COBankruptcyLaw.info‎ > ‎Calendar‎ > ‎

2014-05-24 My Comment about Proposed GPO 2014-4(b) concerning Waivers of Court Filing Fees

posted May 24, 2014, 2:48 PM by Robin Hunt   [ updated Jun 19, 2015, 11:19 AM by Robin Hunt ]

Proposed GPO 2014-4(b) is the Colorado bankruptcy court's new procedure to deal with applications for waivers of court filing fees (PDF attached below). Previously, a primary consideration has been whether a debtor's household income is at or below 150% of the Federal Poverty Guidelines. Now, stricter requirements and additional cost are being imposed on those least able to afford access to justice.


First, a purely pro se debtor will have a difficult time clearing the new obstacles imposed by the waiver application process, and if a debtor doesn't "strictly comply," the waiver is denied as procedurally "deficient" — not on its merits. Although the new waiver application encourages debtors to get professional help, which as an attorney I applaud, it is a considerable and unwarranted challenge to those minimal income debtors most deserving of fee waivers. 


Secondly, this GPO denies a waiver to any debtor who pays an attorney or bankruptcy petition preparer (BPP) more than the court filing fees. That makes a debtor ineligible for a waiver even though eligible for pro bono bankruptcy assistance through Colorado Legal Services and the Denver Bar Association's Metro Volunteer Lawyers program. Typically, CLS (through MVL) refers qualified bankruptcy matters to private attorneys on a low fee basis ($400 paid by the debtor). I have charged the same amount for clients with household income less than 150% FPG even if they were not referred by CLS/MVL. The proposed GPO is contrary to admonitions by the Colorado Supreme Court and the Colorado Bar Association to provide affordable legal access to people with modest or minimal means.


The GPO discourages minimal income debtors from hiring attorneys instead of BPPs, who should not be charging more than the court filing fees anyway. Why think about hiring an attorney for $400 plus the $335 court filing fees if a BPP advertises $299 including a fee waiver application? BPPs likely will continue to ignore the rules and to file waiver applications in most cases, whether warranted or not. Unlike attorneys, after all, BPPs do not have to deal with the nuisance of processing installment payments for court filing fees if a waiver is denied. 


Thirdly, the GPO subjects any debtor who does not pay an attorney or BPP more than the court filing fees amount to a two-pronged test designed to disqualify a minimal income debtor from the fee waiver.1 The first prong reads, in relevant part, as follows: "If . . . the applicant's disposable earnings as defined [by Colo.Rev.Stat. § 13-54-104(1)] for the 120 days prior to the filing of the bankruptcy petition equaled . . . one-quarter of the current filing fee . . . , the waiver application must be denied."


The GPO is drafted inaccurately. What the GPO actually provides is that a waiver is denied if a debtor's entire disposable earnings (not just 25%) for the full 120 days prepetition (not just monthly) "equaled [sic] . . . one-quarter" of the filing fees. In contrast, the Instructions to proposed GPO "2014-3(b)" [sic] and proposed Local Bankruptcy Form 1006-1.1 make clear the court's intent at paragraph 7:  Deny a waiver if 25% of the disposable earnings received within 120 days prepetition exceeds the court filing fees. Based on the intent in the instructions, the first part of paragraph 5 in the GPO should be amended to read: 


          5.  If the application is complete and TWENTY-FIVE PERCENT OF the applicant’s disposable earnings as defined above for the 120 days prior to the filing of the bankruptcy petition equaled EXCEEDS either (a) one-quarter of the current filing fee or (b) . . . , the waiver application must be denied.


This amendment would address the inconsistency between the GPO language and the intent expressed in the instructions, but it does not resolve my objections to the adverse effects of the GPO on debtors whose household income is less than 150% of the Federal Poverty Guidelines.


Even that treatment seems based on an assumption that a full 25% of any debtor's disposable earnings is subject to garnishment by a judgment creditor. On the contrary, a debtor's earnings are exempt from any garnishment if the weekly disposable earnings are less than thirty times the federal or state minimum wage. See Colo.Rev.Stat. § 13-54-104(2). The public policy rationale is that income below thirty times the minimum weekly wage is not really "disposable," it's necessary for basic living. Even if the GPO were amended, a debtor whose prepetition earnings are entirely exempt from garnishment by a judgment creditor and are less than 150% of the Federal Poverty Guidelines could be denied a fee waiver. 


For example, let's consider a hypothetical minimal income debtor whose household size is one and whose weekly disposable earnings total $240 (30 times the Colorado minimum wage of $8). The debtor's earnings are exempt from garnishment by a judgment creditor, and the debtor typically has household income less than 150% of the Federal Poverty Guidelines ($17,505). Under the current waiver procedure, that debtor is granted a waiver. Under the language of the GPO as proposed, however, the debtor would be denied a waiver because the debtor's entire disposable earnings for 120 days are well above the court filing fees. Even if the proposal were amended to read as intended, 25% of the disposable earnings, court filing fees are not waived for the debtor. Twenty-five percent ($260) of the monthly disposable earnings ($1,040) exceeds one-quarter ($83.75) of court filing fees ($335).


