Feds seek higher fees for Chapter 11 companies

WASHINGTON — Businesses hoping to use bankruptcy protection to stay alive could soon face a new hurdle: bigger bills.

Companies in Chapter 11 would pay significantly more in quarterly fees to the federal government, in some cases triple what they’re paying now, under a budget proposal set to take effect next year.

The U.S. Trustee Program, a Justice Department office that monitors consumer and business bankruptcy cases, has proposed a 30 percent fee increase. It also wants to triple the fees for the biggest companies.

Critics of the proposal, which has been approved by the full House of Representatives and by Senate budget leaders, say it will make restructuring more difficult.

“We must keep in mind that debtors are in Chapter 11 because they need an opportunity to reorganize. To have them now pay a higher percentage of their income to the Office of the U.S. Trustee just puts one more burden on them,” said Jeffrey Wurst, a bankruptcy attorney with Ruskin Moscou Faltischek in New York.

Wurst is a vice president of the Turnaround Management Association, a Chicago-based industry group representing restructuring professionals.

He says the new fees will be particularly onerous for small and midsized companies.

Businesses pay quarterly fees to the U.S. Trustee based on disbursements, which include pre- and post-confirmation payments made by or on behalf of the company, according to the trustee’s Web site.

A company with disbursements of between $1 million and $1.9 million in a quarter, for example, would pay a $5,000 fee now, which would jump to $6,500 under the trustee’s budget proposal for fiscal year 2008.

The office also wants to add new tiers that would force large companies to pay even more.

The most a business is required to pay now is $10,000 per quarter.