[Senate Report 105-253]
[From the U.S. Government Publishing Office]
Calendar No. 394
105th Congress Report
SENATE
2d Session 105-253
_______________________________________________________________________
CONSUMER BANKRUPTCY REFORM ACT OF 1998
_______
July 21, 1998.--Ordered to be printed
_______________________________________________________________________
Mr. Hatch, from the Committee on the Judiciary, submitted the following
R E P O R T
together with
ADDITIONAL AND MINORITY VIEWS
[To accompany S. 1301]
The Committee on the Judiciary, to which was referred the
bill (S. 1301) to amend provisions of title 11 and title 18,
United States Code, to provide for consumer bankruptcy
protection, having considered the same, reports favorably
thereon, with an amendment in the nature of a substitute, and
recommends that the bill, as amended, do pass.
CONTENTS
Page
I. Background and need for the legislation.........................22
II. Committee and Subcommittee consideration in the 105th Congress..30
III. Section-by-section analysis.....................................34
IV. Cost estimate...................................................55
V. Regulatory impact statement.....................................65
VI. Additional views of Senator Patrick Leahy.......................66
VII. Additional views of Senator Herb Kohl...........................67
VIII.Additional views of Senators Richard J. Durbin, Russell D.
Feingold, Dianne Feinstein, Herb Kohl, and Robert G. Torricelli.69
IX. Additional views of Senator Richard J. Durbin...................73
X. Minority and dissenting views of Senator Edward M. Kennedy and
Senator Russell D. Feingold.....................................77
XI. Changes in existing law made by the bill, as reported...........99
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Consumer Bankruptcy
Reform Act of 1998''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--NEEDS-BASED BANKRUPTCY
Sec. 101. Conversion.
Sec. 102. Dismissal or conversion.
TITLE II--ENHANCED PROCEDURAL PROTECTIONS FOR CONSUMERS
Sec. 201. Allowance of claims or interests.
Sec. 202. Exceptions to discharge.
Sec. 203. Effect of discharge.
Sec. 204. Automatic stay.
Sec. 205. Discharge.
Sec. 206. Discouraging predatory lending practices.
TITLE III--IMPROVED PROCEDURES FOR EFFICIENT ADMINISTRATION OF THE
BANKRUPTCY SYSTEM
Sec. 301. Notice of alternatives.
Sec. 302. Fair treatment of secured creditors under chapter 13.
Sec. 303. Discouragement of bad faith repeat filings.
Sec. 304. Timely filing and confirmation of plans under chapter 13.
Sec. 305. Application of the codebtor stay only when the stay protects
the debtor.
Sec. 306. Improved bankruptcy statistics.
Sec. 307. Audit procedures.
Sec. 308. Creditor representation at first meeting of creditors.
Sec. 309. Fair notice for creditors in chapter 7 and 13 cases.
Sec. 310. Stopping abusive conversions from chapter 13.
Sec. 311. Prompt relief from stay in individual cases.
Sec. 312. Dismissal for failure to timely file schedules or provide
required information.
Sec. 313. Adequate time for preparation for a hearing on confirmation
of the plan.
Sec. 314. Discharge under chapter 13.
Sec. 315. Nondischargeable debts.
Sec. 316. Credit extensions on the eve of bankruptcy presumed
nondischargeable.
Sec. 317. Definition of household goods and antiques.
Sec. 318. Relief from stay when the debtor does not complete intended
surrender of consumer debt collateral.
Sec. 319. Adequate protection of lessors and purchase money secured
creditors.
Sec. 320. Limitation.
Sec. 321. Miscellaneous improvements.
Sec. 322. Bankruptcy judgeships.
Sec. 323. Preferred payment of child support in chapter 7 proceedings.
Sec. 324. Preferred payment of child support in chapter 13 proceedings.
Sec. 325. Payment of child support required to obtain a discharge in
chapter 13 proceedings.
Sec. 326. Child support and alimony collection.
Sec. 327. Nondischargeability of certain debts for alimony,
maintenance, and support.
Sec. 328. Enforcement of child and spousal support.
Sec. 329. Dependent child defined.
TITLE IV--TECHNICAL CORRECTIONS
Sec. 401. Definitions.
Sec. 402. Adjustment of dollar amounts.
Sec. 403. Extension of time.
Sec. 404. Who may be a debtor.
Sec. 405. Penalty for persons who negligently or fraudulently prepare
bankruptcy petitions.
Sec. 406. Limitation on compensation of professional persons.
Sec. 407. Special tax provisions.
Sec. 408. Effect of conversion.
Sec. 409. Automatic stay.
Sec. 410. Amendment to table of sections.
Sec. 411. Allowance of administrative expenses.
Sec. 412. Priorities.
Sec. 413. Exemptions.
Sec. 414. Exceptions to discharge.
Sec. 415. Effect of discharge.
Sec. 416. Protection against discriminatory treatment.
Sec. 417. Property of the estate.
Sec. 418. Limitations on avoiding powers.
Sec. 419. Preferences.
Sec. 420. Postpetition transactions.
Sec. 421. Technical amendment.
Sec. 422. Setoff.
Sec. 423. Disposition of property of the estate.
Sec. 424. General provisions.
Sec. 425. Appointment of elected trustee.
Sec. 426. Abandonment of railroad line.
Sec. 427. Contents of plan.
Sec. 428. Discharge under chapter 12.
Sec. 429. Extensions.
Sec. 430. Bankruptcy cases and proceedings.
Sec. 431. Knowing disregard of bankruptcy law or rule.
Sec. 432. Effective date; application of amendments.
TITLE I--NEEDS-BASED BANKRUPTCY
SEC. 101. CONVERSION.
Section 706(c) of title 11, United States Code, is amended by
inserting ``or consents to'' after ``requests''.
SEC. 102. DISMISSAL OR CONVERSION.
(a) In General.--Section 707 of title 11, United States Code, is
amended--
(1) by striking the section heading and inserting the
following:
``Sec. 707. Dismissal of a case or conversion to a case under chapter
13'';
and
(2) in subsection (b)--
(A) by inserting ``(1)'' after ``(b)''; and
(B) in paragraph (1), as redesignated by subparagraph
(A) of this paragraph--
(i) in the first sentence--
(I) by striking ``but not'' and
inserting ``or'';
(II) by inserting ``, or, with the
debtor's consent, convert such a case
to a case under chapter 13 of this
title,'' after ``consumer debts''; and
(III) by striking ``substantial
abuse'' and inserting ``abuse''; and
(ii) by striking the last sentence and
inserting the following:
``(2) In considering under paragraph (1) whether the granting of
relief would be an abuse of the provisions of this chapter, the court
shall consider whether--
``(A) under section 1325(b)(1), on the basis of the current
income of the debtor, the debtor could pay an amount greater
than or equal to 20 percent of unsecured claims that are not
considered to be priority claims (as determined under
subchapter I of chapter 5); or
``(B) the debtor filed a petition for the relief in bad
faith.
``(3)(A) If a panel trustee appointed under section 586(a)(1) of
title 28 brings a motion for dismissal or conversion under this
subsection and the court grants that motion and finds that the action
of the counsel for the debtor in filing under this chapter was not
substantially justified, the court shall order the counsel for the
debtor to reimburse the trustee for all reasonable costs in prosecuting
the motion, including reasonable attorneys' fees.
``(B) If the court finds that the attorney for the debtor violated
Rule 9011, at a minimum, the court shall order--
``(i) the assessment of an appropriate civil penalty against
the counsel for the debtor; and
``(ii) the payment of the civil penalty to the panel trustee
or the United States trustee.
``(C) In the case of a petition referred to in subparagraph (B), the
signature of an attorney shall constitute a certificate that the
attorney has--
``(i) performed a reasonable investigation into the
circumstances that gave rise to the petition; and
``(ii) determined that the petition--
``(I) is well grounded in fact; and
``(II) is warranted by existing law or a good faith
argument for the extension, modification, or reversal
of existing law and does not constitute an abuse under
paragraph (1) of this subsection.
``(4)(A) Except as provided in subparagraph (B), the court may award
a debtor all reasonable costs in contesting a motion brought by a party
in interest (other than a panel trustee) under this subsection
(including reasonable attorneys' fees) if--
``(i) the court does not grant the motion; and
``(ii) the court finds that--
``(I) the position of the party that brought the
motion was not substantially justified; or
``(II) the party brought the motion solely for the
purpose of coercing a debtor into waiving a right
guaranteed to the debtor under this title.
``(B) A party in interest that has a claim of an aggregate amount
less than $1,000 shall not be subject to subparagraph (A).
``(5) However, a party in interest may not bring a motion under this
section if the debtor and the debtor's spouse combined, as of the date
of the order for relief, have current monthly total income equal to or
less than the national median household monthly income calculated on a
monthly basis for a household of equal size. However, for a household
of more than 4 individuals, the median income shall be that of a
household of 4 individuals plus $583 for each additional member of that
household.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 7 of title 11, United States Code, is amended by striking the
item relating to section 707 and inserting the following:
``707. Dismissal of a case or conversion to a case under chapter 13.''.
TITLE II--ENHANCED PROCEDURAL PROTECTIONS FOR CONSUMERS
SEC. 201. ALLOWANCE OF CLAIMS OR INTERESTS.
Section 502 of title 11, United States Code, is amended by adding at
the end the following:
``(k)(1) The court may award the debtor reasonable attorneys' fees
and costs if, after an objection is filed by a debtor, the court--
``(A)(i) disallows the claim; or
``(ii) reduces the claim by an amount greater than 20 percent
of the amount of the initial claim filed by a party in
interest; and
``(B) finds the position of the party filing the claim is not
substantially justified.
``(2) If the court finds that the position of a claimant under this
section is not substantially justified, the court may, in addition to
awarding a debtor reasonable attorneys' fees and costs under paragraph
(1), award such damages as may be required by the equities of the
case.''.
SEC. 202. EXCEPTIONS TO DISCHARGE.
Section 523 of title 11, United States Code, is amended--
(1) in subsection (a)(2)(A), by striking ``a false
representation'' and inserting ``a material false
representation upon which the defrauded person justifiably
relied''; and
(2) by striking subsection (d) and inserting the following:
``(d)(1) Subject to paragraph (3), if a creditor requests a
determination of dischargeability of a consumer debt under this section
and that debt is discharged, the court shall award the debtor
reasonable attorneys' fees and costs.
``(2) In addition to making an award to a debtor under paragraph (1),
if the court finds that the position of a creditor in a proceeding
covered under this section is not substantially justified, the court
may award reasonable attorneys' fees and costs under paragraph (1) and
such damages as may be required by the equities of the case.
``(3)(A) A creditor may not request a determination of
dischargeability of a consumer debt under subsection (a)(2) if--
``(i) before the filing of the petition, the debtor made a
good faith effort to negotiate a reasonable alternative
repayment schedule (including making an offer of a reasonable
alternative repayment schedule); and
``(ii) that creditor refused to negotiate an alternative
payment schedule, and that refusal was not reasonable.
``(B) For purposes of this paragraph, the debtor shall have the
burden of proof of establishing that--
``(i) an offer made by that debtor under subparagraph (A)(i)
was reasonable; and
``(ii) the refusal to negotiate by the creditor involved to
was not reasonable.''.
SEC. 203. EFFECT OF DISCHARGE.
Section 524 of title 11, United States Code, is amended by adding at
the end the following:
``(i) The willful failure of a creditor to credit payments received
under a plan confirmed under this title (including a plan of
reorganization confirmed under chapter 11 of this title) in the manner
required by the plan (including crediting the amounts required under
the plan) shall constitute a violation of an injunction under
subsection (a)(2).
``(j) An individual who is injured by the failure of a creditor to
comply with the requirements for a reaffirmation agreement under
subsections (c) and (d), or by any willful violation of the injunction
under subsection (a)(2), shall be entitled to recover--
``(1) the greater of--
``(A)(i) the amount of actual damages; multiplied by
``(ii) 3; or
``(B) $5,000; and
``(2) costs and attorneys' fees.''.
SEC. 204. AUTOMATIC STAY.
Section 362(h) of title 11, United States Code, is amended to read as
follows:
``(h)(1) An individual who is injured by any willful violation of a
stay provided in this section shall be entitled to recover--
``(A) actual damages; and
``(B) reasonable costs, including attorneys' fees.
``(2) In addition to recovering actual damages, costs, and attorneys'
fees under paragraph (1), an individual described in paragraph (1) may
recover punitive damages in appropriate circumstances.''.
SEC. 205. DISCHARGE.
Section 727 of title 11, United States Code, is amended--
(1) in subsection (c), by adding at the end the following:
``(3)(A) A creditor may not request a determination of
dischargeability of a consumer debt under subsection (a) if--
``(i) before the filing of the petition, the debtor made a
good faith effort to negotiate a reasonable alternative
repayment schedule (including making an offer of a reasonable
alternative repayment schedule); and
``(ii) that creditor refused to negotiate an alternative
payment schedule, and that refusal was not reasonable.
``(B) For purposes of this paragraph, the debtor shall have the
burden of proof of establishing that--
``(i) an offer made by that debtor under subparagraph (A)(i)
was reasonable; and
``(ii) the refusal to negotiate by the creditor involved to
was not reasonable.''; and
(2) by adding at the end the following:
``(f)(1) The court may award the debtor reasonable attorneys' fees
and costs in any case in which a creditor filesa motion to deny relief
to a debtor under this section and that motion--
``(A) is denied; or
``(B) is withdrawn after the debtor has replied.
``(2) If the court finds that the position of a party filing a motion
under this section is not substantially justified, the court may assess
against the creditor such damages as may be required by the equities of
the case.''.
SEC. 206. DISCOURAGING PREDATORY LENDING PRACTICES.
Section 502(b) of title 11, United States Code, is amended--
(1) in paragraph (8), by striking ``or'' at the end;
(2) in paragraph (9), by striking the period at the end and
inserting ``; or''; and
(3) by adding at the end the following:
``(10) the claim is based on a secured debt if the creditor
has failed to comply with the requirements of subsection (a),
(b), (c), (d), (e), (f), (g), (h), or (i) of section 129 of the
Truth in Lending Act (15 U.S.C. 1639).''.
TITLE III--IMPROVED PROCEDURES FOR EFFICIENT ADMINISTRATION OF THE
BANKRUPTCY SYSTEM
SEC. 301. NOTICE OF ALTERNATIVES.
(a) In General.--Section 342 of title 11, United States Code, is
amended by striking subsection (b) and inserting the following:
``(b) Before the commencement of a case under this title by an
individual whose debts are primarily consumer debts, that individual
shall be given or obtain (as required in section 521(a)(1), as part of
the certification process under subchapter 1 of chapter 5) a written
notice prescribed by the United States trustee for the district in
which the petition is filed pursuant to section 586 of title 28. The
notice shall contain the following:
``(1) A brief description of chapters 7, 11, 12, and 13 and
the general purpose, benefits, and costs of proceeding under
each of those chapters.
``(2) A brief description of services that may be available
to that individual from an independent nonprofit debt
counseling service.
``(3)(A) The name, address, and telephone number of each
nonprofit debt counseling service with an office located in the
district in which the petition is filed, if any.
``(B) Any nonprofit debt counseling service described in
subparagraph (A) that has registered with the clerk of the
bankruptcy court on or before December 10 of the preceding year
shall be included in the list referred to in that clause,
unless the chief bankruptcy judge of the district involved,
after giving notice to the debt counseling service and the
United States trustee and opportunity for a hearing, orders,
for good cause, that a particular debt counseling service shall
not be so listed.''.
(b) Debtor's Duties.--Section 521 of title 11, United States Code, is
amended--
(1) by inserting ``(a)'' before ``The debtor shall--'';
(2) by striking paragraph (1) and inserting the following:
``(1) file--
``(A) a list of creditors; and
``(B) unless the court orders otherwise--
``(i) a schedule of assets and liabilities;
``(ii) a schedule of current income and
current expenditures;
``(iii) a statement of the debtor's financial
affairs and, if applicable, a certificate--
``(I) of an attorney whose name is on
the petition as the attorney for the
debtor or any bankruptcy petition
preparer signing the petition pursuant
to section 110(b)(1) indicating that
such attorney or bankruptcy petition
preparer delivered to the debtor any
notice required by section 342(b); or
``(II) if no attorney for the debtor
is indicated and no bankruptcy petition
preparer signed the petition, of the
debtor that such notice was obtained
and read by the debtor;
``(iv) copies of any Federal tax returns,
including any schedules or attachments, filed
by the debtor for the 3-year period preceding
the order for relief;
``(v) copies of all payment advices or other
evidence of payment, if any, received by the
debtor from any employer of the debtor in the
period 60 days prior to the filing of the
petition;
``(vi) a statement of the amount of projected
monthly net income, itemized to show how
calculated; and
``(vii) a statement disclosing any reasonably
anticipated increase in income or expenditures
over the 12-month period following the date of
filing;''; and
(3) by adding at the end the following:
``(b)(1) At any time, a creditor, in the case of an individual under
chapter 7 or 13, may file with the court notice that the creditor
requests the petition, schedules, and a statement of affairs filed by
the debtor in the case and the court shall make those documents
available to the creditor who requests those documents.
``(2) At any time, a creditor, in a case under chapter 13, may file
with the court notice that the creditor requests the plan filed by the
debtor in the case and the court shall make that plan available to the
creditor who requests that plan.
