What effect will the partial federal government shutdown have on bankruptcy proceedings?
As with so many other aspects of the shutdown, there is a short answer and a long answer.
The short answer is easily enough stated. Federal bankruptcy courts remain open.
In this post, however, we will discuss some of the ways that the government shutdown may still affect the bankruptcy process. In particular, the absence of furloughed federal workers from the U.S. Trustee Program could slow down the ability of the courts to work through bankruptcy cases, especially Chapter 11 cases.
Furloughs have cost the Trustee Program 780 workers this week. This means that U.S. bankruptcy trustees are now operating without about two-thirds of their workers.
The absence of the furloughed workers makes it more difficult for trustees to monitor bankruptcy filings. This means reviewing them so that necessary information isn’t missing. It is also important to determine that there were no abuses of the process, such as attempts to hide assets.
Verifying that the means test for a given type of bankruptcy has been met is also part of the process. For example, if someone is over the limit for Chapter 7, they should really be filing Chapter 13, not Chapter 7.
All of these monitoring and reviewing activities are slowed down when the U.S. Trustee is only at one-third strength.
There is also the fact that the bankruptcy courts only have funding for 10 business days. Without a resolution to the shutdown before that time, the effects of the shutdown on bankruptcy proceedings could escalate.
Source: The Wall Street Journal, “Government Shutdown Hits Bankruptcy Watchdogs,” Joseph Checkler and Stephanie Gleason, October 1, 2013