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REFEREES IN BANKRUPTCY, SPECIAL ACCOUNTS

JUSTIFICATION OF THE ESTIMATE

Mr. STEFAN. We will take up next the item "Referees in Bankruptcy, Special Accounts" and salaries of referees, and will insert pages 176 through 183 of the justifications in the record at this point.

(The matter above referred to is as follows:)

Summary statement relating appropriation estimates to current appropriations

referees in bankruptcy (special accounts) 1947 appropriations (including supplementals). 1948 budget estimates.. 1948 appropriations in annual act.

$730,000 1948 appropriations in supplemental act. Total appropriations for 1948.

730,000 Net difference, 1949 over 1948:

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Statement relating appropriation estimate to current appropriationSalaries

of referees in bankruptcy (special fund) 1947 appropriations1948 budget estimates. 1948 appropriation in annual act---Additions:

Increase in proportion of total expense to be financed from referees' salary fund

$160,000 01 Personal services.

29, 000

$405, 000

189, 000

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Language changes

It is proposed that the following description of the special fund appropriation for salaries of referees in bankruptcy be used in the estimates for 1949 :

“The allowances collected for the services of referees under provisions of the Referees' Salary Act are covered into the United States Treasury and credited to the referees' salary fund. Money in the fund may be used only when appropriated by the Congress, except that any surplus in the fund will be used to reimburse the Treasury for expenditures made from general account appropriations for this purpose in any prior years. (11 U. S. C. 68C (4))."

Objectives

This appropriation is to provide for the salaries of 51 full-time referees in bankruptcy at salaries ranging from $6,500 to $10,000 a year, and 113 part-time referees in bankruptcy at salaries ranging from $500 to $5,000 a year, as authorized by the Bankruptcy Act, as amended, June 28, 1946 (Public Law 464, 79th Cong., 60 Stat. 323). General justification

The method of compensating referees in bankruptcy was changed from a fee basis to a salary basis by the act of June 28, 1946. The act also provided for the establishment in the United States Treasury of a referees' salary fund to be maintained by charges payable by parties to bankruptcy proceedings according to schedules fixed under the act. The salaries of referees are to be paid out of appropriations from this fund to be made annually by the Congress together with such appropriations from the general fund of the Treasury as may be made by the Congress to meet deficiencies in the fund. The initial appropriation made under this system for the fiscal year 1948 totaled $755,000, of which $405,000 was appropriated from the referees' salary fund and $350,000 was appropriated from the general fund of the Treasury. Detailed justification The estimate for salaries of referees is composed of the following amounts: Salaries of 51 full-time referees--

$471, 000 Salaries of 113 part-time referees..

319, 800

Total.--t-
Deduct estimated lapses---

790, 800

6, 800

Total estimate for referees' salaries -

784, 000 The lapses in this appropriation will not be large owing to the fact that the staff is comparatively stable and the district courts do not permit vacancies to exist long as a general rule due to the nature of the duties of the bankruptcy courts. Inoreases for 1949

The items of increase included in the estimate for the fiscal year 1949 are as follows: One additional full-time referee_

$10,000 Increases in compensation of certain part-time referees appointed during the fiscal year 1948_-

15, 000 Increase in the salary of referee at Minneapolis, Minn., from $5,000 per annum to $9,000 per annum.

4, 000

Total_

29, 000 The Judicial Conference of Senior Circuit Judges at the September 1947 session approved the establishment of one additional full-time position at a salary of $10,000 per annum.

The conference also approved the addition of an amount of $15,000 for increase in the salaries of certain part-time referees during the fiscal year 1949. These salary increases will be made in bankruptcy courts where the work load increase warrants such action and the increases will be made in amounts approved by the conference in accordance with the provisions of the Referees' Salary Act.

The amount of $4,000 for the district of Minnesota is to provide for a full-time instead of a part-time referee at Minneapolis. This position was included in the 1948 budget as a part-time position at $5,000 per annum on the recommendation of the committee on bankruptcy administration of the Judicial Conference in order that the referee to be appointed to this position might be free to continue other important duties for the district court in addition to his bankruptcy work. These additional duties will be concluded during the fiscal year 1948 and the work of the bankruptcy court during the fiscal year 1949 will call for the establishment of a full-time position at an annual salary of $9,000.

The volume of bankruptcy business

The number of bankruptcy cases filed in the district courts has increased from a low of 10,196 cases in 1946 to 13,170 cases during the fiscal year 1947. There are strong indications that the increase will continue and will correspond to the upward trend in bankruptcy filings during the years immediately following World War I. It is expected that approximately 20,500 cases will be filed during the fiscal year 1948, and that the total for the country will reach 26,000 during the fiscal year 1949. Earnings for the referees' salary fund

On the basis of 26,000 bankruptcy cases filed during the fiscal year 1949, the estimated income for the referees' salary fund will be as follows: Filing fees : Ch. XIII cases, 3,000 at $10_

$30, 000 All other types of cases, 23,000 at $17

391, 000 Commissions and allowances :

Commissions on estimated realization of 2212 million dollars in
straight bankruptcy cases at 112 percent

337, 500
Commissions on total obligations paid or extended in ch. XI cases,
estimated 71/2 million dollars at 1 percent?

75, 000 Commissions on estimated realization in ch. XIII (wage earner) cases, $500,000 at 1 percent

5,000 Estimated fees allowed to referees and special masters' fees in chs. IX, X, and XII cases.

50, 000

1

888, 500

Total estimated earnings.
Deduct estimated commissions and allowances paid or earned in

partially administered estates on effective date of new system-

50, 000

Net earnings for sala fund__

838, 500 1 Rate fixed by the Judicial Conference of Senior Circuit Judges.