``(c) An individual debtor in a case under chapter 7 or 13 shall file
with the court--
``(1) at the time filed with the taxing authority, all tax
returns, including any schedules or attachments, with respect
to the period from the commencement of the case until such time
as the case is closed;
``(2) at the time filed with the taxing authority, all tax
returns, including any schedules or attachments, that were not
filed with the taxing authority when the schedules under
subsection (a)(1) were filed with respect to the period that is
3 years before the order for relief;
``(3) any amendments to any of the tax returns, including
schedules or attachments, described in paragraph (1) or (2);
and
``(4) in a case under chapter 13, a statement subject to the
penalties of perjury by the debtor of the debtor's income and
expenditures in the preceding tax year and monthly income, that
shows how the amounts are calculated--
``(A) beginning on the date that is the later of 90
days after the close of the debtor's tax year or 1 year
after the order for relief, unless a plan has been
confirmed; and
``(B) thereafter, on or before the date that is 45
days before each anniversary of the confirmation of the
plan until the case is closed.
``(d)(1) A statement referred to in subsection (c)(4) shall
disclose--
``(A) the amount and sources of income of the debtor;
``(B) the identity of any persons responsible with the debtor
for the support of any dependents of the debtor; and
``(C) the identity of any persons who contributed, and the
amount contributed, to the household in which the debtor
resides.
``(2) The tax returns, amendments, and statement of income and
expenditures described in paragraph (1) shall be available to the
United States trustee, any bankruptcy administrator, any trustee, and
any party in interest for inspection and copying, subject to the
requirements of subsection (e).
``(e)(1) Not later than 30 days after the date of enactment of the
Consumer Bankruptcy Reform Act of 1998, the Director of the
Administrative Office of the United States Courts shall establish
procedures for safeguarding the confidentiality of any tax information
required to be provided under this section.
``(2) The procedures under paragraph (1) shall include restrictions
on creditor access to tax information that is required to be provided
under this section.
``(3) Not later than 1 year after the date of enactment of the
Consumer Bankruptcy Reform Act of 1998, the Director of the
Administrative Office of the United States Courts shall prepare, and
submit to Congress a report that--
``(A) assesses the effectiveness of the procedures under
paragraph (1); and
``(B) if appropriate, includes proposed legislation--
``(i) to further protect the confidentiality of tax
information; and
``(ii) to provide penalties for the improper use by
any person of the tax information required to be
provided under this section.''.
(c) Title 28.--Section 586(a) of title 28, United States Code, is
amended--
(1) in paragraph (5), by striking ``and'' at the end;
(2) in paragraph (6), by striking the period at the end and
inserting ``; and''; and
(3) by adding at the end the following:
``(7) on or before January 1 of each calendar year, and also
not later than 30 days after any change in the nonprofit debt
counseling services registered with the bankruptcy court,
prescribe and make available on request the notice described in
section 342(b)(3) of title 11 for each district included in the
region.''.
SEC. 302. FAIR TREATMENT OF SECURED CREDITORS UNDER CHAPTER 13.
(a) Restoring the Foundation for Secured Credit.--Section 1325(a) of
title 11, United States Code, is amended--
(1) in paragraph (5), by striking the matter preceding
subparagraph (A) and inserting the following:
``(5) with respect to an allowed claim provided for by the
plan that is secured under applicable nonbankruptcy law by
reason of a lien on property in which the estate has an
interest or is subject to a setoff under section 553--''; and
(2) by adding at the end of the subsection the following
flush sentence:
``For purposes of paragraph (5), section 506 shall not apply to a claim
described in that paragraph.''.
(b) Payment of Holders of Claims Secured by Liens.--Section
1325(a)(5)(B)(i) of title 11, United States Code, is amended to read as
follows:
``(B)(i) the plan provides that the holder of such
claim retain the lien securing such claim until the
debt that is the subject of the claim is fully paid
for, as provided under the plan; and''.
(c) Determination of Secured Status.--Section 506 of title 11, United
States Code, is amended by adding at the end the following:
``(e) Subsection (a) shall not apply to an allowed claim to the
extent attributable in whole or in part to the purchase price of
personal property acquired by the debtor during the 90-day period
preceding the date of filing of the petition.''.
SEC. 303. DISCOURAGEMENT OF BAD FAITH REPEAT FILINGS.
Section 362(c) of title 11, United States Code, is amended--
(1) by inserting ``(1)'' before ``Except as'';
(2) by striking ``(1) the stay'' and inserting ``(A) the
stay'';
(3) by striking ``(2) the stay'' and inserting ``(B) the
stay'';
(4) by striking ``(A) the time'' and inserting ``(i) the
time'';
(5) by striking ``(B) the time'' and inserting ``(ii) the
time''; and
(6) by adding at the end the following:
``(2) Except as provided in subsections (d) through (f), the stay
under subsection (a) with respect to any action taken with respect to a
debt or property securing such debt or with respect to any lease shall
terminate with respect to the debtor on the 30th day after the filing
of the later case if--
``(A) a single or joint case is filed by or against an
individual debtor under chapter 7, 11, or 13; and
``(B) a single or joint case of that debtor (other than a
case refiled under a chapter other than chapter 7 after
dismissal under section 707(b)) was pending during the
preceding year but was dismissed.
``(3) If a party in interest so requests, the court may extend the
stay in a particular case with respect to 1 or more creditors (subject
to such conditions or limitations as the court may impose) after
providing notice and a hearing completed before the expiration of the
30-day period described in paragraph (2) only if the party in interest
demonstrates that the filing of the later case is in good faith with
respect to the creditors to be stayed.
``(4) A case shall be presumed to have not been filed in good faith
(except that such presumption may be rebutted by clear and convincing
evidence to the contrary)--
``(A) with respect to the creditors involved, if--
``(i) more than 1 previous case under any of chapters
7, 11, or 13 in which the individual was a debtor was
pending during the 1-year period described in paragraph
(1);
``(ii) a previous case under any of chapters 7, 11,
or 13 in which the individual was a debtor was
dismissed within the period specified in paragraph (2)
after--
``(I) the debtor, after having received from
the court a request to do so, failed to file or
amend the petition or other documents as
required by this title; or
``(II) the debtor, without substantial
excuse, failed to perform the terms of a plan
that was confirmed by the court; or
``(iii)(I) during the period commencing with the
dismissal of the next most previous case under chapter
7, 11, or 13 there has not been a substantial change in
the financial or personal affairs of the debtor;
``(II) if the case is a chapter 7 case, there is no
other reason to conclude that the later case will be
concluded with a discharge; or
``(III) if the case is a chapter 11 or 13 case, there
is not a confirmed plan that will be fully performed;
and
``(B) with respect to any creditor that commenced an action
under subsection (d) in a previous case in which the individual
was a debtor, if, as of the date of dismissal of that case,
that action was still pending or had been resolved by
terminating, conditioning, or limiting the stay with respect to
actions of that creditor.
``(5)(A) If a request is made for relief from the stay under
subsection (a) with respect to real or personal property of any kind,
and the request is granted in whole or in part, the court may, in
addition to making any other order under this subsection, order that
the relief so granted shall be in rem either--
``(i) for a definite period of not less than 1 year; or
``(ii) indefinitely.
``(B)(i) After an order is issued under subparagraph (A), the stay
under subsection (a) shall not apply to any property subject to such an
in rem order in any case of the debtor.
``(ii) If an in rem order issued under subparagraph (A) so provides,
the stay shall, in addition to being inapplicable to the debtor
involved, not apply with respect to an entity under this title if--
``(I) the entity had reason to know of the order at the time
that the entity obtained an interest in the property affected;
or
``(II) the entity was notified of the commencement of the
proceeding for relief from the stay, andat the time of the
notification, no case in which the entity was a debtor was pending.
``(6) For purposes of this section, a case is pending during the
period beginning with the issuance of the order for relief and ending
at such time as the case involved is closed.''.
SEC. 304. TIMELY FILING AND CONFIRMATION OF PLANS UNDER CHAPTER 13.
(a) Filing of Plan.--Section 1321 of title 11, United States Code, is
amended to read as follows:
``Sec. 1321. Filing of plan
``The debtor shall file a plan not later than 90 days after the order
for relief under this chapter, except that the court may extend such
period if the need for an extension is attributable to circumstances
for which the debtor should not justly be held accountable.''.
(b) Confirmation of Hearing.--Section 1324 of title 11, United States
Code, is amended by adding at the end the following: ``That hearing
shall be held not later than 45 days after the filing of the plan,
unless the court, after providing notice and a hearing, orders
otherwise.''.
SEC. 305. APPLICATION OF THE CODEBTOR STAY ONLY WHEN THE STAY PROTECTS
THE DEBTOR.
Section 1301(b) of title 11, United States Code, is amended--
(1) by inserting ``(1)'' after ``(b)''; and
(2) by adding at the end the following:
``(2)(A) Notwithstanding subsection (c) and except as provided in
subparagraph (B), in any case in which the debtor did not receive the
consideration for the claim held by a creditor, the stay provided by
subsection (a) shall apply to that creditor for a period not to exceed
30 days beginning on the date of the order for relief, to the extent
the creditor proceeds against--
``(i) the individual that received that consideration; or
``(ii) property not in the possession of the debtor that
secures that claim.
``(B) Notwithstanding subparagraph (A), the stay provided by
subsection (a) shall apply in any case in which the debtor is primarily
obligated to pay the creditor in whole or in part with respect to a
claim described in subparagraph (A) under a legally binding separation
or property settlement agreement or divorce or dissolution decree with
respect to--
``(i) an individual described in subparagraph (A)(i); or
``(ii) property described in subparagraph (A)(ii).
``(3) Notwithstanding subsection (c), the stay provided by subsection
(a) shall terminate as of the date of confirmation of the plan, in any
case in which the plan of the debtor provides that the debtor's
interest in personal property subject to a lease with respect to which
the debtor is the lessee will be surrendered or abandoned or no
payments will be made under the plan on account of the debtor's
obligations under the lease.''.
SEC. 306. IMPROVED BANKRUPTCY STATISTICS.
(a) Amendment.--Chapter 6 of part I of title 28, United States Code,
is amended by adding at the end the following:
``Sec. 159. Bankruptcy statistics
``(a) The clerk of each district shall compile statistics regarding
individual debtors with primarily consumer debts seeking relief under
chapters 7, 11, and 13 of title 11. Those statistics shall be in a form
prescribed by the Director of the Administrative Office of the United
States Courts (referred to in this section as the `Office').
``(b) The Director shall--
``(1) compile the statistics referred to in subsection (a);
``(2) make the statistics available to the public; and
``(3) not later than October 31, 1998, and annually
thereafter, prepare, and submit to Congress a report concerning
the information collected under subsection (a) that contains an
analysis of the information.
``(c) The compilation required under subsection (b) shall--
``(1) be itemized, by chapter, with respect to title 11;
``(2) be presented in the aggregate and for each district;
and
``(3) include information concerning--
``(A) the total assets and total liabilities of the
debtors described in subsection (a), and in each
category of assets and liabilities, as reported in the
schedules prescribed pursuant to section 2075 of this
title and filed by those debtors;
``(B) the current total monthly income, projected
monthly net income, and average income and average
expenses of those debtors as reported on the schedules
and statements that each such debtor files under
sections 111, 521, and 1322 of title 11;
``(C) the aggregate amount of debt discharged in the
reporting period, determined as the difference between
the total amount of debt and obligations of a debtor
reported on the schedules and the amount of such debt
reported in categories which are predominantly
nondischargeable;
``(D) the average period of time between the filing
of the petition and the closing of the case;
``(E) for the reporting period--
``(i) the number of cases in which a
reaffirmation was filed; and
``(ii)(I) the total number of reaffirmations
filed;
``(II) of those cases in which a
reaffirmation was filed, the number in which
the debtor was not represented by an attorney;
and
``(III) of those cases, the number of cases
in which the reaffirmation was approved by the
court;
``(F) with respect to cases filed under chapter 13 of
title 11, for the reporting period--
``(i)(I) the number of cases in which a final
order was entered determining the value of
property securing a claim in an amount less
than the amount of the claim; and
``(II) the number of final orders determining
the value of property securing a claim issued;
``(ii) the number of cases dismissed for
failure to make payments under the plan; and
``(iii) the number of cases in which the
debtor filed another case within the 6 years
previous to the filing; and
``(G) the extent of creditor misconduct and any
amount of punitive damages awarded by the court for
creditor misconduct.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 6 of title 28, United States Code, is amended by adding at the
end the following:
``159. Bankruptcy statistics.''.
(c) Effective Date.--The amendments made by this section shall take
effect 18 months after the date of enactment of this Act.
SEC. 307. AUDIT PROCEDURES.
(a) Amendments.--Section 586 of title 28, United States Code, is
amended--
(1) in subsection (a), as amended by section 301 of this Act,
by striking paragraph (6) and inserting the following:
``(6) make such reports as the Attorney General directs,
including the results of audits performed under subsection (f);
and''; and
(2) by adding at the end the following:
``(f)(1)(A) The Attorney General shall establish procedures for the
auditing of the accuracy and completeness of petitions, schedules, and
other information which the debtor is required to provide under
sections 521 and 1322 of title 11, and, if applicable, section 111 of
title 11, in individual cases filed under chapter 7 or 13 of such
title.
``(B) The audits described in subparagraph (A) shall be made in
accordance with generally accepted auditing standards and performed by
independent certified public accountants or independent licensed public
accountants. Those procedures shall--
``(i) establish a method of selecting appropriate qualified
persons to contract with the United States trustee to perform
those audits;
``(ii) establish a method of randomly selecting cases to be
audited according to generally accepted auditing standards,
except that not less than 1 out of every 500 cases in each
Federal judicial district shall be selected for audit;
``(iii) require audits for schedules of income and expenses
which reflect greater than average variances from the
statistical norm of the district in which the schedules were
filed; and
``(iv) establish procedures for--
``(I) reporting the results of those audits and any
material misstatement of income, expenditures, or
assets of a debtor to the Attorney General, the United
States Attorney and the court, as appropriate;
``(II) providing, not less frequently than annually,
public information concerning the aggregate results of
such audits including the percentage of cases, by
district, in which a material misstatement of income or
expenditures is reported; and
``(III) fully funding those audits, including
procedures requiring each debtor with sufficient
available income or assets to contribute to the payment
for those audits, as an administrative expense or
otherwise.
``(2) The United States trustee for each district is authorized to
contract with auditors to perform audits in cases designated by the
United States trustee according to the procedures established under
paragraph (1).
``(3) According to procedures established under paragraph (1), upon
request of a duly appointed auditor, the debtor shall cause the
accounts, papers, documents, financial records, files and all other
papers, things, or property belonging to the debtor as the auditor
requests and that are reasonably necessary to facilitate the audit to
be made available for inspection and copying.
``(4)(A) The report of each audit conducted under this subsection
shall be filed with the court, the Attorney General, and the United
States Attorney, as required under procedures established by the
Attorney General under paragraph (1).
``(B) If a material misstatement of income or expenditures or of
assets is reported under subparagraph (A), a statement specifying that
misstatement shall be filed with the court and the United States
trustee shall--
``(i) give notice thereof to the creditors in the case; and
``(ii) in an appropriate case, in the opinion of the United
States trustee, that requires investigation with respect to
possible criminal violations, the United States Attorney for
the district.''.
(b) Effective Date.--The amendments made by this section shall take
effect 18 months after the date of enactment of this Act.
SEC. 308. CREDITOR REPRESENTATION AT FIRST MEETING OF CREDITORS.
Section 341(c) of title 11, United States Code, is amended by
inserting after the first sentence the following: ``Notwithstanding any
local court rule, provision of a State constitution, any other Federal
or State law that is not a bankruptcy law, or other requirement that
representation at the meeting of creditors under subsection (a) be by
an attorney, a creditor holding a consumer debt or any representative
of the creditor (which may include an entity or an employee of an
entity and may be a representative for more than one creditor) shall be
permitted to appear at and participate in the meeting of creditors in a
case under chapter 7 or 13, either alone or in conjunction with an
attorney for the creditor. Nothing in this subsection shall be
construed to require any creditor to be represented by an attorney at
any meeting of creditors.''.
SEC. 309. FAIR NOTICE FOR CREDITORS IN CHAPTER 7 AND 13 CASES.
Section 342 of title 11, United States Code, is amended--
(1) in subsection (c), by striking ``, but the failure of
such notice to contain such information shall not invalidate
the legal effect of such notice''; and
(2) by adding at the end the following:
``(d)(1) If the credit agreement between the debtor and the creditor
or the last communication before the filing of the petition in a
voluntary case from the creditor to a debtor who is an individual
states an account number of the debtor that is the current account
number of the debtor with respect to any debt held by the creditor
against the debtor, the debtor shall include that account number in any
notice to the creditor required to be given under this title.
``(2) If the creditor has specified to the debtor, in the last
communication before the filing of the petition, an address at which
the creditor wishes to receive correspondence regarding the debtor's
account, any notice to the creditor required to be given by the debtor
under this title shall be given at such address.
``(3) For purposes of this section, the term `notice' shall include--
``(A) any correspondence from the debtor to the creditor
after the commencement of the case;
``(B) any statement of the debtor's intention under section
521(a)(2);
``(C) notice of the commencement of any proceeding in the
case to which the creditor is a party; and
``(D) any notice of a hearing under section 1324.
``(e)(1) At any time, a creditor, in a case of an individual under
chapter 7 or 13, may file with the court and serve on the debtor a
notice of the address to be used to notify the creditor in that case.
``(2) If the court or the debtor is required to give the creditor
notice, not later than 5 days after receipt of the notice under
paragraph (1), that notice shall be given at that address.
``(f) An entity may file with the court a notice stating its address
for notice in cases under chapter 7 or 13. After the date that is 30
days following the filing of that notice, any notice in any case filed
under chapter 7 or 13 given by the court shall be to that address
unless specific notice is given under subsection (e) with respect to a
particular case.
``(g)(1) Notice given to a creditor other than as provided in this
section shall not be effective notice until that notice has been
brought to the attention of the creditor.
``(2) If the creditor has designated a person or department to be
responsible for receiving notices concerning bankruptcy cases and has
established reasonable procedures so that bankruptcy notices received
by the creditor will be delivered to that department or person, notice
shall not be brought to the attention of the creditor until that notice
is received by that person or department.''.
