By Michael Howell
Introduction
The United States bankruptcy system offers a structured process for debtors to restructure their debts and achieve a fresh start. Reflecting this principle, the Constitution’s Bankruptcy Clause mandates a uniformity requirement.[1] This clause empowers Congress to enact “uniform Laws on the subject of Bankruptcies throughout the United States,” ensuring consistent application of bankruptcy laws nationwide and equal treatment for debtors, regardless of location.[2]
Today, the federal bankruptcy system spans 94 judicial districts, each housing its own bankruptcy court. Since 1986, the United States Trustee Program has provided oversight and administrative support for these cases nationwide.[3] This program is funded by quarterly fees paid by Chapter 11 debtors, calculated based on quarterly disbursements.[4]
Six districts in Alabama and North Carolina opted out of the U.S. Trustee program, implementing the Bankruptcy Administrator Program instead.[5] This decision created a dual system, leading to disparities in Chapter 11 debtor fees. The constitutionality of these disparities under the Bankruptcy Clause’s uniformity requirement was unclear until the United States Supreme Court addressed it in Siegel v. Fitzgerald.[6] While Siegel clarified the constitutionality of bankruptcy fees, it left unresolved issues of uniformity, such as the extent required, the responsibility for ensuring it, and what constitutes “true” uniformity in the bankruptcy system.
I. Circuit Split
In 2017, Congress enacted the Bankruptcy Judgeship Act of 2017 to amend the Chapter 11 fee structure and address a funding shortfall in the U.S. Trustee Program, which is funded by debtor fees.[7] The Act increased fees, but this change did not apply to districts using the Bankruptcy Administrator Program in Alabama and North Carolina. As a result, debtors in Trustee Program districts faced higher fees than those in Administrator Program districts.[8]
In In re John Q. Hammons Fall 2006, L.L.C., the Tenth Circuit found the 2017 amendment to the bankruptcy fee structure unconstitutional due to its lack of uniformity.[9] The court ruled that the amendment violated Bankruptcy Clause by imposing higher fees in districts with U.S. Trustees compared to those with bankruptcy administrators.[10] The decision emphasized the importance of equal treatment for similarly situated debtors nationwide, highlighting that the Bankruptcy Clause aims to prevent disparate outcomes based on geographic location.[11]
Additionally, the court rejected the argument that the fee disparity was justified by the U.S. Trustee Program’s funding deficit, stating that Congress cannot bypass the uniformity requirement by enacting legislation that favors certain districts.[12] The court adopted a literal interpretation of the uniformity requirement, emphasizing equal treatment for debtors regardless of where they file for bankruptcy.
In contrast, the Fifth Circuit in Matter of Buffets, L.L.C. upheld the constitutionality of the nonuniform fee structure.[13] The court reasoned that the 2017 amendment was necessary to address the U.S. Trustee Program’s funding deficit and that the uniformity requirement did not prevent Congress from legislating to address specific regional concerns.[14] The Fifth Circuit viewed the fee disparity as a justified response to the unique challenges faced by the U.S. Trustee Program, emphasizing the need for flexibility in addressing regional issues.
