[Congressional Record Volume 151, Number 46 (Monday, April 18, 2005)]
[Extensions of Remarks]
[Pages E677-E678]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005

                                 ______
                                 

                               speech of

                          HON. EDWARD R. ROYCE

                             of california

                    in the house of representatives

                        Thursday, April 14, 2005

  Mr. ROYCE. Mr. Speaker, I want to address my remarks to an important 
provision of S. 256, that is a clarification of Section 303 of the 
Bankruptcy Code. Section 1234 restates and strengthens Congress' long-
standing intent that an involuntary bankruptcy action should not be 
predicated on disputed claims. Otherwise, opportunistic litigants 
seeking to gain advantage in contract disputes may improperly employ 
the leverage of the bankruptcy court.
  Because bankruptcy courts should not be used to resolve disputed 
claims in involuntary cases, the clarification in Section 1234 
reemphasizes that a person who disputes the

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amount of, or liability for, a claim should not be disadvantaged by the 
stigma and expense of an involuntary bankruptcy proceeding. Put simply, 
the bankruptcy courts in this nation should now uniformly hold that any 
claim that is subject to a dispute or litigation, or if it is 
contested, whether as to the amount of the claim, or as to liability 
for the claim, that claim cannot be used to commence an involuntary 
bankruptcy case. This is the bright line that Congress intended to 
create in 1984 because involuntary bankruptcy carries with it, not only 
a responsibility, but the burden on behalf of petitioning creditors to 
be accurate and certain that their provable claims are qualified by 
being without dispute as to either liability or amount before 
commencing an involuntary bankruptcy case. The consequence of bad faith 
or even sloppy work here is more disastrous than in garden-variety 
litigation or through the voluntary use of the bankruptcy laws.
  It is incomprehensible that an involuntary bankruptcy petition could 
be based on claims that are inaccurate as to either liability or 
amount; the injustice that would result from such a filing is so 
manifest. Despite this manifest injustice of national significance, 
judges continue to condone the filing of involuntary petitions brought 
by creditors using disputed claims. For this reason, section 1234 was 
made a necessary part of this legislation.
  There has never been a vote recorded in opposition to this provision 
because it clearly expresses the unanimous will of Congress; it is the 
furthest thing from the mind of any Congressman that an involuntary 
case could be brought on the basis of claims that are disputed. To the 
contrary, as expressed by this legislation, it has been the will of 
Congress since 1984 that any claim used to commence an involuntary case 
must be without dispute.
  The bankruptcy courts should not be enjoyed by involuntary 
petitioning creditors who cannot then prove up claims as to liability 
or amount. That party should stand in the most accountable legal 
position. This clarification is necessary because the intent of 
Congress has been blurred by judicial decisions that go so far as to 
split disputed claims into ``disputed'' and ``undisputed'' parts, or to 
describe disputes as ``potential disputes.'' These decisions are wrong 
and the damage they have caused to the victims of involuntary 
bankruptcy cases brought using such claims is incalculable. The remedy 
for such victims rests on an expansive reading of Section 303(i).
  Finally, it is the intent of Congress, as expressed through the 
unique retroactive application of Section 1234, to require the 
dismissal of any involuntary petition brought by using disputed claims, 
including any bankruptcy cases that are pending as a result of the 
misapplication of Section 303.

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