SEC. 310. STOPPING ABUSIVE CONVERSIONS FROM CHAPTER 13.
Section 348(f)(1) of title 11, United States Code, is amended--
(1) in subparagraph (A), by striking ``and'' at the end;
(2) in subparagraph (B)--
(A) by striking ``in the converted case, with allowed
secured claims'' and inserting ``only in a case
converted to chapter 11 or 12 but not in a case
converted to chapter 7, with allowed secured claims in
cases under chapters 11 and 12''; and
(B) by striking the period and inserting ``; and'';
and
(3) by adding at the end the following:
``(C) with respect to cases converted from chapter 13, the
claim of any creditor holding security as of the date of the
petition shall continue to be secured by that security unless
the full amount of that claim determined under applicable
nonbankruptcy law has been paid in full as of the date of
conversion, notwithstanding any valuation or determination of
the amount of an allowed secured claim made for the purposes of
the chapter 13 proceeding.''.
SEC. 311. PROMPT RELIEF FROM STAY IN INDIVIDUAL CASES.
Section 362(e) of title 11, United States Code, is amended--
(1) by inserting ``(1)'' after ``(e)''; and
(2) by adding at the end the following:
``(2) Notwithstanding paragraph (1), in the case of an individual
filing under chapter 7, 11, or 13, the stay under subsection (a) shall
terminate on the date that is 60 days after a request is made by a
party in interest under subsection (d), unless--
``(A) a final decision is rendered by the court during the
60-day period beginning on the date of the request; or
``(B) that 60-day period is extended--
``(i) by agreement of all parties in interest; or
``(ii) by the court for such specific period of time
as the court finds is required for good cause.''.
SEC. 312. DISMISSAL FOR FAILURE TO TIMELY FILE SCHEDULES OR PROVIDE
REQUIRED INFORMATION.
Section 707 of title 11, United States Code, as amended by section
102 of this Act, is amended by adding at the end the following:
``(c)(1) Notwithstanding subsection (a), and subject to paragraph
(2), if an individual debtor in a voluntary case under chapter 7 or 13
fails to file all of the information required under section 521(a)(1)
within 45 days after the filing of the petition commencing the case,
the case shall be automatically dismissed effective on the 46th day
after the filing of the petition.
``(2) With respect to a case described in paragraph (1), any party in
interest may request the court to enter an order dismissing the case.
The court shall, if so requested, enter an order of dismissal not later
than 5 days after that request.
``(3) Upon request of the debtor made within 45 days after the filing
of the petition commencing a case described in paragraph (1), the court
may allow the debtor an additional period of not to exceed 20 days to
file the information required under section 521(a)(1) if the court
finds justification for extending the period for the filing.''.
SEC. 313. ADEQUATE TIME FOR PREPARATION FOR A HEARING ON CONFIRMATION
OF THE PLAN.
Section 1324 of title 11, United States Code, as amended by section
304 of this Act, is amended--
(1) by striking ``After'' and inserting the following:
``(a) Except as provided in subsection (b) and after''; and
(2) by adding at the end the following:
``(b) If not later than 5 days after receiving notice of a hearing on
confirmation of the plan, a creditor objects to the confirmation of the
plan, the hearing on confirmation of the plan may be held no earlier
than 20 days after the first meeting of creditors under section
341(a).''.
SEC. 314. DISCHARGE UNDER CHAPTER 13.
Section 1328(a) of title 11, United States Code, is amended by
striking paragraphs (1) through (3) and inserting the following:
``(1) provided for under section 1322(b)(5);
``(2) of the kind specified in paragraph (2), (4), (5), (8),
or (9) of section 523(a);
``(3) for restitution, or a criminal fine, included in a
sentence on the debtor's conviction of a crime; or
``(4) for restitution, or damages, awarded in a civil action
against the debtor as a result of willful or malicious injury
by the debtor that caused personal injury to an individual or
the death of an individual.''.
SEC. 315. NONDISCHARGEABLE DEBTS.
Section 523(a) of title 11, United States Code, is amended by
inserting after paragraph (14) the following:
``(14A) incurred to pay a debt that is nondischargeable by
reason of section 727, 1141, 1228 (a) or (b), or 1328(b), or
any other provision of this subsection, except for any debt
incurred to pay such a nondischargeable debt in any case in
which--
``(A)(i) the debtor who paid the nondischargeable
debt is a single parent who has 1 or more dependent
children at the time of the order for relief; or
``(ii) there is an allowed claim for alimony to,
maintenance for, or support of a spouse, former spouse,
or child of the debtor payable under a judicial or
administrative order to that spouse or child (but not
to any other person) that was unpaid by the debtor as
of the date of the petition; and
``(B) the creditor is unable to demonstrate that the
debtor intentionally incurred the debt to pay the
nondischargeable debt;''.
SEC. 316. CREDIT EXTENSIONS ON THE EVE OF BANKRUPTCY PRESUMED
NONDISCHARGEABLE.
Section 523(a)(2) of title 11, United States Code, as amended by
section 202 of this Act, is amended--
(1) in subparagraph (A), by striking the semicolon at the end
and inserting the following: ``(and,for purposes of this
subparagraph, consumer debts owed in an aggregate amount greater than
or equal to $400 incurred for goods or services not reasonably
necessary for the maintenance or support of the debtor or a dependent
child of the debtor to a single creditor that are incurred during the
90-day period preceding the date of the order for relief shall be
presumed to be nondischargeable under this subparagraph); or'';
(2) in subparagraph (B), by striking ``or'' at the end; and
(3) by striking subparagraph (C).
SEC. 317. DEFINITION OF HOUSEHOLD GOODS AND ANTIQUES.
Section 101 of title 11, United States Code, is amended by inserting
after paragraph (27) the following:
``(27A) `household goods' has the meaning given that term in
section 444.1(i) of title 16, of the Code of Federal
Regulations (as in effect on the effective date of this
paragraph), which is part of the regulations issued by the
Federal Trade Commission that are commonly known as the `Trade
Regulation Rule on Credit Practices', except that the term
shall also include any tangible personal property reasonably
necessary for the maintenance or support of a dependent
child;''.
SEC. 318. RELIEF FROM STAY WHEN THE DEBTOR DOES NOT COMPLETE INTENDED
SURRENDER OF CONSUMER DEBT COLLATERAL.
(a) Automatic Stay.--Section 362 of title 11, United States Code, as
amended by section 303, is amended--
(1) in subsection (c)(1), in the matter preceding
subparagraph (A), by striking ``(e) and (f)'' and inserting
``(e), (f), and (h)'';
(2) by redesignating subsection (h) as subsection (i); and
(3) by inserting after subsection (g) the following:
``(h) In an individual case under chapter 7, 11, or 13 the stay
provided by subsection (a) is terminated with respect to property of
the estate securing in whole or in part a claim that is in an amount
greater than $3,000, or subject to an unexpired lease with a remaining
term of at least 1 year (in any case in which the debtor owes at least
$3,000 for a 1-year period), if within 30 days after the expiration of
the applicable period under section 521(a)(2)--
``(1)(A) the debtor fails to timely file a statement of
intention to surrender or retain the property; or
``(B) if the debtor indicates in the filing that the debtor
will retain the property, the debtor fails to meet an
applicable requirement to--
``(i) either--
``(I) redeem the property pursuant to section
722; or
``(II) reaffirm the debt the property secures
pursuant to section 524(c); or
``(ii) assume the unexpired lease pursuant to section
365(d) if the trustee does not do so; or
``(2) the debtor fails to timely take the action specified in
a statement of intention referred to in paragraph (1)(A) (as
amended, if that statement is amended before expiration of the
period for taking action), unless--
``(A) the statement of intention specifies
reaffirmation; and
``(B) the creditor refuses to reaffirm the debt on
the original contract terms for the debt.''.
(b) Debtor's Duties.--Section 521(a)(2) of title 11, United States
Code, as redesignated by section 301(b) of this Act, is amended--
(1) in the matter preceding subparagraph (A), by striking
``consumer'';
(2) in subparagraph (B)--
(A) by striking ``forty-five days after the filing of
a notice of intent under this section'' and inserting
``30 days after the first meeting of creditors under
section 341(a)''; and
(B) by striking ``forty-five-day period'' and
inserting ``30-day period''; and
(3) in subparagraph (C), by inserting ``, except as provided
in section 362(h)'' before the semicolon.
SEC. 319. ADEQUATE PROTECTION OF LESSORS AND PURCHASE MONEY SECURED
CREDITORS.
(a) In General.--Chapter 13 of title 11, United States Code, is
amended by adding after section 1307 the following:
``Sec. 1307A. Adequate protection in chapter 13 cases
``(a)(1)(A) On or before the date that is 30 days after the filing of
a case under this chapter, the debtor shall make cash payments in an
amount determined under paragraph (2)(A), to--
``(i) any lessor of personal property; and
``(ii) any creditor holding a claim secured by personal
property to the extent that the claim is attributable to the
purchase of that property by the debtor.
``(B) The debtor or the plan shall continue making the adequate
protection payments until the earlier of the date on which--
``(i) the creditor begins to receive actual payments under
the plan; or
``(ii) the debtor relinquishes possession of the property
referred to in subparagraph (A) to--
``(I) the lessor or creditor; or
``(II) any third party acting under claim of right,
as applicable.
``(2) The payments referred to in paragraph (1)(A) shall be
determined by the court.
``(b)(1) Subject to the limitations under paragraph (2), the court
may, after notice and hearing, change the amount and timing of the
dates of payment of payments made under subsection (a).
``(2)(A) The payments referred to in paragraph (1) shall be payable
not less frequently than monthly.
``(B) The amount of a payment referred to in paragraph (1) shall not
be less than the reasonable depreciation of the personal property
described in subsection (a)(1), determined on a month-to-month basis.
``(c) Notwithstanding section 1326(b), the payments referred to in
subsection (a)(1)(A) shall be continued in addition to plan payments
under a confirmed plan until actual payments to the creditor begin
under that plan, if the confirmed plan provides--
``(1) for payments to a creditor or lessor described in
subsection (a)(1); and
``(2) for the deferral of payments to such creditor or lessor
under the plan until the payment of amounts described in
section 1326(b).
``(d) Notwithstanding sections 362, 542, and 543, a lessor or
creditor described in subsection (a) may retain possession of property
described in that subsection that was obtained in accordance with
applicable law before the date of filing of the petition until the
first payment under subsection (a)(1)(A) is received by the lessor or
creditor.''.
(b) Clerical Amendment.--The table of sections at the beginning of
chapter 13 of title 11, United States Code, is amended by inserting
after the item relating to section 1307 the following:
``1307A. Adequate protection in chapter 13 cases.''.
SEC. 320. LIMITATION.
Section 522 of title 11, United States Code, is amended--
(1) in subsection (b)(2)(A), by inserting ``subject to
subsection (n),'' before ``any property''; and
(2) by adding at the end the following new subsection:
``(n)(1) Except as provided in paragraph (2), as a result of electing
under subsection (b)(2)(A) to exempt property under State or local law,
a debtor may not exempt any amount of interest that exceeds in the
aggregate $100,000 in value in--
``(A) real or personal property that the debtor or a
dependent of the debtor uses as a residence;
``(B) a cooperative that owns property that the debtor or a
dependent of the debtor uses as a residence; or
``(C) a burial plot for the debtor or a dependent of the
debtor.
``(2) The limitation under paragraph (1) shall not apply to an
exemption claimed under subsection (b)(2)(A) by a family farmer for the
principal residence of that farmer.''.
SEC. 321. MISCELLANEOUS IMPROVEMENTS.
(a) Who May Be a Debtor.--Section 109 of title 11, United States
Code, is amended by adding at the end the following:
``(h) Notwithstanding any other provision of this section, an
individual may not be a debtor under this title unless that individual
has, during the 90-day period preceding the date of filing of the
petition of that individual, made a good-faith attempt to create a debt
repayment plan outside the judicial system for bankruptcy law (commonly
referred to as the `bankruptcy system'), through a credit counseling
program (offered through credit counseling services described in
section 111(a)) that has been approved by--
``(1) the United States trustee; or
``(2) the bankruptcy administrator for the district in which
the petition is filed.''.
(b) Chapter 7 Discharge.--Section 727(a) of title 11, United States
Code, is amended--
(1) in paragraph (9), by striking ``or'' at the end;
(2) in paragraph (10), by striking the period and inserting
``; or''; and
(3) by adding at the end the following:
``(11) after the filing of the petition, the debtor failed to
complete an instructional course concerning personal financial
management described in section 111 that was administered or
approved by--
``(A) the United States trustee; or
``(B) the bankruptcy administrator for the district
in which the petition is filed.''.
(c) Chapter 13 Discharge.--Section 1328 of title 11, United States
Code, is amended by adding at the end the following:
``(f) The court shall not grant a discharge under this section to a
debtor, unless after filing a petition the debtor has completed an
instructional course concerning personal financial management described
in section 111 that was administered or approved by--
``(1) the United States trustee; or
``(2) the bankruptcy administrator for the district in which
the petition is filed.''.
(d) Debtor's Duties.--Section 521 of title 11, United States Code, as
amended by sections 301(b) and 318(b) of this Act, is amended by adding
at the end the following:
``(e) In addition to the requirements under subsection (a), an
individual debtor shall file with the court--
``(1) a certificate from the credit counseling service that
provided the debtor services under section 109(h) or other
substantial evidence of a good-faith attempt to create a debt
repayment plan outside the bankruptcy system in the manner
prescribed in section 109(h); and
``(2) a copy of the debt repayment plan developed under
section 109(h) through the credit counseling service referred
to in paragraph (1).''.
(e) Exceptions to Discharge.--Section 523(d) of title 11, United
States Code, as amended by section 202 of this Act, is amended by
striking paragraph (3)(A)(i) and inserting the following:
``(i) before the filing of the petition, the debtor made a
good faith attempt pursuant to section 109(h) to negotiate a
reasonable alternative repayment schedule (including making an
offer of a reasonable alternative repayment schedule); and''.
(f) General Provisions.--
(1) In general.--Chapter 1 of title 11, United States Code,
is amended by adding at the end the following:
``Sec. 111. Credit counseling services; financial management
instructional courses
``(a) The clerk of each district shall maintain a list of credit
counseling services that provide 1 or more programs described in
section 109(h) and that have been approved by--
``(1) the United States trustee; or
``(2) the bankruptcy administrator for the district.
``(b) The United States trustee or each bankruptcy administrator
referred to in subsection (a)(1) shall--
``(1) make available to debtors who are individuals an
instructional course concerning personal financial management,
under the direction of the bankruptcy court; and
``(2) maintain a list of instructional courses concerning
personal financial management that are operated by a private
entity and that have been approvedby the United States trustee
or that bankruptcy administrator.''.
(2) Clerical amendment.--The table of sections at the
beginning of chapter 1 of title 11, United States Code, is
amended by adding at the end the following:
``111. Credit counseling services; financial management instructional
courses.''.
(g) Definitions.--Section 101 of title 11, United States Code, as
amended by section 317 of this Act, is amended--
(1) by inserting after paragraph (13) the following:
``(13A) `debtor's principal residence'--
``(A) means a residential structure, including
incidental property, without regard to whether that
structure is attached to real property; and
``(B) includes an individual condominium or co-
operative unit;''; and
(2) by inserting after paragraph (27A), as added by section
318 of this Act, the following:
``(27B) `incidental property' means, with respect to a
debtor's principal residence--
``(A) property commonly conveyed with a principal
residence in the area where the real estate is located;
``(B) all easements, rights, appurtenances, fixtures,
rents, royalties, mineral rights, oil or gas rights or
profits, water rights, escrow funds, or insurance
proceeds; and
``(C) all replacements or additions;''.
SEC. 322. BANKRUPTCY JUDGESHIPS.
(a) Short Title.--This section may be cited as the ``Bankruptcy
Judgeship Act of 1998''.
(b) Temporary Judgeships.--
(1) Appointments.--The following judgeship positions shall be
filled in the manner prescribed in section 152(a)(1) of title
28, United States Code, for the appointment of bankruptcy
judges provided for in section 152(a)(2) of such title:
(A) One additional bankruptcy judgeship for the
eastern district of California.
(B) Four additional bankruptcy judgeships for the
central district of California.
(C) One additional bankruptcy judgeship for the
southern district of Florida.
(D) Two additional bankruptcy judgeships for the
district of Maryland.
(E) One additional bankruptcy judgeship for the
eastern district of Michigan.
(F) One additional bankruptcy judgeship for the
southern district of Mississippi.
(G) One additional bankruptcy judgeship for the
district of New Jersey.
(H) One additional bankruptcy judgeship for the
eastern district of New York.
(I) One additional bankruptcy judgeship for the
northern district of New York.
(J) One additional bankruptcy judgeship for the
southern district of New York.
(K) One additional bankruptcy judgeship for the
eastern district of Pennsylvania.
(L) One additional bankruptcy judgeship for the
middle district of Pennsylvania.
(M) One additional bankruptcy judgeship for the
western district of Tennessee.
(N) One additional bankruptcy judgeship for the
eastern district of Virginia.
(2) Vacancies.--The first vacancy occurring in the office of
a bankruptcy judge in each of the judicial districts set forth
in paragraph (1) that--
(A) results from the death, retirement, resignation,
or removal of a bankruptcy judge; and
(B) occurs 5 years or more after the appointment date
of a bankruptcy judge appointed under paragraph (1);
shall not be filled.
