Congress had a flurry of legislative activity before leaving for the Christmas recess on Dec. 22, completing action on some legislation changing the legal landscape on bankruptcy. However, several bills affecting the bankruptcy process, including an increase in bankruptcy filing fees, as well as pension termination surcharges on companies emerging from bankruptcy, remain pending. Scheduled to return at the end of January 2006, Congress is expected to act quickly on the legislation containing the filing fee increases and pension termination surcharges.

Congress did enact “The Violence against Women and Department of Justice Reauthorization Act of 2005” (P.L. 109-162). In reaction to congressional concern that the number of criminal referrals on bankruptcy cases had dropped by 50 percent in recent years, Congress is now requiring the U.S. Trustees Office to report on both criminal referrals for bankruptcy cases, as well as the Trustee Office’s efforts to prevent bankruptcy fraud and abuse. The new law requires the U.S. Trustee to prepare an annual report to Congress detailing the number, types and outcomes of criminal referrals. In addition, as the legislation requires the report to address the U.S. Trustees Program’s effort to focus on the establishment of uniform internal controls to detect common, higher-risk frauds, such as the debtors’ failure to disclose all assets, plans may well be subject to increased scrutiny.

Practitioners should also be aware that statutory changes have been made to assure uniform treatment of discharges in bankruptcy with regard to signing bonuses and re-enlistment incentives for the military services. Title 37 of the U.S. Code specifies pay and allowances for the uniformed services. New amendments to §303a in the National Defense Authorization Act for Fiscal Year 2006 provide that a discharge in bankruptcy will not relieve individuals from their liability to repay the United States for signing bonuses and similar benefits if a member of the military fails to satisfy the requirements and conditions for receipt of the benefit. This new standard will apply to bankruptcy discharge orders if the order is entered less than five years after the date of termination of the agreement or contract or the service on which the debt is based. In the absence of an agreement or contract, the standard will apply based on the date of the termination of the service on which the debt is based. As regulations will need to be promulgated implementing the law, compliance with these changes is likely to be required in the late spring or early summer of 2006.

As noted above, legislation increasing bankruptcy filing fees stalled at the end of the session due to partisan bickering over unrelated issues. These fee increases, contained in the Conference Report on the Deficit Reduction Omnibus Reconciliation Act of 2005, were designed to increase filing fees as follows:

• Chapter 7 fees would be raised from $220 to $245.
• Chapter 13 fees would be raised from $150 to $335.
• Chapter 9 fees would be raised from $1,000 to $2,750.

These fees would go into effect 60 days after enactment of the reconciliation legislation, perhaps as early as the end of March. The proposed changes to chapter 9 fees were an inadvertent drafting error, as Congress intended to raise chapter 11 filing fees instead. While the error has been recognized by Congress, it is unclear at this time whether Congress will be able to make corrections increasing the fees for chapter 11 filers in the Deficit Reduction Act Conference Report or will do so in subsequent technical corrections legislation. Revenue from these fees will go to support the U.S. Court System.

The pending Conference Report on the Deficit Reduction Omnibus Reconciliation Act of 2005 also establishes a employer-paid termination premium of $1,250 per plan participant for three consecutive years for companies that terminate their pension plans while in bankruptcy (§8201). The termination premium provision would be effective for cases filed after Oct. 18, 2005, and will sunset after five years. A Statement of Managers accompanying that Deficit Reduction bill also requests a study by the Government Accountability Office (GA0) regarding the effect of the premium on plan sponsors and members. GAO is expected to report back to the Congress within 2007.

Although the Reconciliation conference report contains premium increases for ongoing plans and plans terminated through bankruptcy, and the Senate and House have passed pension reform bill, Congress adjourned without completing action on sweeping pension reform. Comprehensive pension reform (S. 1783), the Pension Security and Transparency Act, which passed the Senate in mid-November, does not contain the termination premium, although companion House legislation does contain that fee. Conference Action on the major reform legislation is now anticipated to be completed in April.