The total estimated earnings indicated are believed to be a conservative estimate and should provide fully for the salaries of the referees during the fiscal · year 1949.

Mr. STEFAN. This has to do with the salaries of referees as authorized by the act of June 28, 1946. The item for this year was $350,000, and you are asking for $190,000.

Mr. O'BRIEN. Before we start on this, I wish you would keep in mind the statements made here a year ago.

Mr. CHANDLER. I hope you will, and I think we are meeting them.

Mr. STEFAN. Because of the importance of this item and the interest of other members of the committee, we will stand adjourned until tomorrow morning at 9:30.

DECEMBER 16, 1947. Mr. STEFAN. The committee will come to order.

Yesterday, when the committee adjourned, we were on the item of salaries of referees. The appropriation for 1948 for salaries was $350,000. For 1949 you are requesting $190,000. You will find the item for referees in three different categories here.

We have already put into the record the justifications beginning on page 176, to and including page 183.

BREAK-DOWN OF SALARIES AND EXPENSES OF REFEREES

Mr. Chandler has submitted a table to the committee which is a break-down of all three items, the 2 years' expenditures and the request for appropriations from special funds. We will put that table in the record at this point.

(The table referred to is as follows:) Table of requested appropriations for bankruptcy system in 1949 compared with 1948

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Mr. STEFAN. When we adjourned Mr. Chandler was testifying.

REDUCTION IN DIRECT APPROPRIATION

Mr. CHANDLER. If I might look at the table for just a minute, I I would say that the total salaries of referees in 1949 are estimated at $784,000 compared with $755,000, the amount of the appropriations for the current year, but the appropriation from the Treasury of $350,000 for the current year will be reduced, if our recommendation is followed, to $190,000.

Mr. STEFAN. Instead of what?

Mr. CHANDLER. $350,000. Instead of payments out of the charges paid by the parties to bankruptcy proceedings of $405,000, which was the amount estimated for the present year, there will go into the special fund and be paid out of these receipts from private parties $594,000.

Now, in the matter of expenses, because of the increase in the expected bankruptcy business, which is now in process, there will be an increase in the number of clerks of a good many referees, and also because of the increase in the prices of their impersonal services, it is estimated that the expenses of referees for which the total cost this year is $675,000 will go up to $804,000. Whereas the appropriation from the Treasury for expenses this year is $350,000, we ask for an appropriation for next year of only $200,000 from the Treasury, and we expect that the contributions from the payments by the parties will rise from $325,000 to $604,000.

In other words, in a general way, we ask for an appropriation for next year from the general fund which will carry approximately a quarter of the costs of the bankruptcy system instead of approximately half, as this year, and the balance will be met by the estimated payments of charges paid by parties to bankruptcy proceedings.

NUMBER AND SALARIES OF REFEREES ESTIMATED FOR 1949

Mr. STEFAN. Now, let us confine ourselves to page 39 of the committee print, "Salaries of referees.”

I notice that there are 51 full-time referees at an estimated cost of $471,000; salaries of 113 part-time referees at $319,800.

Now, deducting estimated lapses of $6,800, you arrive at the total estimate for referees' salaries of $784,000.

I notice that you ask for one additional full-time referee at $10,000; increases in compensation of certain part-time referees appointed during the fiscal year 1948, $15,000, and an increase in the salary of the referee at Minneapolis, Minn., from $5,000 per annum to $9,000 per annum, making a total of $29,000.

Mr. CHANDLER. Yes.

SUCCESS OF NEW SYSTEM OF SALARIED REFEREES

Mr. STEFAN. Will you tell us your opinion of how this is working, Mr. Covey?

Mr. Covey. I have just completed a trip to the west coast, and in general I feel that the system is working very satisfactorily. There are, of course, problems that arise out of the change from the fee system to the salary system. There is the detail of paying expenses, publications, travel expenses, and then, of course, there are all of the other adjustments that have to be made with reference to clerk hire and assistants in the referees' offices and the expenses and so forth that they have.

My impression is that by the end of the year the system will be fully established and will be working smoothly and we shall have flowing into these special funds very substantial amounts of money at rates which I believe will be sufficient to repay to the Treasury substantial amounts on these two advancements. There is no question but what the volume of bankruptcy business is increasing over what it was a year ago. It is commencing to build up, and the types of cases now being filed are much more substantial than they were a year or two ago. In addition to that, there were several relief chapters that were written into the Chandler Act which passed in 1938. Fortunately those chapters have been on the books a number of years. If we encounter financial difficulties, or whatever you choose to call them, the chapter proceedings are here and the procedure is set up, and I feel we are in a position to cushion any difficulty that we may have very considerably. They are being used; there is no question about it.

If you would like to have some figures on each of these chapters, I have a sheet prepared.

Mr. STEFAN. We have voluminous justifications in the record, but we do want you to tell us how many cases you now have and why you think there are going to be more. Give us a break-down.

NUMBER AND TYPE OF CASES HANDLED

in

Mr. Covey. In the first 4 months of this year the filings totaled 5,346. That was an increase over the same 4 months last year, which period there were 3,630 cases filed. If that rate of increase continues during the rest of this fiscal year, there will be filed 20,050 cases, approximately.

Mr. STEFAN. What kinds of cases are those ?

Mr. Covey. Of those cases, in the first 4 months, 312 were involuntary cases. Those cases represent, in the main, substantial asset

Lawyers do not file involuntary proceedings in little cases;

cases.

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