.

Journal Date: 
Wednesday, November 1, 2006