Government Shutdown Hits Bankruptcy Watchdogs

By Joseph Checkler and Stephanie Gleason

U.S. bankruptcy courts remain open for business, but the government shutdown leaves them far from full strength.

Only one third of the employees from the U.S. Trustee Program, the Justice Department unit that monitors bankruptcy cases throughout the country, are essential workers who are required to work through the shutdown. The other 780 employees have been furloughed.

That means there are fewer eyes watchdogging ongoing bankruptcy cases, both consumer and corporate. The courts remain open and continue to hold hearings and approve motions, but Congress’s inability to break the stalemate that shut down the government could slow down some ongoing Chapter 11 cases.

At a hearing in the LightSquared Chapter 11 case Monday, Judge Shelley C. Chapman of the Manhattan bankruptcy court said she was concerned that the U.S. trustee wouldn’t be staffed to file potential objections ahead of a key hearing set for next week.

Tracy Hope Davis, the trustee in charge of monitoring the LightSquared case, is still working, but many employees who work for her, including some of the lawyers that prepare court filings, aren’t. Other U.S. trustees have the same issue.

In a contingency plan posted on its website, the Justice Department said the trustees will attempt to “curtail or postpone” appearances at the bankruptcy court while the shutdown is in effect.

The spokeswoman for Ms. Hope Davis’s office is furloughed, and a Justice Department spokeswoman didn’t immediately respond to a request for comment on how the shutdown could affect bankruptcy court cases.

Vito Genna, the clerk of the U.S. Bankruptcy Court for the Southern District of New York, which includes the heavily trafficked Manhattan court, said the court has federal funding for the next 10 days. After that, it’s not completely clear what will happen, although judges and court employees are all deemed essential employees and will continue coming to work.

“We’re going to try to operate as normal as possible, but that’s virtually impossible to do,” said Mr. Genna. “If the U.S. Trustee cannot participate, of course there will be some delays.”

Meanwhile, the court’s chief judge, Cecelia G. Morris, signed an order saying that any bankruptcy lawsuit or contested matter in which a federal agency or employee is involved will be delayed “until the business day after the President signs into law a budget appropriation that restores Department of Justice funding.”

Write to Joseph Checkler at [email protected] and Stephanie Gleason at [email protected].