The United States Supreme Court declared on Monday that a 2017 statute increasing government fees for certain Chapter 11 debtors is unconstitutional because the costs were not applied evenly across the country.
Circuit City Stores Inc, which filed for bankruptcy in 2008 in Richmond, Virginia, and was still in Chapter 11 when the 2017 legislation took effect, won a unanimous Supreme Court decision in favor of a liquidation trust.
According to an opinion issued by Justice Sonia Sotomayor, the Circuit City trust paid $500,000 more in bankruptcy fees than it would have if it had filed in North Carolina or Alabama.
The fee disparity resulted from a system in which most, but not all, U.S. bankruptcy courts receive administrative support.
The fee increase was meant to address a budget shortfall in the Department of Justice’s office.
North Carolina and Alabama opted out of the program when it was rolled out in 1986. Those states did not subject bankrupt companies to the same fee increase as others.