Moreover, the proposed GPO could result in a double jeopardy for minimal income debtors. Many debtors file bankruptcy in response to a garnishment. A bankruptcy trustee can recover prepetition garnishments totaling $600 or more as an avoidable preference. In waiver cases, the court filing fees waived for the debtor must be paid from any funds collected by a trustee on behalf of the bankruptcy estate. In such a case, under the current waiver procedure, the hypothetical debtor above would not have to pay the court filing fees because of the waiver, and the fees would be paid from any turn over of avoidable preferences or nonexempt assets. Under the proposed GPO, however, the hypothetical debtor is denied a waiver and has to pay the filing fees even though funds may be available from the estate because of, by way of example, a prepetition bank garnishment. The proposed GPO continues the effect postpetition of a prepetition garnishment on a minimal income debtor:  Pay the filing fees in installments after denial of the waiver, even though funds may be available from an avoidable preference, or have a "fresh start" not just deferred, but dismissed.


In sum, GPO 2014-4(b) imposes a regressive "tax" or "user fee" on people least able to afford it. Despite statements that there is a work in progress to deal with BPPs, who contribute significantly to fee waiver and other abuses, there is nothing in the proposed rules or GPOs to regulate BPPs or to actually hold them accountable. GPO 2014-4(b) continues a tendency by the bankruptcy court of burdening honest debtors and attorneys without effectively addressing real sources of abuse in the bankruptcy system.


__________


    1  The second prong is more likely to affect debtors using BPPs instead of attorneys. Again, the actual GPO language seems at odds with the intent stated in the instructions. Let's assume the intent is to deny a waiver if 25% of the average monthly disposable earnings for 120 days prepetition exceeds "the difference between the amount paid to a third party in connection with the bankruptcy case and one-half of the current filing fee." If a hypothetical debtor whose disposable earnings are only 100% FPG ($11,490) pays a BPP $200, which is less than many charge, a waiver is denied because 25% ($239.38) of the debtor's monthly disposable earnings ($957.50) exceeds the difference ($32.50) between the BPP fee and one-half ($167.50) of the court filing fees ($335).


GPO 2014-4(b)(5)(b) is likely to be relevant when a BPP is involved. A number of BPPs are significant sources of fee waiver abuses. Certain BPPs charge more than a reasonable fee. The current GPO does not address the use by BPPs of fee waivers as a marketing tool. Hence, I propose that a new paragraph be added to address BPP abuses. The new paragraph should be inserted after paragraph 4 and before paragraph 5, and paragraphs should be renumbered accordingly. The existing paragraphs 4 and 5 with the new paragraph should be amended to read:


4.  If the application is complete and the applicant (or a third party on behalf of the applicant) HAS paid OR HAS PROMISED TO PAY an attorney or bankruptcy petition preparer/typing service/paralegal an amount equal to or greater than the current filing fee in connection with the bankruptcy filing, the application shall be denied.


5.  IF THE APPLICATION IS COMPLETE AND THE APPLICANT (OR A THIRD PARTY ON BEHALF OF THE APPLICANT) HAS PAID OR HAS PROMISED TO PAY A BANKRUPTCY PETITION PREPARER, TYPING SERVICE, PARALEGAL, OR ANYONE WHO IS NOT A LAWYER AN AMOUNT EQUAL TO OR GREATER THAN FIFTY PERCENT OF THE CURRENT FILING FEE IN CONNECTION WITH THE BANKRUPTCY FILING, THE APPLICATION SHALL BE DENIED, AND ANY BANKRUPTCY PETITION PREPARER, TYPING SERVICE, PARALEGAL, OR NON-LAWYER WHO ASSISTED THE APPLICANT WITH THE DENIED APPLICATION SHALL BE SUBJECT TO SANCTIONS FOR ENGAGING IN CONDUCT IN VIOLATION OF 11 U.S.C. § 110.


5.6.  If the application is complete and TWENTY-FIVE PERCENT OF the applicant’s disposable earnings as defined above for the 120 days prior to the filing of the bankruptcy petition equaled EXCEEDS either (a) one-quarter of the current filing fee or (b) the difference between the amount paid to a third party in connection with the bankruptcy case and one-half of the current filing fee, the waiver application must be denied.


These amendments do not resolve my objections to the adverse effects of the GPO on debtors whose household income is less than 150% of the Federal Poverty Guidelines.

Ċ
Robin Hunt,
May 24, 2014, 7:54 PM
Comments