Do you know when the bankruptcy referees first became employees of the federal government? When did a bankruptcy referee's compensation cease to be fixed on the basis of the assets collected in the cases assigned to the referee? Do you know the original number of bankruptcy referees appointed just after the Bankruptcy Act of 1898 was passed? What was the year in which the lowest number of bankruptcy cases were filed? Do you know when the bankruptcy referees officially started being called bankruptcy judges? Who pays for the bankruptcy judge's black robe, and when did black robes start being worn? What is the present number of authorized bankruptcy judgeships? What is the salary of a bankruptcy judge today? What is the current number of bankruptcy case filings?

The answers to many of these questions may prove surprising to many readers. They certainly did to me as I was doing the research for an article I co-authored in 1995 with Andrew DeNatale, "From Referee in Bankruptcy to Bankruptcy Judge: A Century of Change in the Second Circuit."¹ Guessing the approximate year of the lowest number of filings might be easy for those of you with a good knowledge of U.S. financial history. It was 1946, when only 10,196 cases were filed nationally. World War II brought with it industrial prosperity. A major drop in filings occurred between 1943, with 34,711 filings nationally, and 1944, with only 19,533 filings.² The number of cases filed today make these numbers seem puny. For the 12 months ending Dec. 31, 1998, there were 1,442,549 cases filed.³

There were initially more than 650 referees appointed to administer the then-new Bankruptcy Act of 1898. The number gradually declined thereafter, and by 1939 there were 470 referees, only 44 of whom were doing full-time work.⁴ The 1938 Chandler Act amendments sought to decrease the number of referees by reducing appointments with a view to employing the referees on a full-time basis.⁵

The referees in bankruptcy were not government employees, nor were they paid by the government prior to the effective date of the 1946 Salary Act. Previously, they were viewed as government officials and had a status that can be analogized to that of a special master appointed under Rule 53 of the Federal Rules of Civil Procedure.

From the outset of the adoption of the Bankruptcy Act of 1898, the referees were compensated on a commission basis, which depended on the size of the assets recovered in the bankruptcy case. Naturally, the referees had a vested interest in seeing that cases with the potential for asset recoveries were actively pursued. There is anecdotal evidence that bankruptcy referees personally went out to investigate and pursue estate assets on at least some occasions. The compensation system created, at the very least, the appearance that decisions of the referees could be biased in favor of recovery for the estate. Attempts to limit the referees' compensation became common by the 1930s because the size of the business casualties brought large commissions to the referees. Those efforts died during World War II because, among other things, the rapid fall in the number of cases caused the referees' compensation to drop so dramatically they could hardly make a living.

The 1946 Salary Act, which became effective July 1, 1947, had two goals. For the first time, the referees were to be government employees paid from the newly created Referee's Salary and Expense Fund, which was to be funded with charges made in filed cases, with any deficiency to be paid by the government. The second goal was to increase the number of full-time positions and dramatically reduce the number of part-time positions. The total number of referees was reduced by approximately one-half, so that nationally there were only 114 part-time referees and 59 full-time referees appointed when the 1946 Salary Act became effective. Today there are 322 authorized bankruptcy judgeships.

Looking Ahead

The end of 1999 seems to be an appropriate time to consider what changes may be in prospect in the nature of the job of the bankruptcy judge. When the U.S. Congress passed the Bankruptcy Act of 1898, it was intended to be a temporary measure. However, there has been a bankruptcy law in continuous effect ever since.

Congress again seems poised to adopt what are likely to be major changes in the bankruptcy laws. How will those changes affect the work done by bankruptcy judges? The major thrust of Congressional efforts appears to be an attempt to adopt some type of means testing so that debtors who can afford to pay some yet-to-be-determined portion of their debts out of future income cannot obtain an easy discharge. Will the bankruptcy judges be inundated with hearings about the income and expenses of individual debtors? Will bankruptcy judges be going over the debtor's schedules with the debtor on the stand, under oath, trying to ferret out assets, liabilities and ongoing expenses? This sounds remarkably like what bankruptcy referees, and then bankruptcy judges, did before the advent of the Office of the U.S. Trustees took over the conduct of the first meeting of creditors. At what point will the judicial role become blurred with a "prosecutorial" overtone?

At the edge of the millennium, technological advances are beginning to make access to the bankruptcy court so easy that geography loses much of its hold. No longer do we need to have 650 referees appointed, as was done in 1898 so that reasonable access to justice can be obtained. Now, there is video conferencing that can replace riding the circuit. Computer technologies allow for the filing of bankruptcy documents on the World Wide Web. The paperless court is in the relatively near future.

How will we judges adapt? I, for one, like to read real books made with real paper. I still prepare for court by reading the necessary documents printed on paper. The computer screen is too hard on the eyes for high-volume reading. The paperless court for judges awaits the development of book quality reading devices that tomorrow's papers could be inserted on and we could carry home in our briefcases. CD-ROM technology may be the answer. The needs of the bankruptcy system to process large numbers of cases that do not need any judicial intervention must also make room for the needs of bankruptcy judges who need to have the documents they require for adequate decision-making.

The increasingly easy access to personal information will need to make us cautious as judges about the amount of privacy debtors are entitled to as their cases move through the bankruptcy courts. The concept of sealing documents becomes more problematic when they are simply blips in a computer, that any really good hacker can probably read.

There are a few questions that I posed at the outset of this article that have not been answered yet. The first official use of the term "bankruptcy judge" was in 1973, when it was used in the newly adopted Bankruptcy Rules. In New York City, we do not like to be asked what our salary is because very junior associates at the major Wall Street firms seem to be receiving almost the same $125,000 per annum we get. As for the black robes, judges buy their own robes. Bentley & Simon will tailor a judicial robe out of fabrics ranging from lightweight to thick enough to sit in an unheated courtroom for several hundred dollars. I'm still using the same one I bought in 1982, although it has needed some repairs.⁶

Footnotes

¹ The article is contained in a book, The Development of Bankruptcy & Reorganization Law in the Courts of the Second Circuit of the United States, that was prepared at the request of the U.S. Courts for the Second Circuit Committee on History and Commemorative Events. Return to article

² See Footnote 186 of the Article. Return to article

³ Statistical Tables of the Federal Judiciary for 12 Months Ended Dec. 31, 1998 published by the Administrative Office of the U.S. Courts. Return to article

⁴ See text accompanying Footnotes 18-22 of the Article. Return to article

⁵ See Footnote 178 and accompanying text of the Article. Return to article

⁶ The bankruptcy referees began wearing robes in some districts by the early 1960s. See Article at Footnote 199 and accompanying text. Return to article