(c) Extensions.--
(1) In general.--The temporary bankruptcy judgeship positions
authorized for the northern district of Alabama, the district
of Delaware, the district of Puerto Rico, the district of South
Carolina, and the eastern district of Tennessee under section
3(a) (1), (3), (7), (8), and (9) of the Bankruptcy Judgeship
Act of 1992 (28 U.S.C. 152 note) are extended until the first
vacancy occurring in the office of a bankruptcy judge in the
applicable district resulting from the death, retirement,
resignation, or removal of a bankruptcy judge and occurring--
(A) 8 years or more after November 8, 1993, with
respect to the northern district of Alabama;
(B) 10 years or more after October 28, 1993, with
respect to the district of Delaware;
(C) 8 years or more after August 29, 1994, with
respect to the district of Puerto Rico;
(D) 8 years or more after June 27, 1994, with respect
to the district of South Carolina; and
(E) 8 years or more after November 23, 1993, with
respect to the eastern district of Tennessee.
(2) Applicability of other provisions.--All other provisions
of section 3 of the Bankruptcy Judgeship Act of 1992 remain
applicable to such temporary judgeship position.
(d) Technical Amendment.--The first sentence of section 152(a)(1) of
title 28, United States Code, is amended to read as follows: ``Each
bankruptcy judge to be appointed for a judicial district as provided in
paragraph (2) shall be appointed by the United States court of appeals
for the circuit in which such district is located.''.
(e) Travel Expenses of Bankruptcy Judges.--Section 156 of title 28,
United States Code, is amended by adding at the end the following new
subsection:
``(g)(1) In this subsection, the term `travel expenses'--
``(A) means the expenses incurred by a bankruptcy judge for
travel that is not directly related to any case assigned to
such bankruptcy judge; and
``(B) shall not include the travel expenses of a bankruptcy
judge if--
``(i) the payment for the travel expenses is paid by
such bankruptcy judge from the personal funds of such
bankruptcy judge; and
``(ii) such bankruptcy judge does not receive funds
(including reimbursement) from the United States or any
other person or entity for the payment of such travel
expenses.
``(2) Each bankruptcy judge shall annually submit the information
required under paragraph (3) to the chief bankruptcy judge for the
district in which the bankruptcy judge is assigned.
``(3)(A) Each chief bankruptcy judge shall submit an annual report to
the Director of the Administrative Office of the United States Courts
on the travel expenses of each bankruptcy judge assigned to the
applicable district (including the travel expenses of the chief
bankruptcy judge of such district).
``(B) The annual report under this paragraph shall include--
``(i) the travel expenses of each bankruptcy judge, with the
name of the bankruptcy judge to whom the travel expenses apply;
``(ii) a description of the subject matter and purpose of the
travel relating to each travel expense identified under clause
(i), with the name of the bankruptcy judge to whom the travel
applies; and
``(iii) the number of days of each travel described under
clause (ii), with the name of the bankruptcy judge to whom the
travel applies.
``(4)(A) The Director of the Administrative Office of the United
States Courts shall--
``(i) consolidate the reports submitted under paragraph (3)
into a single report; and
``(ii) annually submit such consolidated report to Congress.
``(B) The consolidated report submitted under this paragraph shall
include the specific information required under paragraph (3)(B),
including the name of each bankruptcy judge with respect to clauses
(i), (ii), and (iii) of paragraph (3)(B).''.
SEC. 323. PREFERRED PAYMENT OF CHILD SUPPORT IN CHAPTER 7 PROCEEDINGS.
Section 507(a) of title 11, United States Code, is amended in the
matter preceding paragraph (1), by inserting ``, except that,
notwithstanding any other provision of this title, any expense or claim
entitled to priority under paragraph (7) shall have first priority over
any other expense or claim that has priority under any other provision
of this subsection'' before the colon.
SEC. 324. PREFERRED PAYMENT OF CHILD SUPPORT IN CHAPTER 13 PROCEEDINGS.
Section 1322(b)(1) of title 11, United States Code, is amended by
striking the semicolon at the end and inserting the following: ``and
provide for the payment of any claim entitled to priority under section
507(a)(7) before the payment of any other claim entitled to priority
under section 507(a), notwithstanding the priorities established under
section 507(a).''.
SEC. 325. PAYMENT OF CHILD SUPPORT REQUIRED TO OBTAIN A DISCHARGE IN
CHAPTER 13 PROCEEDINGS.
Title 11, United States Code, is amended--
(1) in section 1325(a)--
(A) in paragraph (5), by striking ``and'' at the end;
(B) in paragraph (6), by striking the period at the
end and inserting ``; and''; and
(C) by adding at the end the following:
``(7) if the debtor is required by a judicial or
administrative order to pay alimony to, maintenance for, or
support of a spouse, former spouse, or child of the debtor, the
debtor has paid all amounts payable under that order for
alimony, maintenance, or support that are due after the date on
which the petition is filed.''; and
(2) in section 1328(a), as amended by section 314 of this
Act, in the matter preceding paragraph (1), by inserting ``,
and with respect to a debtor who is required by a judicial or
administrative order to pay alimony to, maintenance for, or
support of a spouse, former spouse, or child of the debtor,
only after the debtor certifies as of the later of the date of
that completion or the date of certification that all amounts
payable under that order for alimony, maintenance, or support
that are due before the date of that certification have been
paid in accordance with the plan if applicable, or if the
underlying debt is not treated by the plan, paid in full''
after ``completion by the debtor of all payments under the
plan''.
SEC. 326. CHILD SUPPORT AND ALIMONY COLLECTION.
Section 362(b) of title 11, United States Code, is amended--
(1) in paragraph (17), by striking ``or'' at the end;
(2) in paragraph (18), by striking the period at the end and
inserting a semicolon; and
(3) by adding at the end the following:
``(19) under subsection (a) with respect to the withholding
of income pursuant to an order as specified in section 466(b)
of the Social Security Act (42 U.S.C. 666(b)); or
``(20) under subsection (a) with respect to the withholding,
suspension, or restriction of drivers' licenses, professional
and occupational licenses, and recreational licenses pursuant
to State law, as specified in section 466(a)(15) of the Social
Security Act (42 U.S.C. 666(a)(15)) or with respect to the
reporting of overdue support owed by an absent parent to any
consumer reporting agency as specified in section 466(a)(7) of
the Social Security Act (42 U.S.C. 666(a)(7)).''.
SEC. 327. NONDISCHARGEABILITY OF CERTAIN DEBTS FOR ALIMONY,
MAINTENANCE, AND SUPPORT.
Section 523 of title 11, United States Code, as amended by section
202 of this Act, is amended--
(1) in subsection (a), by striking paragraph (5) and
inserting the following:
``(5) to a spouse, former spouse, or child of the debtor--
``(A) for actual alimony to, maintenance for, or
support of that spouse or child;
``(B) that was incurred by the debtor in the course
of a divorce or separation or in connection with a
separation agreement, property settlement agreement,
divorce decree, other order of a court of record, or
determination made in accordance with State or
territorial law by a governmental unit; or
``(C) that is described in subparagraph (A) or (B)
and that is assigned pursuant to section 408(a)(3) of
the Social Security Act (42 U.S.C. 608(a)(3)), or to
the Federal Government, a State, or any political
subdivision of a State,
but not to the extent that the debt (other than a debt
described in subparagraph (C)) is assigned to another entity,
voluntarily, by operation of law, or otherwise;''; and
(2) in subsection (c), by striking ``(6), or (15)'' and
inserting ``or (6)''.
SEC. 328. ENFORCEMENT OF CHILD AND SPOUSAL SUPPORT.
Section 522(c)(1) of title 11, United States Code, is amended by
inserting ``, except that, notwithstanding any other Federal law or
State law relating to exempted property, such exempt property shall be
liable for debts of a kind specified in paragraph (1) or (5) of section
523(a)'' before the semicolon at the end of the paragraph.
SEC. 329. DEPENDENT CHILD DEFINED.
Section 101 of title 11, United States Code, is amended by inserting
after paragraph (14) the following:
``(14A) `dependent child' means, with respect to an
individual, a child who has not attained the age of 18 and who
is a dependent of that individual, within the meaning of
section 152 of the Internal Revenue Code;''.
TITLE IV--TECHNICAL CORRECTIONS
SEC. 401. DEFINITIONS.
Section 101 of title 11, United States Code, as amended by section
317, is amended--
(1) by striking ``In this title--'' and inserting ``In this
title:'';
(2) in each paragraph, by inserting ``The term'' after the
paragraph designation;
(3) in paragraph (35)(B), by striking ``paragraphs (21B) and
(33)(A)'' and inserting ``paragraphs (23) and (35)'';
(4) in each of paragraphs (35A) and (38), by striking ``;
and'' at the end and inserting a period;
(5) in paragraph (51B)--
(A) by inserting ``who is not a family farmer'' after
``debtor'' the first place it appears; and
(B) by striking ``thereto having aggregate'' and all
that follows through the end of the paragraph;
(6) by amending paragraph (54) to read as follows:
``(54) The term `transfer' means--
``(A) the creation of a lien;
``(B) the retention of title as a security interest;
``(C) the foreclosure of a debtor's equity of
redemption; or
``(D) each mode, direct or indirect, absolute or
conditional, voluntary or involuntary, of disposing of
or parting with--
``(i) property; or
``(ii) an interest in property;'';
(7) in each of paragraphs (1) through (35), in each of
paragraphs (36) and (37), and in each of paragraphs (40)
through (56A) (including paragraph (54), as amended by
paragraph (6) of this section), by striking the semicolon at
the end and inserting a period; and
(8) by redesignating paragraphs (4) through (56A) in entirely
numerical sequence, so as to result in numerical paragraph
designations of (4) through (72), respectively.
SEC. 402. ADJUSTMENT OF DOLLAR AMOUNTS.
Section 104 of title 11, United States Code, is amended by inserting
``522(f)(3), 707(b)(5),'' after ``522(d),'' each place it appears.
SEC. 403. EXTENSION OF TIME.
Section 108(c)(2) of title 11, United States Code, is amended by
striking ``922'' and all that follows through ``or'', and inserting
``922, 1201, or''.
SEC. 404. WHO MAY BE A DEBTOR.
Section 109(b)(2) of title 11, United States Code, is amended by
striking ``subsection (c) or (d) of''.
SEC. 405. PENALTY FOR PERSONS WHO NEGLIGENTLY OR FRAUDULENTLY PREPARE
BANKRUPTCY PETITIONS.
Section 110(j)(3) of title 11, United States Code, is amended by
striking ``attorney's'' and inserting ``attorneys' ''.
SEC. 406. LIMITATION ON COMPENSATION OF PROFESSIONAL PERSONS.
Section 328(a) of title 11, United States Code, is amended by
inserting ``on a fixed or percentage fee basis,'' after ``hourly
basis,''.
SEC. 407. SPECIAL TAX PROVISIONS.
Section 346(g)(1)(C) of title 11, United States Code, is amended by
striking ``, except'' and all that follows through ``1986''.
SEC. 408. EFFECT OF CONVERSION.
Section 348(f)(2) of title 11, United States Code, is amended by
inserting ``of the estate'' after ``property'' the first place it
appears.
SEC. 409. AUTOMATIC STAY.
Section 362(b) of title 11, United States Code, as amended by section
326 of this Act, is amended--
(1) in paragraph (19), by striking ``or'' at the end;
(2) in paragraph (20), by striking the period at the end and
inserting a semicolon; and
(3) by adding at the end the following:
``(21) under subsection (a) of this section of any transfer
that is not avoidable under section 544 and that is not
avoidable under section 549;
``(22) under subsection (a)(3) of this section, of the
continuation of any eviction, unlawful detainer action, or
similar proceeding by a lessor against a debtor involving
residential real property in which the debtor resides as a
tenant under a rental agreement; or
``(23) under subsection (a)(3) of this section, of the
commencement of any eviction, unlawful detainer action, or
similar proceeding by a lessor against a debtor involving
residential real property in which the debtor resides as a
tenant under a rental agreement that has terminated.''.
SEC. 410. AMENDMENT TO TABLE OF SECTIONS.
The table of sections for chapter 5 of title 11, United States Code,
is amended by striking the item relating to section 556 and inserting
the following:
``556. Contractual right to liquidate a commodities contract or forward
contract.''.
SEC. 411. ALLOWANCE OF ADMINISTRATIVE EXPENSES.
Section 503(b)(4) of title 11, United States Code, is amended by
inserting ``subparagraph (A), (B), (C), (D), or (E) of'' before
``paragraph (3)''.
SEC. 412. PRIORITIES.
Section 507(a) of title 11, United States Code, as amended by section
323 of this Act, is amended--
(1) in paragraph (3)(B), by striking the semicolon at the end
and inserting a period; and
(2) in paragraph (7), by inserting ``unsecured'' after
``allowed''.
SEC. 413. EXEMPTIONS.
Section 522 of title 11, United States Code, as amended by section
320 of this Act, is amended--
(1) in subsection (f)(1)(A)(ii)(II)--
(A) by striking ``includes a liability designated
as'' and inserting ``is for a liability that is
designated as, and is actually in the nature of,''; and
(B) by striking ``, unless'' and all that follows
through ``support''; and
(2) in subsection (g)(2), by striking ``subsection (f)(2)''
and inserting ``subsection (f)(1)(B)''.
SEC. 414. EXCEPTIONS TO DISCHARGE.
Section 523 of title 11, United States Code, is amended--
(1) in subsection (a)(3), by striking ``or (6)'' each place
it appears and inserting ``(6), or (15)'';
(2) as amended by section 304(e) of Public Law 103-394 (108
Stat. 4133), in paragraph (15), by transferring such paragraph
so as to insert it after paragraph (14) of subsection (a);
(3) in subsection (a)(9), by inserting ``, watercraft, or
aircraft'' after ``motor vehicle'';
(4) in subsection (a)(15), as so redesignated by paragraph
(2) of this subsection, by inserting ``to a spouse, former
spouse, or child of the debtor and'' after ``(15)'';
(5) in subsection (a)(17)--
(A) by striking ``by a court'' and inserting ``on a
prisoner by any court'';
(B) by striking ``section 1915 (b) or (f)'' and
inserting ``subsection (b) or (f)(2) of section 1915'';
and
(C) by inserting ``(or a similar non-Federal law)''
after ``title 28'' each place it appears; and
(6) in subsection (e), by striking ``a insured'' and
inserting ``an insured''.
SEC. 415. EFFECT OF DISCHARGE.
Section 524(a)(3) of title 11, United States Code, is amended by
striking ``section 523'' and all that follows through ``or that'' and
inserting ``section 523, 1228(a)(1), or 1328(a)(1) of this title, or
that''.
SEC. 416. PROTECTION AGAINST DISCRIMINATORY TREATMENT.
Section 525(c) of title 11, United States Code, is amended--
(1) in paragraph (1), by inserting ``student'' before
``grant'' the second place it appears; and
(2) in paragraph (2), by striking ``the program operated
under part B, D, or E of'' and inserting ``any program operated
under''.
SEC. 417. PROPERTY OF THE ESTATE.
Section 541(b)(4) of title 11, United States Code, is amended--
(1) in subparagraph (B)(ii), by inserting ``365 or'' before
``542''; and
(2) by adding ``or'' at the end.
SEC. 418. LIMITATIONS ON AVOIDING POWERS.
Section 546 of title 11, United States Code, is amended by
redesignating the second subsection (g) (as added by section 222(a) of
the Bankruptcy Reform Act of 1994; 108 Stat. 4129) as subsection (h).
SEC. 419. PREFERENCES.
Section 547 of title 11, United States Code, is amended--
(1) in subsection (b), by striking ``subsection (c)'' and
inserting ``subsections (c) and (h)''; and
(2) by adding at the end the following:
``(h) If the trustee avoids under subsection (b) a security interest
given between 90 days and 1 year before the date of the filing of the
petition, by the debtor to an entity that is not an insider for the
benefit of a creditor that is an insider, such security interest shall
be considered to be avoided under this section only with respect to the
creditor that is an insider.''.
SEC. 420. POSTPETITION TRANSACTIONS.
Section 549(c) of title 11, United States Code, is amended--
(1) by inserting ``an interest in'' after ``transfer of'';
(2) by striking ``such property'' and inserting ``such real
property''; and
(3) by striking ``the interest'' and inserting ``such
interest''.
SEC. 421. TECHNICAL AMENDMENT.
Section 552(b)(1) of title 11, United States Code, is amended by
striking ``product'' each place it appears and inserting ``products''.
SEC. 422. SETOFF.
Section 553(b)(1) of title 11, United States Code, is amended by
striking ``362(b)(14)'' and inserting ``362(b)(17)''.
SEC. 423. DISPOSITION OF PROPERTY OF THE ESTATE.
Section 726(b) of title 11, United States Code, is amended by
striking ``1009,''.
SEC. 424. GENERAL PROVISIONS.
Section 901(a) of title 11, United States Code, is amended by
inserting ``1123(d),'' after ``1123(b),''.
SEC. 425. APPOINTMENT OF ELECTED TRUSTEE.
Section 1104(b) of title 11, United States Code, is amended--
(1) by inserting ``(1)'' after ``(b)''; and
(2) by adding at the end the following:
``(2)(A) If an eligible, disinterested trustee is elected at a
meeting of creditors under paragraph (1), the United States trustee
shall file a report certifying that election. Upon the filing of a
report under the preceding sentence--
``(i) the trustee elected under paragraph (1) shall be
considered to have been selected and appointed for purposes of
this section; and
``(ii) the service of any trustee appointed under subsection
(d) shall terminate.
``(B) In the case of any dispute arising out of an election under
subparagraph (A), the court shall resolve the dispute.''.
SEC. 426. ABANDONMENT OF RAILROAD LINE.
Section 1170(e)(1) of title 11, United States Code, is amended by
striking ``section 11347'' and inserting ``section 11326(a)''.
SEC. 427. CONTENTS OF PLAN.
Section 1172(c)(1) of title 11, United States Code, is amended by
striking ``section 11347'' and inserting ``section 11326(a)''.
