Siegel v. Fitzgerald
The Supreme Court unanimously ruled that a 2017 law raising quarterly fees for large bankruptcy cases violated the Constitution because it charged debtors in 48 states significantly higher rates than those in North Carolina and Alabama, which used a separately funded bankruptcy system.
The decision reaffirms that the Constitution's uniformity requirement for bankruptcy laws has real force — Congress cannot use an administrative distinction of its own making to justify charging otherwise identical debtors vastly different amounts.
“The Clause does not allow Congress to accomplish in two steps what it forbids in one.”
The Court's core rule explaining why Congress cannot use a self-created administrative distinction to justify charging identical debtors different bankruptcy fees.
How it got here: The bankruptcy court ruled for the Circuit City trustee; a divided Fourth Circuit reversed; the Supreme Court took the case to resolve a split among federal appeals courts over the 2017 fee increase's constitutionality.
The Case in Depth
What happened
The trustee overseeing the wind-down of Circuit City Stores' bankruptcy in Virginia was hit with sharply higher quarterly fees under a 2017 law — paying over $632,000 in three quarters instead of the $56,400 he would have owed under the old rates. That same fee increase was not applied to similar bankruptcy cases in North Carolina and Alabama, which operate under a separately funded bankruptcy system administered by the courts rather than the Justice Department.
The question before the Court
Did Congress violate the Constitution's requirement that bankruptcy laws be uniform across the country when it sharply raised fees for large bankruptcy cases in 48 states but exempted debtors in North Carolina and Alabama from the same increase?
The Court's answer
Yes — Congress violated the Constitution's uniformity requirement when it raised bankruptcy fees for large Chapter 11 cases in 48 states but left debtors in North Carolina and Alabama paying the old, lower rates. The Bankruptcy Clause applies to fee laws, not just rules about which creditors get paid first or what property is protected, because the higher fees came out of the bankruptcy estate and directly reduced the money available to pay creditors — changing the real-world relationship between debtors and those owed money.
The two-state exemption was not justified by any genuine geographic difference between states. The funding gap the fee increase was meant to address existed only because Congress had previously created two separate bankruptcy systems with different funding sources — one relying on debtor fees, the other on the judiciary's general budget. Congress cannot manufacture that kind of artificial structural distinction and then use it to charge otherwise identical debtors vastly different amounts. The Court held that the Clause does not allow Congress to accomplish in two steps what it forbids in one.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
Companies and individuals in large Chapter 11 bankruptcy cases now have a stronger constitutional shield against unequal fee treatment across states. The trustee overseeing Circuit City's bankruptcy may recover some or all of the roughly $576,000 in excess fees it paid. Going forward, Congress must ensure that any bankruptcy fee changes apply equally across all districts nationwide.
What changes now
The case goes back to the Fourth Circuit to decide what remedy is appropriate — options include a full refund of the extra fees the Circuit City trustee paid, a prospective adjustment, raising fees in the two-state program retroactively, or some other solution. Congress has already amended the law so that going forward the Judicial Conference must charge equal fees in all districts. The constitutionality of the two-program system itself remains an open question.
What this does not decide
The Court explicitly did not rule on whether the dual bankruptcy system itself — U.S. Trustee Program in 48 states versus the court-administered Administrator Program in North Carolina and Alabama — is constitutional. It also left entirely open what remedy the Circuit City trustee is entitled to, sending that question back to the Fourth Circuit.
How the Court got there
The legal reasoning, step by step
- The Court first had to decide whether the 2017 fee increase was subject to the Bankruptcy Clause's uniformity requirement at all. The government argued that only laws changing the substance of debtor-creditor relations — like which claims get paid first — must be uniform, while administrative and funding laws are a separate category exempt from that constraint. The Court rejected this distinction: the Clause's language broadly covers 'laws on the subject of Bankruptcies' with no carve-out for administrative measures.
- The Court also shut down a secondary workaround argument: that even if the Clause applied, Congress could rely on the Necessary and Proper Clause — which lets Congress pass laws helpful to carrying out its other powers — to authorize nonuniform fee structures. Prior decisions make clear that Congress cannot use other constitutional powers to evade explicit limitations built into the Bankruptcy Clause. The fee increase also plainly affected debtor-creditor relations, because higher mandatory fees drawn from the bankruptcy estate left less money available to pay creditors.
- Surveying its three prior decisions on the uniformity requirement, the Court distilled a governing principle. First, the Clause allows a generally uniform law to produce different results in different states because of varying state exemptions — that variation is not arbitrary (Moyses, 1902). Second, Congress may target a genuine, externally caused regional crisis with geographically limited bankruptcy legislation (the Regional Rail Reorganization Act Cases, 1974). Third, Congress may not single out specific debtors or create arbitrary geographic distinctions unconnected to any real regional difference (Gibbons, 1982). Together these cases say: flexibility yes, arbitrary geographic disparity no.
- Applying that framework, the 2017 fee increase failed. The geographic disparity — debtors in 48 states paying up to $250,000 per quarter while debtors in two states paid nothing extra — was not a response to any external, regionally isolated problem. The UST Fund shortfall existed only because Congress had itself built a dual system, requiring Trustee Program districts to fund operations through debtor fees while letting Administrator Program districts draw on the judiciary's general budget. Congress cannot first create an artificial structural distinction and then use that distinction to justify charging otherwise identical debtors fundamentally different amounts.
- The Court emphasized the limits of its holding: it did not decide whether the existence of two separate bankruptcy programs is itself constitutional — only that Congress may not impose unequal fee burdens on debtors as a consequence of that dual structure. Congress retains broad authority to define classes of debtors and craft different rules for them, and to respond to genuine geographic problems, but it cannot treat similarly situated debtors differently based solely on an artificial distinction of its own making.
Doctrinal impact
Cases affected by this decision
Reaffirms Hanover Nat. Bank v. Moyses (186 U.S. 181)
A uniform bankruptcy law may still produce different outcomes in different states without violating the Clause.
Distinguishes Regional Rail Reorganization Act Cases (419 U.S. 102)
Congress may respond to a genuine external geographic crisis, but a self-created funding gap does not qualify.
Reaffirms Railway Labor Executives' Assn. v. Gibbons (455 U.S. 457)
Bankruptcy laws must apply uniformly to a defined class of debtors and cannot single out specific groups arbitrarily.