June 2012: Lapses in Bankruptcy Judgeships Threaten Turmoil

Washington Watch | June 2012
By Bruce Moyer

Some bankruptcy courts are struggling to stay apace with their caseloads because of the departure of their judges and the failure of Congress to extend their underlying judgeships. The situation involves more than two dozen so-called temporary judgeships that have expired and cannot be filled when a judge leaves under current law. About one in 12 bankruptcy judgeships in the country are at risk, according to the Administrative Office of the U.S. Courts.

As a result, some bankruptcy judges are postponing their retirement plans, while others, including senior judges, are working more hours to keep the wheels of justice turning. More cases also are being handed to visiting judges. Bankruptcy case dockets are at near-record levels: nearly one and one-half million personal and corporate bankruptcies were filed in FY 2011, the first time caseloads have declined since 2007.

In 2005, when bankruptcy cases were skyrocketing, Congress created a legislative fix that is now coming undone. As part ofthe Bankruptcy Abuse Prevention and Consumer Protection Act, Congress created 27 "temporary judgeships" to deal with large number of bankruptcy cases and limited the life of the cases to only five years. Many of these temporary judges are in the busiest judicial districts, including five in Delaware, three in the Central District of California, and one in Nevada.

Temporary bankruptcy judges, who serve just like permanent judges, have the option to serve more than one 14-year term. The 2005 law allowed districts to fill a vacancy if the temporary judge left the bench when the vacancy arose less than five years after the temporary judgeship was created. But Congress, in order to control the total number of bankruptcy judgeships, required that, after five years, vacancies in bankruptcy courts—whether a result of the departure of a permanent judge or a temporary judge—could not be filled.

That five-year period under the law has now expired, and Congress has not revised the law, creating a hazardous situation for courts with temporary judgeships. It means that bankruptcy courts with temporary judgeships stand to lose a permanent position whenever a temporary or permanent judge leaves the bench for any reason. Congressional efforts to extend these judgeships have stalled because of a dispute between lawmakers regarding payment of the estimated cost of $16 million over 10 years for the temporary judges. By comparison to nearly any other item of federal spending, the $16 million price tag is insignificant.

In December, the House of Representatives overwhelmingly passed H.R. 1021, a bill that extends the term of temporary bankruptcy judgeships in 14 states and Puerto Rico for another five years. In late April, the Senate passed a similar (but not identical) version of the legislation. The legislation would pay for the judgeships by increasing fees for filing Chapter 11 bankruptcies from $1,000 to $1,167. The legislation now goes back to the House for its expected approval. The Federal Bar Association supports the bankruptcy legislation, sponsored by the chairman of the House Judiciary Committee Rep. Lamar Smith (R-Texas) and Sen. Chris Coons (D-Del.), a member of the Senate Judiciary Committee.

Some lawmakers, including Sen. Chuck Grassley (R-Iowa) and Sen. Jeff Sessions (R-Ala.) have opposed more judgeships, saying that the courts need to use and share their resources more efficiently. In a report issued in January, the Congressional Budget Office said that bankruptcy judges' salaries and benefits run about $190,000 per judge per year.

Bankruptcy caseloads have surged in recent years as a result of the deep recession, a feeble housing market, and high unemployment rates. Fewer bankruptcy judges can mean that it takes longer to adjudicate cases, which can be deadly for debtors and creditors. Last year, there was a 50 percent increase in bankruptcy-related adversary proceedings, separate civil lawsuits for such relief as injunctions, or determinations of the dischargeability of debts.

Since the 2005 law expired, two bankruptcy judgeships were lost in the Eastern District of New York in late February. Another was lost in New Hampshire in 2010. Meanwhile, some bankruptcy judges who had been intending to retire are being encouraged to put those plans on hold until Congress applies another fix to the situation.

"A decrease in judges will increase caseloads per judge, which will likely slow down decision-making," Richard Levin, chair of Cravath, Swaine & Moore's restructuring practice, told the National Law Journal. "That is likely to hurt the corporate reorganization system, because the judges are dealing with living, operating businesses that need timely decisions to survive."

Bruce Moyer is government relations counsel for the FBA. © 2012 Bruce Moyer. All rights reserved.

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