SEC. 428. DISCHARGE UNDER CHAPTER 12.
Subsections (a) and (c) of section 1228 of title 11, United States
Code, are amended by striking ``1222(b)(10)'' each place it appears and
inserting ``1222(b)(9)''.
SEC. 429. EXTENSIONS.
Section 302(d)(3) of the Bankruptcy, Judges, United States Trustees,
and Family Farmer Bankruptcy Act of 1986 (28 U.S.C. 581 note) is
amended--
(1) in subparagraph (A), in the matter following clause (ii),
by striking ``or October 1, 2002, whichever occurs first''; and
(2) in subparagraph (F)--
(A) in clause (i)--
(i) in subclause (II), by striking ``or
October 1, 2002, whichever occurs first''; and
(ii) in the matter following subclause (II),
by striking ``October 1, 2003, or''; and
(B) in clause (ii), in the matter following subclause
(II)--
(i) by striking ``before October 1, 2003,
or''; and
(ii) by striking ``, whichever occurs
first''.
SEC. 430. BANKRUPTCY CASES AND PROCEEDINGS.
Section 1334(d) of title 28, United States Code, is amended--
(1) by striking ``made under this subsection'' and inserting
``made under subsection (c)''; and
(2) by striking ``This subsection'' and inserting
``Subsection (c) and this subsection''.
SEC. 431. KNOWING DISREGARD OF BANKRUPTCY LAW OR RULE.
Section 156(a) of title 18, United States Code, is amended--
(1) in the first undesignated paragraph--
(A) by inserting ``(1) the term'' before ``
`bankruptcy''; and
(B) by striking the period at the end and inserting
``; and''; and
(2) in the second undesignated paragraph--
(A) by inserting ``(2) the term'' before ``
`document''; and
(B) by striking ``this title'' and inserting ``title
11''.
SEC. 432. EFFECTIVE DATE; APPLICATION OF AMENDMENTS.
(a) Effective Date.--Except as provided in subsection (b), this title
and the amendments made by this title shall take effect on the date of
enactment of this Act.
(b) Application of Amendments.--The amendments made by this title
shall apply only with respect to cases commenced under title 11, United
States Code, on or after the date of enactment of this Act.
I. BACKGROUND AND NEED FOR THE LEGISLATION.
In recent years, bankruptcy filings have increased to
record levels. According to the House, there were 1,423,128
bankruptcy filings in the 12 month period ending March 31,
1998, of which 1,370,490 (96.3%) were consumer bankruptcies.
This represents a 19.1 percent rise over the same period ending
in 1997, and the eight consecutive 12-month period that filings
hit a record high. Currently, the rate of personal bankruptcies
is about one in seventy. Richard E. Coulson et al., Case
Developments In Consumer Bankruptcy Highlight Need For
Statutory Reform, 51 Consumer Fin. L. Q. Rep. 261 (Summer
1997). Unemployment Holds Steady And Is The Lowest In 28 Years,
Seattle Intelligencer, June 6, 1998, at B3; Statement of Jim
Paxton, Chairman of the Joint Economic Committee, July
Employment Statistics, (Aug. 8, 1997). This extraordinary
increase in bankruptcy filings has a significant negative
impact on the American economy. In response to this rising
number of bankruptcies and the heightened degree of abusiveness
by creditors and debtors, the Committee recommends S. 1301,
which will promote fair and balanced reforms of the consumer
bankruptcy laws while providing an unprecedented level of
protection for all consumers, especially ex-spouses, single
parents, and children affected by bankruptcy proceedings.
General Overview of the Current Bankruptcy System
Title I of S. 1301 reforms the bankruptcy code to limit the
availability of bankruptcy relief to those who truly need it.
The concept--``needs-based bankruptcy''--is the culmination of
many Congressional efforts, by Republicans and Democrats, over
five decades, to reform the bankruptcy system so that
bankruptcy is available to those unfortunate Americans who need
debt forgiveness, but is not abused by those who are not truly
in financial need or who have the ability to contribute to
repayment of their debts.
The Constitution gives Congress the authority to enact
``uniform laws on the subject of bankruptcies throughout the
United States.'' Art. I, Sec. 8, cl. 4 (1787). Since 1898,
bankruptcy protections have been a permanent part of federal
law.\1\ Under current law, individuals considering bankruptcy
often proceed under Chapter 7, where the bankrupt will
surrender all assets which do not qualify for an exemption to a
bankruptcy trustee. The bankruptcy trustee then sells the
bankrupt's property and distributes the proceeds to the
creditors. Any deficiency which remains after the sale of these
assets is simply erased (or ``discharged''), and the bankrupt
cannot be required to repay debts which have been erased during
bankruptcy. Chapter 7, often referred to as ``straight
bankruptcy,'' is the oldest and most commonly used type of
bankruptcy proceeding.
---------------------------------------------------------------------------
\1\ The first attempt at establishing a national bankruptcy policy
was the Bankruptcy Act of 1800. 2 Stat. 19 (1800). This act, like the
two that followed, was of short duration and enacted in response to a
financial panic. Between 1803 and 1898 the United States attempted 8
times to enact or amend a uniform system of bankruptcy. U.S. Laws,
Statutes, Etc., Bankruptcy Act Revision, Hearings before the
Subcommittee on Civil and Constitutional Rights, Ninety-Fourth
Congress. Each time the act either failed to pass or was repealed.
---------------------------------------------------------------------------
Individuals may also declare bankruptcy under Chapter 13 of
the bankruptcy code. Chapter 13 provides for the development of
a repayment plan that allows a debtor to repay some portion of
pre-bankruptcy debts. At the end of the repayment period, the
unpaid portion of debt is erased, and a debtor cannot be
required to repay the unpaid portion of the discharged debt.
Unlike Chapter 7, the purpose of Chapter 13 is to rehabilitate
financially-troubled consumers by using future earnings to
repay debts in exchange for a discharge of the unpaid portions
of those debts.
Prior to 1984, an individual contemplating bankruptcy had
the unfettered discretion to choose either Chapter 7 or Chapter
13. Thus, an individual who could repay some pre-bankruptcy
debt under Chapter 13 was not required to do so under Chapter
7. In 1984, Congress amended section 707 of the Bankruptcy Code
to provide that a Chapter 7 case could be dismissed on the
judge's or the United States trustee's motion, if the
bankrupt's case showed ``substantial abuse.'' Unfortunately,
for a variety of reasons, these provisions have proven
unworkable. It is this feature of bankruptcy law which has
caused justifiable concern on the part of many who support the
general concept of erasing or discharging debts for Americans
in serious financial trouble, but who recognize the need to
tailor bankruptcy relief to the extent needed. Many feel that
the recent explosion in personal bankruptcy filings is partly
attributable to the decreased moral stigma associated with a
bankruptcy system which provides debt relief to certain
Americans who use bankruptcy as a financial planning device.
See testimony of Tahira Hira, Subcommittee on Administrative
Oversight and the Courts Hearing, ``S. 1301, The Consumer
Bankruptcy Reform Act: Seeking Fair and Practical Solutions to
the Consumer Bankruptcy Crisis'' (March 11, 1997); Testimony of
Kenneth R. Crone, Subcommittee on Administrative Oversight and
the Courts Hearing, ``The Increase in Personal Bankruptcy and
the Crisis in Consumer Credit,'' (April 11, 1997). This
decreased moral stigma means that bankruptcy is not viewed as a
last resort for financially troubled Americans who need, and
deserve, debt forgiveness. Lee Flint, Bankruptcy Policy: Toward
a Moral Justification for Financial Rehabilitation of Consumer
Debt, 48 Wash. & Lee L. Rev. 515 (1991).
S. 1301 responds to the growing concern about the record
levels of bankruptcy filings by clarifying when a bankruptcy
judge who should dismiss a Chapter 7 case, or convert a Chapter
7 case to Chapter 13. If a bankrupt in Chapter 7 can repay
twenty-percent or more of his general unsecured debts, the
judge can require the bankrupt to transfer to Chapter 13 or
leave the bankruptcy system. The Committee notes that the
Department of Justice supports a judicially administered means-
test. See Letter to the Honorable Orrin G. Hatch, Committee on
the Judiciary, May 7, 1998 (on file with the Committee).
While some opponents of bankruptcy reform including the two
dissenting Members of this Committee, blame the explosion of
bankruptcies on too much credit, the Committee has strong
reservations about the detrimental effect on power and minority
communities of reducing the availability of credit. If credit
lending practices are restricted as the dissenters suggest
should be, the result will be less credit available to women,
minorities, and others who need toborrow money to pay various
necessities and emergencies.
The History of Needs-Based Bankruptcy
The idea of requiring bankrupts to repay their debts when
they have the ability to do so is not new. This topic has been
the subject of many proposed amendments, from the early 1930s
to the current Congress. S. 1301 is an extension of this
longstanding effort to ensure that bankruptcy is reserved for
those truly in need of debt forgiveness. See Oversight Hearing
on Personal Bankruptcy, Committee on the Judiciary,
Subcommittee on Monopolies and Commercial Law, 97th Cong. 2nd
Sess., (1982) (Statement of Frank Kennedy).
The general structure of the present federal bankruptcy
code is the result of the Bankruptcy Reform Act of 1978, Pub.
L. 95-598. The 1978 Act was the first major overhaul and
attempt to update comprehensively the bankruptcy law since
passage of the Chandler Act in 1938. 52 Stat. 840 (1938). Prior
to the Chandler Act, individuals in serious financial trouble
had no choice but to file for ``straight bankruptcy'' under
Chapter VII.\2\ However, the Chandler Act contained a new,
alternative procedure, the Chapter XIII Wage Earner's Plan,
which allowed an individual to retain nonexempt assets by
proposing a plan to pay his or her existing debts from future
income, after which the wage earner would receive a discharge
of any unpaid balances of his debts.
---------------------------------------------------------------------------
\2\ One feature of the 1978 revision of bankruptcy laws re-
designated the bankruptcy chapters so that they are now identified by
Arabic, rather than Roman, numerals.
---------------------------------------------------------------------------
The debate over Chapter XIII occurred years earlier in
joint hearings before the House and Senate Judiciary Committees
in 1932, during the Seventy-Second Congress. By the time it was
enacted in 1938, Chapter XIII codified informal practices which
had developed without explicit statutory authorization. In the
mid 1930's in Birmingham, Alabama a former special referee in
bankruptcy, Valentine Nesbitt, first developed a ``repayment
option'' which was the model for Chapter XIII. Weinstein, The
Bankruptcy Law of 1938 (1938).
The hearings in 1932 were held on S. 3866, Section 75 of
which would have established a repayment plan for wage earners.
Section 75 provided a method for an indebted wage earner to
come into court without being labeled ``a bankrupt,'' and get
the benefit of a court injunction to fend off creditors while
the wage earner arranged to repay his pre-bankruptcy debts in
installments.
Proponents of the 1932 amendment believed that most
Americans were making enormous efforts to avoid bankruptcy, and
that most wage earners who were in deeply in debt genuinely
desire to pay their debts, if given time, and if they were not
harassed by their creditors.
During the consideration of the 1932 proposal, Congress
explicitly considered bankruptcy practices in England. In 1888,
an English bankruptcy statute, gave the power to the bankruptcy
judges to condition debt forgiveness on the repayment of some
debts. Douglas Boshkoff, Limited, Conditional, and Suspended
Discharges in Anglo-American Bankruptcy Proceedings, U. Pa. L.
Rev. 69 (1982). With the conditional or suspended discharge,
English courts are given broad discretion to condition debt-
forgiveness on the making of payments to creditors from future
earnings or other post-bankruptcy acquisitions, or to suspend
the discharge while such payments are being made. The British
experience shows that bankruptcy courts can, if given the
power, play an important role limiting bankruptcy relief to
those who truly need it. S. 1301 gives bankruptcy judges that
power.
Since the 1938 amendments, there have been several
proposals to limit bankruptcy relief to those who truly need
it. In the 1960s, Congress considered several such proposals.
See H.R. 12784, 88th Cong., 2d Sess. (1964); H.R. 292, 89th
Cong., 1st Sess. (1965); S. 613, 89th Cong., 1st Sess. (1965);
H.R. 1057 & H.R. 5771, 90th Cong., 1st Sess. (1967). Under
these proposals, an individual debtor seeking relief under the
liquidation provisions of the bankruptcy laws would be denied
relief if the court concluded that he or she could pay
substantial amounts of debts out of future earnings under a
Chapter XIII plan.
Following the 1978 amendments, in the early 1980s, Senator
Dole introduced S. 2000 during in the 97th Congress. In the
House of Representatives, Congressman Evans introduced H.R.
4786, which eventually garnered 269 co-sponsors. Congress did
not pass either proposal in the 97th Congress, so these measure
were reintroduced in the 98th Congress as H.R. 1169 and S. 445.
As a result of these efforts, Congress created Section 707(b)
of the Bankruptcy Code in 1984 to allow judges to dismiss
Chapter 7 cases if granting relief would constitute a
``substantial abuse'' of the bankruptcy code. Pub. Law 105-165.
The focus of the effort was to require bankrupts who had the
ability to pay a significant percentage of their debts
``without difficulty'' to proceed under Chapter 13 instead of
Chapter 7. However, the term ``substantial abuse'' was not
defined and creditors and trustees were expressly forbidden
from presenting evidence to a judge that granting relief in a
particular case would result in a ``substantial abuse.''
Further, Section 707(b) specifies that courts must presume that
substantial abuse does not exist. Under a minority view, the
debtor's ``ability to pay'' debts out of future income,
standing alone, can qualify as substantial abuse. See In Re
Koch, 109 F. 3d 1285 (8th Cir. 1997). The prevailing view,
however, is ``ability to pay'' is but one factor a court may
consider in assessing whether there is a substantial abuse. See
In Re Green, 934 F.2d 568 (4th Cir. 1991). In other words,
Section 707(b) was designed with serious defects which have
rendered the section unusable as a practical matter.
S. 1301 amends Section 707(b) to cure these defects. First,
the phrase ``substantial abuse'' has been dropped and replaced
with the lesser standard of ``abuse.'' Second, S. 1301
explicitly requires judges to consider a bankrupt's ability to
repay general creditors in determining whether to dismiss the
bankrupt's case or transfer the bankrupt to Chapter 13.
Importantly, under S. 1301, creditors and trustees are now
explicitly given the power to present evidence of abuse to the
bankruptcy judge. S. 1301 gives trustees important new
financial incentives for ferreting out bankrupts who have
repayment capacity and provides for appropriate penalties for
bankruptcy attorneys who recklessly steer individuals with
repayment capacity toChapter 7 bankruptcy.
As this historical survey clearly shows, the concept of
limiting bankruptcy relief to those who truly need it has been
a recurring theme in the debate over bankruptcy since the
beginning of permanent bankruptcy laws. On numerous occasions,
Congress has considered various proposals to limit bankruptcy
relief in this way. Given the unprecedented level of consumer
bankruptcies filed in this country in recent years, and the
financial losses to American businesses and consumers which
necessarily result from so much debt forgiveness, the Committee
feels that the time has come for the common-sense reforms
embodied in S. 1301.
Enhanced Consumer Protections
In addition to the ``means testing'' provisions discussed
earlier, S. 1301 contains several important reforms which will
protect individuals who face unnecessary and unfair harassment
from creditors. There have been examples of creditors
unjustifiably alleging that a debt should not be discharged
because it was incurred through fraud with no basis for making
such an allegation. In Re Lantanawhich, 207 BR 326 (Bankr. D.
Mass. 1987); Mohl, Sears to Pay Staff, Residents $10.82
Million,'' The Boston Globe A-1 (September 4, 1997): Susan
Chandler, Sears, States Settle Debt Cases Firm to Pay About 2
Million to Illinois Customers, Chicago Tribune, (Sept. 4,
1997); Mary Kane, ``(A) Banks Finance The Bankrupt (B) Credit
Card Firms Eager to Solicit Consumers Despite Credit
Problems'', The Star Ledger Newark, N.J., (July 20, 1997);
James Russell, ``U.S. Judge Vindicates Bankrupt Consumer
Courts: The Jurist Sends A Strong Message to Credit Card
Marketers in Case Involving AT & T'', Orange County Reg., (May
30, 1997). Obviously, such activities threaten the integrity of
the bankruptcy system, one feature of which is to protect
honest debtors from the threats of unscrupulous debt
collectors. The Committee therefore recommends several
provisions in Title II of S. 1301 which contain tough new
penalties to punish and deter unethical or illegal collection
activities.
The two dissenting Members of the Committee completely
ignore the new consumer protection penalties when they allege
that S. 1301 does not adequately address the problem of
coercive re-affirmations. Section 203 of S. 1301 specifically
targets coercive re-affirmations by providing that creditors
will face treble damage awards as well as minimum fines and
legal costs if they fail to comply with the pro-consumer
limitations which currently exist in Section 524 of the
bankruptcy code. Moreover, under Section 203 of S. 1301
creditors are barred from using many collection techniques if
they refused to accept an offer of compromise from a
financially troubled customer who later declares bankruptcy.
Thus, it is more than disingenuous for the two dissenting
Members of the Committee to suggest that the Committee, or the
sponsors of this legislation, will ``make a terrible problem
worse.''
Moreover, the dissenters appear to ignore the tough new
restrictions imposed on creditors' actions in bankruptcy. These
restrictions include penalties on creditors who bring motions
to object to debtor's discharge without substantial
justification for the motion. The penalties for this include
attorney fees and costs of the debtor to be assessed against
the creditor. Furthermore, if a creditor willfully does not
apply Chapter 13 trustee payments per the plan, it will
constitute a violation of the bankruptcy injunction and be
punishable as such. To complement the need for accuracy in the
debtor's schedules, creditors are called upon to be accurate in
the proofs of claim filed. If the proof of claim is disallowed
or reduced in amount by 20% or more, the court may award the
debtor attorney fees, costs and damages as warranted by the
equities of the case. Finally, a creditor is barred from
bringing a non-dischargeability action if the debtor made
prepetition good faith efforts at negotiating a reasonable
alternative payment schedule that the creditor unreasonably
refused.
