At press time, the U.S. Senate and House of Representatives are attempting to use the annual budgetary process to achieve enactment of controversial legislation. This deficit-reduction "reconciliation" legislation, designed to achieve federal budgetary savings, is the legislative vehicle for several bankruptcy provisions.

H.R. 4241, the Deficit Reduction Act of 2005, which is pending House floor consideration, provides authority to split the Ninth Circuit and create 24 new permanent or temporary bankruptcy judgeships. Reported from the House Judiciary Committee in late October as a separate bill, the Federal Judgeship and Administrative Efficiency Act of 2005 was folded into the reconciliation bill to improve the probability that the Senate, which has historically opposed splitting the Ninth Circuit and adding new judges, will be forced into negotiations on this controversial issue. The bill would leave only California, Hawaii and the Pacific territories in the Ninth Circuit, while creating a new Twelfth Circuit of Alaska, Arizona, Idaho, Montana, Nevada, Oregon and Washington.

Bankrupt companies terminating their defined benefit plans may have to make a new payment to the Pension Benefit Guaranty Corp. under this House-reported reconciliation legislation. Notably, H.R. 4241 includes a new premium requiring companies that terminate their defined benefit plans through bankruptcy to pay a premium of $1,250 per participant for three years after the company successfully emerges from bankruptcy. Inclusion of similar pension provisions in the Senate reconciliation bill passed on Nov. 3, the Deficit Reduction Omnibus Reconciliation Act of 2005 (S. 1932), ensures that some premium increases will be enacted, and a financial crisis at this federal agency will be at least temporarily averted.

The Senate-passed omnibus bill also establishes several conditions under which the Secretary of Education will repay, and thus discharge, a borrower's liability on a student loan. These payments extend to situations where institutions close or a student's loan eligibility is falsely certified. The Secretary is authorized to seek recovery, including pursuing claims available to the borrower against the institution and its affiliates and principals.

While all these provisions focus on some aspect of bankruptcy, the deficit-reduction bills may well include other controversial provisions, such as the expiring tax cuts on capital gains and dividend income, which will slow down its ultimate passage.

The bill provides that new bankruptcy judgeships would be established as follows:

1. 1 additional bankruptcy judgeship for the eastern and western districts of Arkansas.
2. 1 additional bankruptcy judgeship for the eastern district of California.
3. 2 additional bankruptcy judgeships for the middle district of Florida.
4. 2 additional bankruptcy judgeships for the northern district of Georgia.
5. 1 additional bankruptcy judgeship for the southern district of Georgia.
6. 1 additional bankruptcy judgeship for the eastern district of Kentucky.
7. 1 additional bankruptcy judgeship for the district of Maryland.
8. 3 additional bankruptcy judgeships for the eastern district of Michigan.
9. 1 additional bankruptcy judgeship for the southern district of New York.
10. 1 additional bankruptcy judgeship for the western district of Pennsylvania.
11. 1 additional bankruptcy judgeship for the western district of Tennessee.
12. 1 additional bankruptcy judgeship for the eastern district of Texas, and
13. 1 additional bankruptcy judgeship for the district of Utah.

Temporary judgeships are provided in the northern and middle districts of Florida and in Indiana, Mississippi, Nevada, North Carolina and Ohio.