Closing Individual Chapter 11 Cases To Avoid Fees

02 Feb Closing Individual Chapter 11 Cases To Avoid Fees

Chapter 11 practitioners like to close their cases as rapidly as possible after the “action” is over, in order to avoid payment of quarterly fees to the U.S. Trustee. But when is the “action” over in an individual chapter 11 case after BAPCPA?

While not overwhelming, the UST quarterly fees are not minor either, adding up to a minimum of at least $6,500 in a five-year open case. But those fees do not have to be paid after the court enters an order closing the case.

In general, the quarterly fee is part of the U.S. Trustee’s operating budget and helps pay for their active involvement in Chapter 11s, where there is no automatic trustee appointment and the debtor’s operations require more supervision and more complex analysis. But once the court approves a payment plan, presumably the active involvement of this agency is no longer necessary at least in the typical scenario.

In the past an individual’s Chapter 11 was largely completed at confirmation of a plan since the confirmation granted a discharge of the pre-existing debts. After discharge, the creditors’ remaining right to payment was based on the approved plan which was carried out by the debtor (or trustee or other agent) outside the court’s oversight generally. The new contract (the plan) could be enforced by any competent tribunal.

Under BAPCPA, an individual does not receive a Chapter 11 discharge until their plan payments to creditors are actually completed, similar to a Chapter 13 proceeding. On the other hand, Sec. 350 does seem to contemplate that the court can reopen a case (for a fee) to deal with new issues that might develop under its continuing jurisdiction, including enforcing the stay, discharge, or even for the entry of the discharge order (as happens routinely in consumer cases where an education certificate is filed late).

The 8th Circuit Bankruptcy Appellate Panel recently concluded that BAPCPA did not bar the bankruptcy court from closing an individual Chapter 11 case after a plan was confirmed as it could reopen it to address any problems that might develop in the interim. It left the decision as to whether to allow such closing orders to the sound discretion of the bankruptcy court, as the bankruptcy judge is most likely to be aware of the complexity of the plan and any issues which remain that may necessitate the court’s — and by implication, the UST’s — involvement and supervision. But the option of moving for a closing order soon after confirmation should be considered in each case.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2018 I am also serving on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website: STLBankruptcy.com
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