Contrary to the views of the two dissenting Members of this
Committee, and as Senator Durbin correctly notes in his
additional views, the Committee adopted by unanimous consent an
amendment to protect the elderly from predatory loans. While
this amendment may need technical refirements to avoid
excessive litigation and abuse, the Committee is strongly
committed to protecting consumers from unethical lending
practices.
Reducing Abusive Uses of the Bankruptcy Code
As the National Bankruptcy Review Commission correctly
noted, many of the worst abuses of the bankruptcy system
involve individuals who repeatedly file for bankruptcy with the
sole intention of using the automatic stay (i.e., a court
injunction which arises whenever a bankruptcy case is filed).
National Bankruptcy Rev. Comm. Rep., Bankruptcy the Next Twenty
Years, October 20, 1997 vol. 1, at 262. Accordingly, Title III
of S. 1301 contains restrictions on repeat filers. Under S.
1301, if a bankrupt has filed for bankruptcy before, and that
case was dismissed, the bankrupt will not get the benefit of
the automatic stay. The Committee feels that this change will
dramatically reduce the number of frivolous bankruptcy cases.
Title III also contains new protections for secured lenders
and requires random audits of bankruptcy petitions to verify
the accuracy of information contained in bankruptcy petitions.
The Committee is concerned that there is little incentive for
individuals to list all of their assets or fully disclose their
financial affairs, including their income and living expenses,
when they file for bankruptcy. Of course, such laxity fosters
an environment in which the overall financial condition of the
bankrupt is likely to be inaccurate, with the result that
creditors may receive less than they could when a bankrupt's
financial affairs are accurately disclosed. Accordingly, the
random audit procedures will restore some integrity to the
system, since all material misstatements are required to be
reported to the appropriate authorities.
Enhanced Protections for Child Support
In response to concerns that certain provisions of S. 1301
could have unintended consequences which would make the
collection of child support debts more difficult, the Committee
unanimously accepted an amendment offered by Senators Hatch,
Grassley and Kyl to enhance the relative position of child
support claimants in bankruptcy proceedings. Section 325 of S.
1301, now requires the payment of all unpaid child support
prior to other debts in a Chapter 7 liquidation proceeding and
prior final in a Chapter 13 bankruptcy. Similarly, Section
325requires child support to be paid first before other priority debts
in a Chapter 13 repayment plan.
Additional Bankruptcy Judgeships and Miscellaneous Provisions
S. 1301 requires the Administrative Office of the United
States Courts to provide special procedures and safeguards to
ensure the confidentiality of tax information which bankrupts
are required to file with their court papers. S. 1301 also
expands the scope of non-dischargeable debts to include debts
incurred as a result of a civil judgement from claims relating
to sexual conduct or intentional violent conduct.
Furthermore, the Committee adopted, by a unanimous vote, an
amendment that authorizes eighteen new temporary bankruptcy
judgeships around the country, and extends five other ones. In
considering whether to create new bankruptcy judgeships, the
Committee has emphasized that the judiciary bears the burden of
demonstrating the need for new judgeships. Although not
satisfied that this burden has been completely met, the
Committee is willing to agree to most of the Judicial
Conference's requests at this time with the understanding that
future requests will be subject to more thorough scrutiny.
The Subcommittee on Administrative Oversight and the Courts
held a hearing on this matter last year on September 22, 1997.
Following the hearing, the Judicial Conference took many months
to supply information requested by the Subcommittee. In fact,
to date, some of the requested material has never been
provided. For instance, the Subcommittee requested documents
related to special task forces the Judicial Conference
dispatched to districts requesting new judgeships to evaluate
these districts and make recommendations regarding the
effective use of resources. The Subcommittee was initially
informed that no written documents existed. The Subcommittee
then requested that the observations and recommendations be put
in writing and submitted to the Subcommittee for review. The
Judicial Conference responded that if this information was
given to Congress, judges would be less candid and open about
their respective district's shortfalls and needs. See Letter
from Senator Grassley to the Honorable David Thompson
(requesting information on the actions taken to avoid adding
new judgeships), October 23, 1997, (on file with the
Subcommittee on Administrative Oversight and the Courts);
Letter from The Honorable David Thompson to Senator Grassley,
November 6, 1997, (on file with the Subcommittee on
Administrative Oversight and the Courts). The Committee views
access to such information necessary in order for Congress to
determine judgeship needs.
The Judicial Conference, and supporters of its judgeship
request, have argued for their case by referring to the overall
rise in bankruptcy filings. The Committee feels that focusing
merely on increased filings misses the mark.
Importantly, the Judicial Conference uses a weighting
system to determine when new bankruptcy judgeships are needed.
This means that because not all bankruptcy cases require the
same amount of judge time and effort, some cases are weighted
more than others, with the more complex cases being given a
much greater weight than the simpler cases. The recent increase
in bankruptcy filings has been due almost entirely to consumer
bankruptcy cases--in particular consumer cases filed under
chapter 7 of the bankruptcy code. Laura Castaneda, Issuers of
Credit Cards Get Tougher, San Francisco Chronicle, Sept. 15
1997. Unlike complex corporate reorganizations under Chapter
11, these cases require little effort from a bankruptcy judge.
As a result, they are not weighted heavily in the formula used
to assess the need for new judges. In most of the districts
which are requesting new judgeships, the weighted case-filings,
relied upon in making judgeship requests, have either decreased
or remained about the same since 1993. Ed Flynn, Chapter 7 Case
Processing Speed, American Bankruptcy Institute Journal (1994).
Thus, the Committee questions the pressing need for new
judgeships because the weighted case filings appear either to
have remained stable or decreased in most requesting districts.
The amendment includes a modest reporting requirement for
non-caseload related travel, to help ensure more
accountability. In recent years, a question has arisen
regarding the amount of non-case related travel engaged in by
bankruptcy judges in those districts which are requesting new
judgeships. The Committee believes that the American taxpayer
is entitled to expect that bankruptcy judges exhaust all
options before requesting additional judgeships.
The Committee has been very reluctant to create new
judgeships unless the need for such judgeships are fully
justified. At the request of Subcommittee Chairman Grassley,
the General Accounting Office examined the non-caseload related
travel of bankruptcy judges in districts which are requesting
new judgeships. GAO Rep., Federal Judiciary: Information on
Noncase-Related Travel of Bankruptcy Judges in 14 Bankruptcy
Districts, GGD-97-166R at 1, Aug. 8, 1997. The non-partisan GAO
study has raised questions regarding non-case related travel.
The Committee agrees that bankruptcy judges should engage
in some non-case related travel. But, it is perhaps
inappropriate to spend nearly a year's worth of work-time on
non-case related travel--as one district did--where pressing
official work is pending and then argue for more judges. In the
fourteen requesting districts, there were 416 trips taken in
1995 and 406 taken in 1996. GAO Report at 4. Many non-case
related trips involved teaching seminars and courses. It is
beyond dispute that there are numerous bankruptcy professionals
and academics capable of teaching seminars and many of these
activities are beneficial to the general public. However, the
Committee is of the view that bankruptcy judges should give
first priority to their caseload. That would be the appropriate
way to do business, and one the Committee believes that the
taxpayers have every right to demand.
II. COMMITTEE AND SUBCOMMITTEE CONSIDERATION IN THE 105TH CONGRESS.
As noted earlier, the work of the Committee in the 105th
Congress built upon the foundations established by the work of
prior Congresses. In addition, during the 105th Congress, the
Subcommittee on Administrative Oversight and the Courts held
the following hearings.
Subcommittee Hearings
The Subcommittee on Administrative Oversight and the Courts
of the Committee on the Judiciary held a hearing on April 11,
1997 on the increase in personal bankruptcies and the crisisin
consumer credit. Witnesses included Michael E. Staten, Director of the
Credit Research Center, Purdue University; Ian Domowitz, Department of
Economics, Professor at Northwestern University; Edward Bankole, Vice-
President, Moody's Investors Service; Kim Kowalewski, Chief, Financial
and General Macroeconomic Analysis Division, Congressional Budget
Office; and Michael McEneney, Morrison and Foerster, on behalf of the
National Consumer Bankruptcy Coalition.
On October 21, 1997, the Subcommittee held a hearing in
Washington, D.C. to review the recommendations of the National
Bankruptcy Review Commission. The witnesses testifying on
behalf of the Commission included Brady C. Williamson, Chair;
Hon. Robert E. Ginsberg, Vice-Chair, U.S. Bankruptcy Judge; M.
Caldwell Butler; Jim Sheppard; Hon. Edith Hollan Jones; John
Gose; Babette Ceccotti; and Jay Alix.
On March 11, 1998, the Subcommittee held a hearing on S.
1301, entitled ``The Consumer Bankruptcy Reform Act: Seeking
Fair and Practical Solutions to the Consumer Bankruptcy
Crisis''. The Subcommittee heard witnesses from three panels.
The first panel of witnesses included Lawrence A. Friedman,
Secretary, National Association of Bankruptcy Trustees; Hon. A.
Thomas Small, Chief Bankruptcy Judge; Tahira K. Hira, Professor
at Iowa State University; George J. Wallace, attorney at
Eckert, Seamans, Cherin, and Melott, LLC; William E. Brewer,
Jr., National Association of Consumer Bankruptcy Attorneys;
Stan Bluestone, National Retail Federation. Witnesses on the
second panel were Richard Stana, General Accounting Office;
Michael Staten, Director of Credit Research Center; Stephen
Brobeck, Executive Director, Consumer Federation of America;
Brian McDonnell, National Association of Federal Credit Unions;
and Robert Elliot, Household International. Witnesses on the
third panel consisted of Douglas Boshkoff, Professor at Indiana
University School of Law; Randy Picker, National Bankruptcy
Conference; Deborah D. Williamson, American Bankruptcy
Institute; and Matthew Mason, United Auto Workers.
Thus, over a period of a year, the Subcommittee held three
hearings focusing primarily on consumer bankruptcy issues and
heard from twenty-five witnesses.
Given the large number of witnesses who provided testimony
regarding the current crisis in consumer bankruptcy, the
committee is perplexed by the complaint of the two dissenting
Members of this Committee that further hearings are needed. It
is profoundly ironic that the Senator voicing this complaint
never attended any of the three hearings conducted by the
Subcommittee on the Administrative Oversight and the Courts or
submitted written questions to any of the witnesses who
appeared at these hearings. In light of such non-participation,
it is difficult to see any value to future hearings. Thus,
having chosen not to engage in various hearings held by the
Subcommittee in any way, it is troubling that the two
dissenting Members of the Committee now use their own non-
participation as a political argument to derail this
legislation.
subcommittee markup
The Subcommittee on Administrative Oversight and the Courts
met on April 2, 1998 at 2 p.m. with a quorum present.
(1) Senator Kohl offered an amendment to eliminate the
misuse of the homestead exemption. This amendment would allow
certain property to be exempted under state or local law, up to
$100,000. The amendment was agreed to by unanimous consent.
(2) Senator Sessions offered an amendment that would impose
mandatory debtor education. The amendment was agreed to by
unanimous consent.
(3) Senator Durbin offered an amendment that would exempt
debtors from creditor-initiated motions under Section 707(b) if
the family has a monthly total income equal to or less than the
national median family income. The amendment was agreed to by
unanimous consent.
(4) Senator Sessions offered an amendment that would
prohibit the use of bankruptcy laws to avoid evictions and
unlawful detainer actions. The amendment was agreed by a 4-3
vote.
(5) Senator Kyl offered an amendment to establish a
presumption that debts incurred during the 90-day period
preceding a bankruptcy are nondischargeable. The amendment was
agreed to by a voice vote.
(6) Senator Kyl offered an amendment that would make debts
incurred through fraud nondischargeable in Chapter 13 cases.
The amendment was agreed to by a voice vote.
(7) Senator Sessions offered an amendment to define the
term debtor's principal residence, incidental property, and
other purposes. The amendment was deferred for Committee
consideration.
(8) Senator Sessions offered an amendment to bar
``cramdowns'' of items purchased on secured credit within 90
days of bankruptcy. The amendment was agreed to by unanimous
consent.
The Subcommittee then voted to favorably report S. 1301
with an amendment in the nature of a substitute by a rollcall
vote of 6 yeas and 1 nay.
YEAS NAYS
Thurmond (by proxy) Feingold
Kyl
Sessions
Durbin
Kohl (by proxy)
Grassley
committee markup
The Senate Committee on the Judiciary, with a quorum
present, met on May 21, 1998 at 10 a.m. The following rollcall
votes occurred on the bill and the amendments proposed thereto:
(1) Senator Specter offered an amendment to permit a judge
to waive bankruptcy filing fees when the judge determines the
debtor will be unable to pay the fee even in a series of
monthly installments. The amendment was defeated by a rollcall
vote of 9 yeas to 9 nays.
YEAS NAYS
Specter Thurmond
Leahy Grassley
Kennedy (by proxy) Thompson (by proxy)
Biden Kyl
Kohl (by proxy) DeWine
Feinstein Ashcroft
Feingold Abraham
Durbin Sessions
Torricelli Hatch
(2) Senator Specter offered an amendment that would provide
that the standard applied by a judge in ordering the debtors'
attorney to pay costs and attorney's fees would be that the
conduct of the lawyer be ``frivolous''. The amendment was
defeated by 9 yeas to 9 nays.
YEAS NAYS
Specter Thurmond
Thompson (by proxy) Grassley
Leahy Kyl
Kennedy (by proxy) DeWine
Biden Ashcroft
Kohl (by proxy) Abraham
Feinstein Sessions
Feingold Durbin
Torricelli Hatch
(3) Senator Feingold offered an amendment that would
provide that the standard applied by a judge in ordering the
debtors's attorney to pay costs and attorney's fees would be
that the conduct of the lawyer was not substantially justified.
The amendment was accepted by unanimous consent.
(4) Senator Grassley offered an amendment to provide
additional bankruptcy judgeships. The amendment was agreed by
unanimous consent.
(5) Senator Grassley offered a technical amendment to
insert language that would provide more-focused creditor
sanctions. The amendment was agreed by unanimous consent.
(6) Senator Hatch offered an amendment co-sponsored by
Senators Grassley and Kyl to augment the ability of ex-spouses,
single parents and children to collect payments from deadbeat
parents by making child support and alimony payments the top
priority under the bankruptcy laws. The amendment was accepted
by unanimous consent.
(7) Senator Durbin offered an amendment that would broaden
the Federal Trade Commission's definition of household goods
beyond families with children to all persons involved in the
bankruptcy proceedings. The amendment was deferred for floor
consideration.
(8) Senator Abraham offered an amendment that would
prohibit ``cramdowns'' in Chapter 13 cases. The amendment was
passed by a 10 yeas to 7 nays rollcall vote.
YEAS NAYS
Thurmond Leahy (by proxy)
Grassley Kennedy
Thompson (by proxy) Biden
Kyl Kohl
DeWine Feinstein
Ashcroft (by proxy) Feingold
Abraham Durbin
Sessions
Torricelli
Hatch
(9) Senator Torricelli offered an amendment that provided
that any debt incurred for certain intentional tort would not
be dischargeable. The amendment was agreed to by unanimous
consent.
(10) Senator Durbin offered an amendment that would modify
the amendment accepted by the Subcommittee on Administrative
Oversight and the Courts to prohibit the use of bankruptcy laws
to avoid evictions and unlawful detainer actions, if the debtor
continued to pay rent during the course of the bankruptcy. The
amendment was deferred for floor consideration.
(11) Senator Durbin offered an amendment to disallow
bankruptcy claims of lenders who engage in predatory lending
practices in violation of the Truth in Lending Act. The
amendment was agreed to by unanimous consent.
(12) Senator Leahy offered an amendment to require that the
Administrative Office of the Director of the United States
Courts establish a standard of measures to safeguard the
confidentiality of tax information. The amendment was adopted
by unanimous consent.
(13) Senator Feingold offered an amendment that would
exempt debtor's attorneys from being responsible for reasonable
costs and attorney fees in cases where an attorney took on
thebankruptcy case pro bono. The amendment was deferred.
The Committee voted to favorably report S. 1301 by a
rollcall vote of 15 yeas to 2 nays.
YEAS NAYS
Thurmond Kennedy
Grassley Feingold
Specter (by proxy)
Thompson (by proxy)
Kyl
DeWine
Ashcroft
Abraham
Sessions
Leahy
Biden
Kohl (by proxy)
Durbin
Torricelli
Hatch
III. SECTION-BY-SECTION ANALYSIS
title I--needs based bankruptcy
This title of S. 1301 changes section 707(b) of the
bankruptcy code to allow for a Chapter 7 case to be dismissed
or converted to Chapter 13.
Section 101. Conversion
This section amends section 706(c) of Title 11 of the
United States Code. It is amended by inserting ``or consents
to'' after ``requests''.
Section 102. Dismissal or conversion
This section deletes the current section heading and
inserts the following: ``707. Dismissal of a case or conversion
to a case under chapter 13.'' The section strikes the word
``substantial'' and provides a non-exhaustive list of factors
that a court must consider in deciding whether to dismiss or
convert a Chapter 7 Bankruptcy case. The factors include the
following: (A) if the debtor could pay an amount greater than
or equal to 20% of unsecured claims which are not considered to
be priority claims or (B) if the debtor filed the petition for
relief in bad faith. The term ``bad faith'' is intended to
encompass situations where dismissals have been warranted under
the current version of 707(b). This section explicitly gives
creditors and trustees the right to file motions under Section
707(b). The Committee believes that this will level the playing
field for creditors.