II. Siegel v. Fitzgerald
In 2008, Circuit City Stores, Inc. filed for Chapter 11 bankruptcy in the Eastern District of Virginia, a district that utilizes the U.S. Trustee system.[15] The bankruptcy trustee, Alfred H. Siegel, challenged the 2017 Act’s constitutionality, arguing that the nonuniform fee increase violated the Bankruptcy Clause’s uniformity requirement.[16]
The case reached the Supreme Court, which issued a unanimous ruling in 2022.[17] Authored by Justice Sotomayor, the Court held that the nonuniform fee structure violated the Bankruptcy Clause’s uniformity requirement.[18] The Court emphasized that the Clause’s broad language, covering “uniform Laws on the subject of Bankruptcies,” applied to both substantive and administrative bankruptcy laws.[19] It rejected the argument that the fee disparity was necessary to address the U.S. Trustee Program’s funding deficit, asserting that Congress cannot bypass the uniformity requirement by enacting legislation that treats debtors differently based on artificial funding distinctions.[20]
The Court distinguished the 2017 Act from previous cases where it had upheld geographically limited bankruptcy laws, such as in the Regional Rail Reorganization Act Cases.[21] In those instances, the Court found the laws permissible as they addressed isolated regional problems.[22] The rationale was that these targeted laws responded to regional issues rather than arbitrary distinctions.[23] The Regional Rail Reorganization Act specifically targeted rail reorganization in the Northeast and Midwest due to an acute rail transportation crisis unique to those areas.[24]
Conversely, the Court noted that the funding deficit in the U.S. Trustee Program was not a geographically isolated problem but resulted from Congress’s creation of a dual bankruptcy system with differing funding mechanisms.[25] Additionally, the Court clarified that the Necessary and Proper Clause did not grant Congress to circumvent the imposed set by the Bankruptcy Clause.[26] It stated that Congress cannot invoke the Necessary and Proper Clause to enact nonuniform bankruptcy laws that violate the uniformity requirement.[27]
The Siegel decision reaffirmed the significance of the uniformity requirement in bankruptcy law and set a precedent for future challenges to nonuniform debtor treatment. The ruling established that Congress must maintain uniformity in both substantive and administrative aspects of bankruptcy law, ensuring equal treatment of debtors across all districts. It also clarified that Congress cannot justify nonuniform treatment based on disparities it created.
III. Post-Siegel and the Case for True Uniformity
With the Supreme Court ruling that charging different fees to identical bankruptcy debtors in different states was unconstitutional, many believed that uniform bankruptcy rules were settled. However, the reality is more complex. While Siegel marked significant progress toward bankruptcy fairness by eliminating fee disparities, debtors today still must navigate through a maze of inconsistent local rules. The decision highlights three different issues despite the recent ruling.
First, the scope of the uniformity requirement remains uncertain. If charging different fees in different districts violates the Constitution, businesses experience varied hurdles depending on where they file. For example, a small business owner filing Chapter 11 in Louisiana might face different procedural hurdles than in Texas, despite having identical financial situations. In the Southern District of Texas, complex Chapter 11 cases are often managed through specialized procedures, while identical cases in the Eastern District of Louisiana might follow different local protocols regarding everything from first-day motions to disclosure requirements.[28] These disparities can significantly impact a debtor’s reorganization prospects and costs. The Supreme Court has not directly addressed the constitutionality of these local rule variations, leaving lower courts to grapple with this issue.
Second, the responsibility for addressing these disparities is unclear—whether it falls on Congress, the federal judiciary, or litigants. Congress could enact comprehensive bankruptcy reform, though past efforts, like The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, did little to standardize local rules.[29] The federal judiciary could attempt to harmonize rules across 94 different bankruptcy courts, but this would require significant coordination. Alternatively, consumer advocacy groups might seek change through strategic litigation, challenging local rules on a case-by-case basis.
Third, there’s the practical consideration of achieving “true” uniformity in bankruptcy law. Complete standardization may be impractical, as local courts require flexibility to manage unique caseloads and circumstances. For example, bankruptcy courts in Delaware and the Southern District of New York handle a disproportionately large number of complex corporate reorganizations.[30] The challenge is finding the right balance between necessary local adaptation and unconstitutional disparity. The solution may involve establishing a core set of uniform federal rules while permitting limited local variations where necessary.
Hundreds of thousands of Americans seek bankruptcy protection each year, and their chances of achieving a successful fresh start should not be dictated by geography.[31] As more cases progress through the courts, there may finally be clarity on whether the Constitution’s promise of uniform bankruptcy laws extends beyond fees to encompass the entire bankruptcy process.
