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Impact of Possible Federal Government Shutdown on Bankruptcy Courts

With a possible federal government shutdown deadline of Friday at midnight, bankruptcy practitioners are unsure of the possible effect on the operation of the bankruptcy system. The Bankruptcy Judge in Rochester, his staff, and the Court Clerk's office are, of course all federal employees, as is the staff of the United States Trustee's office. 

Bankruptcy trustees are not federal employees, but trustee hearings are held at the U.S. Trustee office in the Federal Building in Rochester, which might not be open to the public if there is a shutdown. PACER, the online filing system for filing bankruptcy petitions, motions and other papers, does not operate in the local federal building and does not require a court clerk to receive the paperwork. But if the system operators of PACER are furloughed by a shutdown, that system will stop operating.

Paul Warren, Chief Clerk to the Bankruptcy Court for the Western District of New York, reported to the Monroe County Bankruptcy Committee on March 30 that the bankruptcy court, along with the rest of the federal judiciary, could be significantly affected in the event of a budget impasse in Washington and a government shut down.

According to the Wall Street Journal Daily Bankruptcy Review blog of February 28 (author: Eric Morath), federal courts might continue to operate, temporarily, based on the fees generated by the courts rather than by money appropriated by Congress. Bankruptcy-generated fees alone could keep all federal courts operating for about two weeks. Mr. Warren reported that bankruptcy court fees generate 98% of fees received by all federal courts.

The US Office of Personnel Management has offered general guidance to federal employees who may be furloughed in a shutdown. In general, non-essential employees would be forbidden to go to work, even on a voluntary basis, and it would be up to Congress to determine, after the shutdown ends, whether they will be paid for their involuntary time off. According to a Washington Post article yesterday (April 5; author Joe Davidson), federal employees are "fed up" or frustrated with the lack of clarity about their likely future.

Online blogs have offered differing opinions on the impact of a shutdown on bankruptcy practice. A March 3 post by the Sader Law Firm in Kansas assures readers that, according to their local court operations manager, new bankruptcy filings would continue even after a bankruptcy filing. And a post filed today by the Bankruptcy Law Network (author: Jill Michaux of Kansas) states that even in a shutdown the bankruptcy courts will remain open and operate in a normal fashion. No authority for that conclusion was cited. On the other hand, a post filed yesterday by Daun Lee of WooebNews states that "certain legal proceedings such as bankruptcy" will be affected by a shutdown, although the effect is not specified.

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Peter R. Scribner, Esq.
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