In addition, the section directs the court to order the
counsel for the debtor to reimburse the trustee for all
reasonable costs associated with prosecuting a motion for
dismissal or conversion if the motion was granted and if the
court finds that the action of the counsel for the debtor in
filing under this chapter was not substantially justified. The
Committee intends the term ``not substantially justified,'' as
used in this section, and as used throughout S.1301, to mean
that there is no ``reasonable basis in fact and law,'' as
interpreted by the following bankruptcy cases: In re Akdogan,
204 B.R. 90, 98 (E.D.N.Y 1997); see also In re Carolam, 204
B.R. 980, 987 (Bankr. 9th Cir. 1996) (1996): In re Burns, 894
F.2d 361, 363 (10th Cir. 1990) (discussing history of Section
523 (d) of the Bankruptcy Code).
As four dissenting members of the National Bankruptcy
Commission correctly observed, ``bankruptcy mills'' often
process consumers into bankruptcies without ``serious
investigation'' of their financial condition. Recommendations
for Reform of Consumer Bankruptcy Law By Four Dissenting
Commissioners, p. 23, printed in The Report of the National
Bankruptcy Review Commission. The Committee notes that Chapter
7 trustees are often in the best position to know which
bankrupts have the ability to repay their debts. Therefore,
trustees are now expected to investigate the debtor's petition
and schedules and conduct the first meeting of creditors to
determine in a fair way if the debtor does not belong in
Chapter 7. The prospect of reimbursment for filing 707(b)
motions will deputize this well-informed army of trustees to
identify and eliminate bankruptcy abuses. The court may further
order fines against the debtor's attorney for violations of
Rule 9011, where appropriate.
Furthermore, the section provides that the court may award
a debtor all reasonable costs in contesting a creditor's motion
to transfer or dismiss, including attorneys'' fees, if the
court does not grant the motion and the party's position was
not substantially justified or the motion was brought solely to
coerce a debtor into waiving a guaranteed right. Thus, contrary
to the assertion of the two dissenting Members of this
Committee, there are real and meaningful disincentives for
creditors to uses 707(b) motions solely to harass or coerce
debtors.
The section also addresses the problems associated with
small creditors by providing that a party in interest filing an
aggregate claim of less than $1,000 is not subject to the fines
in subparagraph (A).
Finally, the section prohibits Sec. 707(b) creditor and
trustee motions if the debtor (or the debtor and spouse
combined) have current monthly total income equal to or less
than thenational median household monthly income for a
household of equal size. The section further provides that for a
household of more than 4, the median income of the household shall be
that of a household of 4 plus $583 for each additional member of the
household above 4.
title ii--enhanced procedural protections for consumers
Section 201. Allowance of claims or interests
This section amends section 502 of Title 11, United States
Code, to prevent creditors in bankruptcy from deliberately
overstating their claims. Under the amended section, a court
may award the debtor reasonable attorneys' fees if the court
disallows the creditor's claim or the court reduces the
creditor's claim by more than 20% and the court finds that the
position of the filing party was not substantially justified.
Case law permits the court to award additional damages when
appropriate and the position of the creditor was not
substantially justified.
Section 202. Exceptions to discharge
This section amends section 523 of Title 11 of the United
States Code. The section adds to the list of non-dischargeable
debts, debts acquired by a ``materially false representation
upon which the defrauded person justifiably relied.'' The
Committee is especially concerned that some unscrupulous
creditors have alleged false representations with no basis for
doing so. Under the amended section, a court shall award the
debtor reasonable attorneys' fees and costs if the creditor
requests a determination of dischargeability of a consumer debt
and the debt is not discharged. This section also directs the
court, if it finds the creditor's proceeding is not
substantially justified, to award additional amounts as may be
required by the equities of the case.
Additionally, the section provides that a creditor may not
contest the discharge of a consumer debt if (1) the debtor made
a good faith effort to negotiate a reasonable repayment
schedule and (2) the creditor unreasonably refused to negotiate
a repayment schedule. The burden of proof for establishing
these facts will be on the debtor.
Section 203. Effect of discharge
This section amends section 524 of Title 11 of the United
States Code. Under the amended section, the ``willful'' failure
of a creditor to credit payments received under a plan
confirmed under the bankruptcy code shall constitute a
violation of this discharge injunction under subsection (a)(2).
The Committee intends the term ``willful'' to encompass only
deliberate refusals to credit payments under circumstances
where it is clear that the creditor is aware of its legally
binding responsibility to do so. The section also provides that
a creditor may not charge a debtor or his account for
attorneys' fees or costs except as specifically provided for in
the plan. In addition, any individual who is injured because of
a failure by a creditor to comply with reaffirmation agreement
requirements or by any willful violation of the subsection
(a)(2) injunction shall be entitled to recover (1) the greater
of (A) the amount of actual damages multiplied by 3 or (B)
$5,000; and (2) costs and attorneys' fees.
Section 204. Automatic stay
This section amends section 362(h) of Title 11 of the
United States Code. Under the amended section, any individual
who is injured by a willful violation of a stay provided under
this section shall be entitled to recover (1) actual damages
and (2) reasonable costs and attorneys' fees. The section also
provides that the above individual may recover punitive damages
in appropriate circumstances.
Section 205. Discharge
This section amends section 727 of Title 11 of the United
States Code. The section provides that a creditor may not
request a determination of dischargeability of a consumer debt
if (1) the debtor made a good faith effort to negotiate a
reasonable repayment schedule and (2) the creditor unreasonably
refused to negotiate a repayment schedule. The burden of proof
for establishing these facts will be on the debtor. Under the
amended section, the court may award the debtor reasonable
attorneys' fees and costs if a creditor files a motion to deny
relief to a debtor and the motion is denied or withdrawn after
the debtor has replied. The section also provides that the
court may assess damages against the creditor, in an amount as
may be required by the equities of the case, if it finds the
position of a party filing a motion not substantially
justified.
Section 206. Discouraging predatory lending practices
This section amends section 502(b) of Title 11 of the
United States Code. After technical amendments, this section
amends section 502 to prohibit the bankruptcy claims of lenders
that materially violate certain requirements of the Truth in
Lending Act in new loans made by such lenders. However, the
Committee does not intend to clog the bankruptcy courts with
litigation over disputes involving the Truth in Lending Act.
title iii--improved procedures for efficient administration of the
bankruptcy system
Section 301. Notice of alternatives
This section amends section 342 of Title 11 of the United
States Code. Under the amended section, an individual whose
debts are primarily consumer debts shall receive a written
notice prescribed by the United States trustee for the district
in which the petition is filed. The section provides that the
notice shall contain the following:
(1) brief descriptions of chapters 7, 11, 12 and 13
of title 11 outlining the general purpose, benefits and
costs of proceeding under each chapter;
(2) brief descriptions of services available from an
independent, nonprofit debt counseling service; and
(3) the name, address and telephone number of each
nonprofit debt counseling service with an office
located in the district in which the petition was
filed. The list of nonprofit debt counseling services
shall include any service that has registered with the
clerk of the bankruptcy court on or before December 10
of the preceding year, unless the chief bankruptcy
judge of the district, after notice and opportunity for
a hearing, orders, for good cause, that a particular
debt counseling service shall not be listed.
Further, the section also amends section 521 of Title 11 of
the United States Code to clarify a debtor's duties. Under the
amended section, the debtor shall file with the court the
following:
(1) a list of creditors; and unless the court orders
otherwise;
(2) a schedule of assets and liabilities;
(3) a schedule of current income and expenditures;
(4) a statement of the debtor's financial affairs;
(5) if applicable, a certificate of the attorney for
the debtor or bankruptcy petition preparer indicating
the debtor received any notice required or if no
attorney or bankruptcy petition preparer are indicated,
that notice was actually obtained and read by the
debtor;
(6) copies of Federal tax returns filed by the debtor
for the 3-year period preceding the order for relief;
(7) copies of all payment advances or other evidence
of payment received by the debtor from any employer
within 60 days prior to the filing of the petition;
(8) an itemized statement of projected monthly net
income; and
(9) a statement disclosing any reasonably anticipated
increase in income or expenditures over the 12 months
following the date of filing.
The section also adds that a creditor under chapter 7 or 13
may at any time request the petition, schedule, and a statement
of affairs filed by the debtor or a plan filed by the debtor
from the bankruptcy court.
The section also provides that a debtor under chapter 7 or
13 shall file with the court the following:
(1) at the time filed with the taxing authority, all
tax returns within the period from the commencement of
the case until its close;
(2) at the time filed with the taxing authority, all
tax returns that were not filed with the taxing
authority when the schedules under subsection (a)(1)
were filed with respect to the period that is 3 years
before the order for relief;
(3) any amendments to tax returns; and
(4) in Chapter 13 cases, a statement subject to
penalties of perjury of debtor's income and
expenditures in the preceding tax year and monthly net
income. The preceding statement must show how the
amounts are calculated. This statement shall disclose
the amount and sources of income of the debtor, the
identity of any persons responsible with the debtor for
the support of any dependents of the debtor; and any
persons who contributed to the debtor's household as
well as the amounts contributed.
In addition, the tax returns, amendments, and statement of
income and expenditures previously described shall be available
for inspection and copying by the United States trustee, any
bankruptcy administrator, trustee or party in interest.
The Director of the Administrative Office of the United
States Courts shall establish procedures to maintain the
confidentiality of any tax information no later that 30 days
after the date of enactment of the Consumer Bankruptcy Act of
1998. Moreover, the section directs the Director of the
Administrative Office of the United States not later than 1
year after the date of enactment of this bill to prepare and
submit a report to Congress assessing the effectiveness of the
restrictions and suggestions for penalties.
Section 302. Fair treatment of secured creditors under chapter 13
This section amends section 1325(a)(5)(B)(I) of Title 11 of
the United States Code. After technical amendments, this
section strikes the previous subsection (a) and adds a new
section, which provides that ``cramdowns'' will not be
permitted in Chapter 13 cases. Under current law, a secured
claim can be reduced or ``crammed down'' to the value of the
collateral and since secured claims are paid in full, reducing
the amount of secured claims means that secured lenders will
receive less.
The section also amends the title of section (b) to
``Payment of Holders of Claims Secured by Liens.'' This
subsection provides that a lienholder will retain the lien
securing such claim until the debt that gave rise to the lien
is fully paid for, as provided under the plan.
The section also amends section 506 of Title 11 of the
United States Code. Under the amended section, a claim is
attributable to the purchase price of personal property
acquired in the 90 days prior to filing cannot be reduced under
section 506(a).
Section 303. Discouragement of bad faith repeat filings
This section will greatly reduce abuses of the bankruptcy
system by reducing the incentive to file for bankruptcy
repeatedly without completing the bankruptcy process. After
technical amendments, the amended section adds that with
respect to any action taken on a debt or property securing a
debt, or any lease, the automatic stay shall terminate with
respect to the property or debtor on the 30th day after the
filing of the later case if: (A) a single or joint case is
filed by or against an individual debtor under chapter 7, 11,
or 13; and (B) a single or joint case of that debtor was
pending during the preceding year but was dismissed (other than
a case refiled under a chapter other than chapter 7 after
dismissal under section 707(b) of this title).
This section provides that the court may extend the stay in
a particular case with respect to 1 or more creditors, if a
party in interest so requests, after providing notice and a
hearing before the expiration of the 30-day period in paragraph
(2). The stay will be extended only if the party in interest
demonstrates that the filing of the later case is in good faith
with respect to the creditors to be stayed.
The section provides that a case shall be presumed to have
not been filed in good faith if:
(A) more than one previous case under chapter 7, 11,
or 13 of Title 11 of the United States Code title in
which the individual was a debtor was pending during
the 1-year period described in paragraph (1) or;
(B) a previous case under chapters 7, 11, or 13 in
which the individual was a debtor was dismissed after
the debtor failed to file or amend the petition or
other documents as required (after having received from
the court a request to do so), or the debtor failed to
perform the terms of a plan that was confirmed by the
court (without substantial excuse) or;
(C) if, (1) during the period commencing with the
dismissal of the next most previous case under chapter
7, 11, or 13 there has not been a substantial change in
the financial or personal affairs of the debtor, (2)
the case is a chapter 7 case and there is no other
reason to conclude that the later case will be
concluded with a discharge, or (3) the case is a
chapter 11 or 13 case and there is not a confirmed plan
that will be fully performed.
The section also provides that if a request is made, and
granted, for relief from the stay under subsection (a) with
respect to real or personal property the court may, in addition
to making any other order under this subsection, order that the
relief so granted shall be in rem either: (1) for a definite
period of not less than 1 year, or (2) indefinitely.
Furthermore, the section provides that after an order is
issued under subparagraph (A), the stay under subsection (a)
shall not apply to any property subject to the in rem order in
any other case filed by the debtor. Additionally, if an in rem
order so provides, the stay shall, in addition to being
inapplicable to the debtor involved, not apply with respect to
an entity under this title if: (1) the entity had reason to
know of the order at the time that the entity obtained an
interest in the property affected, or (2) the entity was
notified of the commencement of the proceeding for relief from
the stay, and at such time no case in which the entity was a
debtor was pending.
For the purposes of this section, a case is pending during
the period beginning with the issuance of the order for relief
and ending at such time as the case involved is closed.
Section 304. Timely filing and confirmation of plans under chapter 13
This section amends section 1321 of Title 11 of the United
States Code. The amended section provides that the debtor shall
file a plan no later than 90 days after the order for relief.
The court may extend such period if the debtor should not
justly be held accountable for the circumstances creating the
need for the extension.
The section also amends section 1324 of Title 11 of the
United States Code. The amended section, concerning
confirmation of hearings provides that the hearing shall be
held no later than 45 days after the filing of the plan unless
the court, after notice and hearing, orders otherwise.
Section 305. Application of the co-debtor stay only when the stay
protects the debtor
This section amends section 1301(b) of Title 11 of the
United States Code. After technical amendments, the section
limits the co-debtor stay to 30 days when the debtor did not
receive consideration for property that is subject to a claim
when transferred to another party. However, a special rule is
provided to protect a spouse or ex-spouse when the other spouse
or ex-spouse files for bankruptcy and is obligated under a
legally binding separation or property settlement agreement or
divorce or dissolution decree to pay the creditor of the non-
filing spouse. Finally, the co-debtor stay shall terminate as
of the date of confirmation of the plan if the plan provides
that the debtor's interest in personal property subject to a
lease with respect to which the debtor is the lessee will be
surrendered or abandoned.
Section 306. Improved bankruptcy statistics
This section amends Chapter 6 of Part I of Title 28 of the
United States Code by adding a new section. This new section
provides that the clerk of each district shall compile
statistics regarding debtors with primarily consumer debts
seeking relief under chapters 7, 11, and 13 of title 11. The
Director of the Administrative Office of the United States
shall prescribe the form for the statistics, compile the
statistics, and make them available to the public. In addition,
the director shall prepare annually and submit to Congress a
report concerning the statistics compiled and an analysis of
the information.
The compilation required of the Director shall be itemized
by chapter with respect to title 11, presented both in the
aggregate and for each district, and include information
concerning the following: (A) total assets and liabilities of
the debtors and each category of assets and liabilities
reported by those debtors in the schedules prescribed pursuant
to section 2075; (B) current total monthly income, projected
monthly net income, and average income and expenses as filed by
the debtors under sections 111, 521, and 1322 of title 11; (C)
the aggregate amount of debt discharged in the reporting period
(the difference between the total amount of debt and
obligations of a debtor reported on the schedules and the
amount of such debt reported in predominantly nondischargeable
categories); (D) average time period between filing of the
petition and the closing of the case; (E) for the reporting
period, the number of cases in which a reaffirmation was filed,
total number of reaffirmations filed, number of reaffirmation
cases where the debtor was not represented by an attorney, and
of those cases the number approved by the court; (F) with
respect to cases filed under chapter 13 of title 11, the number
of cases wherethe final order determined the value of property
securing a claim to be less than the amount of the claim, the number of
final orders determining the value of property securing a claim issued,
the number of cases dismissed for failure to make payments, and the
number of cases where the debtor filed another case within the 6 years
previous to the filing, and (G) the extent of creditor misconduct and
any amount of punitive damages awarded by the court for creditor
misconduct.
The amendments made by this section shall take effect 18
months after the date of enactment of this Act.
Section 307. Audit procedures
This section amends section 586 of Title 28 of the United
States Code. This section provides that the Attorney General
shall establish procedures for the auditing of the accuracy and
completeness of petitions, schedules, and other information
which the debtor is required to provide under sections 521 and
1322 of title 11 (and when applicable section 111 of title 11)
in cases filed under chapter 7 or 13.
Importantly, the audits required by this section shall be
made in accordance with generally accepted auditing standards
and performed by independent certified public accountants or
licensed public accountants. The audit procedures shall:
(1) establish a method of selecting appropriate
qualified persons to contract with the United States
trustee to perform those audits;
(2) establish a method of randomly selecting cases to
be audited (not less than 1 out of every 500 cases in
each Federal judicial district shall be selected);
(3) require audits for schedule of income and
expenses which reflect greater than average variances
from the statistical norm of the district; and
(4) establish procedures for reporting the results of
the audits to the Attorney General, the United States
Attorney and the courts as appropriate, providing, at
least annually, public information concerning the
aggregate results of such audits including the
percentage of cases, by district, in which a material
misstatement of income or expenditures is reported, and
fully funding the audits, including procedures
requiring a debtor with sufficient available income or
assets to contribute to the payment and an
administrative expense.
The section also provides that the United States trustee
for each district is authorized to contract with auditors to
perform audits in cases designated by the United States trustee
in accordance with the above procedures.
Upon request of a duly appointed auditor, the debtor shall
cause the accounts, papers, documents, financial records, files
and all other things that the auditor requests and that are
reasonably necessary to facilitate the audit to be made
available for inspection and copying.