IV. Conclusion
The Supreme Court’s decision in Siegel v. Fitzgerald marks a significant milestone in bankruptcy jurisprudence, affirming that the Constitution’s uniformity requirement applies to both substantive and administrative aspects of bankruptcy law.[32] By invalidating the nonuniform fee structure, the Court has clearly indicated that geographic discrimination in the bankruptcy system is constitutionally suspect.[33]
True uniformity in bankruptcy remains elusive. The varied local rules and procedures continue to create disparate experiences for debtors nationwide, potentially undermining the constitutional promise of uniform bankruptcy laws.[34] Achieving a more uniform bankruptcy system will likely require coordinated efforts: Congress providing clearer guidance, the judiciary standardizing procedures where possible, and litigants challenging unjustified disparities. Only through these combined efforts can the Founders’ vision of a truly uniform bankruptcy system, offering consistent treatment to all debtors, be realized.
Bankruptcy remains a crucial safety net for businesses and individuals in financial distress and ensuring that this system operates with fairness across geographic boundaries is an essential legal goal. The ongoing work to ensure uniformity for all debtors in the bankruptcy system is vital to upholding constitutional principles and basic fairness.
[1] U.S. Const. art. I, § 8, cl. 4.
[2] Id.
[3] U.S. Department of Justice, About the United States Trustee Program (last updated Nov. 6, 2024), https://www.justice.gov/ust/about-program.
[4] Chapter 11 is a type of bankruptcy filing utilized by businesses, although individuals who meet a certain income threshold can also qualify. Debtors use this type of filing to either restructure or reorganize their debts. United States Courts, Chapter 11 Bankruptcy Basics (Apr. 2, 2025, 10:03 PM), https://www.uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-11-bankruptcy-basics.
[5] See Siegel v. Fitzgerald, 596 U.S. 464, 469 (2022).
[6] Id.
[7] § 1:14. Bankruptcy Judgeship Act of 2017, 1 Bankruptcy Law Manual § 1:14 (5th ed.).
[8] Maria Chutchian, 10th Circuit deepens circuit split over bankruptcy fees with hotel ruling, Reuters (Oct. 5, 2021, 5:42 PM), https://www.reuters.com/legal/transactional/10th-circuit-deepens-circuit-split-over-bankruptcy-fees-with-hotel-ruling-2021-10-05/.
[9] In re John Q. Hammons Fall 2006, LLC., 15 F.4th 1011 (10th Cir. 2021).
[10] Id. at 1023.
[11] Id. at 1024.
[12] Id.
[13] Matter of Buffets, L.L.C., 979 F.3d 366 (5th Cir. 2020).
[14] Id. at 380.
[15] Siegel v. Fitzgerald, 596 U.S. 464, 471.
[16] Id.
[17] Id.
[18] Id. at 476.
[19] Id.
[20] Id. at 479.
[21] Id. at 475; see Regional Rail Reorganization Act Cases, 419 U.S. 102 (1974).
[22] Siegel, 596 U.S. at 477.
[23] Id. at 475.
[24] Id. at 477.
[25] Id.
[26] Id. at 474.
[27] “The Congress shall have Power . . . To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.” U.S. Const. art. I, § 8, cl. 18. The Court interpreted the Necessary and Proper Clause to be included with the Bankruptcy Clause’s “specific” grant of power to Congress to enact and legislate bankruptcy laws.
[28] Bank. S. D. Tex. R. 1075-1. A Complex Cases is a case or a group of affiliated cases in which (i) the total debt owed by the debtors1 exceeds $10 million; (ii) there are more than 50 parties-in-interest; or (iii) any claims against the debtors are publicly traded.
[29] Pub. L. No. 109-8. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was the most significant reform of bankruptcy law since the Bankruptcy Reform Act of 1978. Its primary focus was on tightening eligibility requirements for Chapter 7 filings and adding consumer protections. It did not address the persistent issue of inconsistent local bankruptcy rules across jurisdictions.
[30] Laura N. Coordes, The Geography of Bankruptcy, 68 Vand. L. Rev. 381, 400-05 (2015) (discussing how New York and Delaware have experience in handling large bankruptcy cases).
[31] United States Courts, Bankruptcy Filing Statistics, https://www.uscourts.gov/data-news/reports/statistical-reports/bankruptcy-filings-statistics, (last visited Mar. 2, 2025).
[32] Siegel, 596 U.S. at 479.
[33] Id.
[34] Id.