The report of each audit conducted under this subsection
shall be filed with the court, the Attorney General, and the
United States Attorney, under the procedures established in
paragraph (1).
If a material misstatement of income or expenditures or of
assets is reported under subparagraph (A), a statement
specifying that misstatement shall be filed with the court and
the United States trustee and shall give notice thereof to the
creditors and the United States Attorney for the district (in
an appropriate case in the opinion of the United States
trustee).
The amendments made by this section shall take effect 18
months after the date of enactment of this Act.
Section 308. Creditor representation at first meeting of creditors
This section amends section 341(c) of Title 11 of the
United States Code. The amended section provides that
notwithstanding any local or State law requiring that
representation be by an attorney in a meeting of creditors
under subsection (a), a creditor holding a consumer debt or any
representative of the creditor shall be permitted to appear at
and participate in the meeting of creditors in a case under
chapter 7 or 13 either alone or in conjunction with an
attorney. Nothing in the subsection should be construed to
require any creditor to be represented by an attorney at any
meeting of creditors.
This section will reduce costs for small businesses in
bankruptcy, which often cannot afford to pay an attorney to
appear at the creditor's meeting.
Section 309. Fair notice for creditors in chapter 7 and 13 cases
This section amends section 342 of Title 11 of the United
States Code. After technical amendments, the amended section
provides that if the credit agreement between a debtor and a
creditor, or the last communication before the filing of the
petition, lists a current account number of the debtor, the
debtor shall include that account number in any notice to the
creditor required to be given under this title.
The section also provides that, if the creditor has
specified to the debtor an address at which the creditor wishes
to receive correspondence regarding the debtor's account, any
notice to the creditor required to be given by the debtor under
this title shall be given at such address.
For the purposes of this section, the term ``notice''
includes: (A) any correspondence from the debtor to the
creditor after commencement of the case, (B) any statement of
the debtor's intention under section 521(a)(2), (C) notice of
commencement of any proceeding in the case to which the
creditor is a party, and (D) any notice of hearing under
section 1324.
A creditor, in a case of an individual under chapter 7 or
13, may file at any time with the court a notice of the address
to be used to notify the creditor. This notice shall be served
on the debtor. If the court or the debtor is required to give
the creditor notice, 5 days after receipt of thenotice under
paragraph (1), the notice shall be given at that address.
An entity may file a statement indicating its address for
notice in cases under chapter 7 or 13. After 30 days following
the statement, any notice in a case filed under chapter 7 or 13
given by the court shall be to that address. Notice given to a
creditor other than as provided in this section shall not be
effective notice until that notice has been brought to the
attention of the creditor, provided that the stay provided in
section 362 of Title 11 of the United States Code shall apply
to any creditor who has received actual notice of the filing of
a bankruptcy petition.
The section also provides that if the creditor has
designated a person or department to be responsible for
receiving notices and has established reasonable procedures to
ensure bankruptcy notices will be delivered to that department
or person, notice shall not be brought to the attention of the
creditor until that notice is received by that department or
person.
These changes will prevent unscrupulous debtors from
misidentifying account numbers or serving notice in remote
locations in order to hinder or delay creditors.
Section 310. Stopping abusive conversions from chapter 13
This section amends section 348(f)(1) of Title 11 of the
United States Code. The first change deletes ``in the converted
case, with allowed secured claims'' of subparagraph (B) and
inserts in its place, ``only in a case converted to chapter 11
or 12 but not in a case converted to chapter 7, with allowed
secured claims in cases under chapters 11 and 12.''
The amended section also provides that with respect to
cases converted from chapter 13, the claim of a creditor
holding security as of the date of the petition shall continue
to be secured unless the full amount of the claim determined
under applicable nonbankruptcy law has been paid in full as of
the date of conversion. This is true notwithstanding any
valuation or determination of the amount of an allowed secured
claim made for the purposes of the chapter 13 proceeding. Thus,
if a ``cram down'' occurs in Chapter 13, the debtor could not
benefit from this ``cram down'' if the case is converted to
Chapter 7.
Section 311. Prompt relief from stay in individual cases
This section amends section 362(e) of Title 11 of the
United States Code. The amended section provides that in the
case of an individual filing under chapter 7, 11, or 13, the
automatic stay under subsection (a) shall terminate 60 days
after a request is made by a party in interest under subsection
(d), unless a final decision is rendered by the court during
the 60-day period (beginning on the date of the request), or
the 60-day period is extended by agreement of all parties in
interest or by the court for such time as the court finds is
required by compelling circumstances.
Section 312. Dismissal for failure to file schedules timely or provide
required information
This section provides that bankruptcy cases will be
dismissed if an individual debtor in a case under chapter 7 or
13 fails to file all of the information required under section
521(a)(1) of this title within 45 days after the filing for
bankruptcy. Under this section, any party in interest may
request the court to enter an order dismissing the case. The
court shall enter an order of dismissal not later than 5 days
after that request, except, upon request of the debtor made
within 45 days after the filing for bankruptcy, the court may
allow the debtor an additional period not to exceed 20 days to
file the information required under section 521(a)(1) of this
title, if the court finds justification for extending the
period.
Section 313. Adequate time for preparation for a hearing on
confirmation of the plan
This section amends section 1324 of Title 11 of the United
States Code. After technical amendments, the amended section
provides if not later than 5 days after receiving notice of a
hearing on confirmation of the plan, a creditor objects to the
confirmation of the plan, the hearing on confirmation of the
plan may be held no earlier than 20 days after the first
meeting of creditors under section 341(a) of this title. This
will give creditors the time necessary to determine whether the
debtor's plan is fair and proposed in good faith.
Section 314. Discharge under chapter 13
This section amends section 1328 of Title 11 of the United
States Code. The section provides that any debt which is
fraudulently incurred is not dischargeable. It further provides
that restitution awarded as a result of a conviction of a crime
for willful or malicious personal injury or death to another
person is not dischargeable in Chapter 13.
Section 315. Non-dischargeable debts
The section provides that debts incurred to pay
nondischargeable debts are themselves nondischargeable.
Importantly, this section does not apply when nondischargeable
debts are paid by new borrowing by either a single parent who
has 1 or more dependent children at the time of the order for
relief, or there is an allowed claim for alimony or child
support that was unpaid at the time of the petition and the
creditor cannot demonstrate that the debtor intentionally
incurred the debt to pay the nondischargeable debt. This will
ensure that new debts incurred to pay non-dischargeable debts
will not compete with nondischargeable child or family support
in a post-bankruptcy environment.
Section 316. Credit extensions on the eve of bankruptcy presumed
nondischargeable
This section amends section 523 of Title 11 of the United
States Code. Under the amended section, consumer debts of $400
or more incurred within 90 days of bankruptcy for goods or
services which are not necessary for the maintenance or support
of the debtor or a dependent child are presumed to be
nondischargeable.
Section 317. Definition of household goods and antiques
This section amends section 101 of Title 11 of the United
States Code. The section provides that the term ``household
goods'' has the same meaning as given by the Federal Trade
Commission in 16 CFR section 444.1(I). This section also
expands the Federal Trade Commission's definition of household
goods to include tangible personal property that is needed for
the maintenance and support of a dependent child.
Under current law, household goods are exempt from the
bankruptcy estate and cannot be reached by creditors. The
Committee supports the concept of excepting reasonably
necessary household goods from the reach of creditors, but is
very concerned that the category not become so broad that it
would encompass many items not reasonably necessary to the
functioning of a household. The Committee intends this change
to prohibit courts from defining the households goods exemption
to encompass such items as automobiles, gun collections,
recreational vehicles or boats.
Section 318. Relief from stay when the debtor does not complete
intended surrender of consumer debt collateral
This section amends section 362 of Title 11 of the United
States Code. The section provides that the automatic stay is
terminated as to property securing a claim or subject to an
unexpired lease, if within the proscribed time the debtor fails
to timely file the required statements of intention or to
indicate whether the property will be surrendered or retained.
The stay may also be terminated if the debtor intends to retain
the property and fails to meet the requirement to redeem the
property or reaffirm the debt, or assume the unexpired lease.
The stay may additionally be terminated if the debtor fails to
timely take the action specified in a statement of intention,
unless the statement specifies reaffirmation and the creditor
refuses to reaffirm the debt on the original contract terms.
The Committee recommends this change so that secured creditors
are not unfairly disadvantaged by debtors who retain collateral
without retaining and paying for the collateral, and only
surrendering it at some future date, perhaps in a deteriorated
condition.
Section 319. Adequate protection of lessors and purchase money secured
creditors
This section adds a new section 1307A. This new section
protects lessors of personal property and creditors holding
purchase money security interests by directing the debtor to
make cash payments to these creditors under chapter 13. The
section directs the debtor to continue making payments until
the earlier of the dates on which the creditor begins to
receive payments under the Chapter 13 repayment plan or the
debtor relinquishes possession of the property to the lessor,
creditor or a third party under claim of right. The court,
subject to limitations, may, after notice and hearing, change
the amount and timing of the payments.
Section 320. Limitation
This section amends section 522 of Title 11 of the United
States Code, to limit to $100,000 the amount a debtor may
exempt in real or personal property used as a residence or in a
burial plot. This limitation does not apply to a family farmer.
This section will eliminate one of the most flagrant abuses
of the bankruptcy system. It closes a loophole that allows
debtors in a few states to shield their assets in luxury homes,
while their creditors are shortchanged. Currently, a Chapter 7
debtor can exempt certain possessions from being sold off to
satisfy his debts. A principal exemption is for a debtor's
home, up to a certain value as established by state law.
Although most states cap the exemption at $40,000 or less, five
states exempt homes no matter how high their value.
As a result, millionaire debtors who declare bankruptcy in
these states continue to live in a style that is no longer
appropriate, while their creditors get little or nothing. For
example, the owner of a failed Ohio S&L paid off only a
fraction of $300 million in bankruptcy claims, but still held
on to the multimillion dollar ranch he bought in Florida; a New
Jersey couple moved to Florida when their business was about to
fail, and then used bankruptcy to protect their half million
dollar home, while writing off much of the nearly $2 million
they owed creditors; and a convicted Wall Street financier
filed bankruptcy while owing at least $50 million in debts and
fines, but still kept his $5 million Florida mansion with 11
bedrooms and 21 bathrooms. Many debtors move to states like
Florida and Texas expressly to take advantage of their
unlimited exemptions.
The $100,000 cap will prevent these high profile abuses and
in so doing help restore the stigma to bankruptcy. This cap was
endorsed by the Bankruptcy Review Commission.
Section 321. Miscellaneous improvements
The section amends section 109 of Title 11 of the United
States Code. This section adds a new subsection (h) which
provides that in the 90 days prior to a filing, a potential
debtor must attempt to make a repayment plan outside the
bankruptcy system through an approved credit counseling
program.
The section also amends section 727(a) of Title 11 of the
United States Code. The section adds a new subsection (11)
which adds the failure to complete a personal financial
management course to the list of actions for which a court
shall not grant a discharge.
The section also amends section 1328 of Title 11 of the
United States Code. The section adds a new subsection (f) which
adds the failure to complete a personal financial management
course to the list of actions for which a court shall not grant
a discharge.
The section also amends section 521 of Title 11 of the
United States Code. This section adds a new subsection (e)
which requires a debtor to file a certificate from a credit
counseling service or other evidence of a good faith attempt to
create a debt repayment plan. In addition, the debtor must file
a copy of the debt repayment plan.
The section also amends section 523(d) of Title 11 of the
United States Code. The section provides that a creditor may
not request a determination of dischargeability of a consumer
debt if the debtor made a good faith attempt to negotiate a
repayment schedule pursuant to section 109(h).
The section also amends Chapter 1 of Title 11 of the United
States Code to add a new section 111. The new section provides
that the clerk of each district shall maintain a list of credit
counseling services. The list of programs is to be approved by
the United States trustee or the bankruptcy administrator for
the district. The section further directs the United States
trustee or bankruptcy administrator to make available an
instructional course concerning personal financial management
or provide a list of approved personal financial management
courses.
The section also amends section 101 of Title 11 of the
United States Code. This section defines the term ``debtor's
principal residence'' to include incidental property commonly
conveyed with a principal residence in the area where the
property is located, all easements, rights appurtenances,
fixtures, rents, royalties, mineral rights, oil or gas rights
or profits, water rights, escrow funds, or insurance, and all
replacements or additions to the property without regard to
whether it is attached to real property. Under current law,
mortgages on principal residences are not subject to being
reduced to the value of the residence in bankruptcy. This
prohibition on ``cramdowns'' protects homeowners by reducing
incentives for mortgage lenders to foreclose when a homeowner
falls behind in mortgage payments.
Section 322. Bankruptcy judgeships
This section amends Title 28 of the United States Code. It
authorizes the appointment of additional temporary bankruptcy
judgeships in the districts that follow:
(A) One additional bankruptcy judgeship for the
eastern district of California;
(B) Four additional bankruptcy judgeships for the
central district of California;
(C) One additional bankruptcy judgeship for the
southern district of Florida;
(D) Two additional bankruptcy judgeships for the
district of Maryland;
(E) One additional bankruptcy judgeship for the
eastern district of Michigan;
(F) One additional bankruptcy judgeship for the
southern district of Mississippi;
(G) One additional bankruptcy judgeship for the
district of New Jersey;
(H) One additional bankruptcy judgeship for the
eastern district of New York;
(I) One additional bankruptcy judgeship for the
northern district of New York;
(J) One additional bankruptcy judgeship for the
southern district of New York;
(K) One additional bankruptcy judgeship for the
eastern district of Pennsylvania;
(L) One additional bankruptcy judgeship for the
middle district of Pennsylvania;
(M) One additional bankruptcy judgeship for the
western district of Tennessee; and
(N) One additional bankruptcy judgeship for the
eastern district of Virginia.
The section provides that judgeship vacancies in the above
districts resulting from death, retirement, resignation, or
removal of a bankruptcy judge which occur 5 years or more after
the appointment date shall not be filled.
The section also adds that temporary bankruptcy judgeships
authorized for the northern district of Alabama, the district
of Delaware, the district of Puerto Rico, the district of South
Carolina, and the eastern district of Tennessee under the
Bankruptcy Judgeship Act of 1992 are extended until the first
vacancy resulting from the death, retirement, resignation, or
removal occurs:
(A) 8 years or more after November 8, 1993, in the
northern district of Alabama;
(B) 10 years or more after October 28, 1993, in the
district of Delaware;
(C) 8 years or more after August 29, 1994, in the
district of Puerto Rico;
(D) 8 years or more after June 27, 1994, in the
district of South Carolina; and
(E) 8 years or more after November 23, 1993, in the
district of Tennessee.
The section also amends section 152(a)(1) of Title 28 of
the United States Code. It adds that each judge shall be
appointed by the United States Court of Appeals for the circuit
in which such a district is located.
The section also amends section 156 of Title 28 of the
United States Code to require post-travel reports for non-cases
related travel by bankruptcy judges. The section defines the
term travel expenses to include expenses incurred by a
bankruptcy judge that are not directly related to any case, and
excludes expenses incurred by the judge paid from personal
funds and where no payment or reimbursement is made to the
judge by the government or any other person or entity. Each
bankruptcy judge will submit an annual report to the Chief
Bankruptcy Judge. The Chief Bankruptcy Judge will submit an
annual report to the Director of the Administrative Office of
the United States Courts on the travel expenses of each
bankruptcy judge. The annual report shall include: the travel
expenses and the name of each judge, the description of the
subject matter of the travel expenses, the number of days that
the judge traveled.
The section also requires that the Director of
Administrative Office of the United States consolidate the
reports received into one report and submit it to Congress.
Section 323. Preferred payment of child support in chapter 7
proceedings
This section amends section 507(a) of Title 11 of the
United States Code. It amends the section by placing expenses
or claims that are entitled to priority under paragraph (7) in
first priority over any other claims or expenses that have
priority as child or marital supports under 507(a)(7).
Section 324. Preferred payment of child support in chapter 13
proceedings
This section amends section 1322(b)(1) of Title 11 of the
United States Code. It amends the section by requiring that
child support payments be paid before any other priority claim
is paid during a Chapter 13 repayment plan.
Section 325. Payment of child support required to obtain a discharge in
chapter 13 proceedings
This section amends section 1325(a) of Title 11 of the
United States Code. The amended section provides that the
debtor is required to pay all alimony and child support
obligations in full in order to obtain debt forgiveness in
Chapter 13.
Section 326. Child support and alimony collection
This section amends section 362(b) of Title 11 of the
United States Code. After technical amendments, this section
exempts collection activities for child support and alimony
from the automatic stay. The section specifically permits the
withholding of income pursuant to an order specified in section
466(b) of the Social Security Act and also adds the
withholding, suspension, or restriction of drivers' licenses,
professional and occupational licenses, and recreational
licenses pursuant to State law, under the Social Security Act
one the reporting of overdue support owed by an absent parent
to any consumer reporting agency. The Committee recommends this
change which will greatly improve the ability of state
governments, and ex-spouses to collect unpaid child support.
Section 327. Nondischargeability of certain debts for alimony,
maintenance, and support
The section amends section 523 of Title 11 of the United
States Code as amended by section 202 of this Act. After
technical amendments, the section adds that certain debts
incurred for actual alimony and child support are automatically
non-dischargeable. This provision will make it unnecessary for
an ex-spouse seeking to enforce these obligations to incur the
legal expenses of litigation, as required by present law, non-
dischargeable of the marital dissolution obligation in
bankruptcy.
Section 328. Enforcement of child and spousal support
This section amends 522(c)(1) of Title 11 of the United
States Code. The section adds that exempted property shall be
liable for debts of a kind that are specified in paragraph (1)
or (5) of section 523(a). As a result, child support, alimony
and marital dissolution obligations can be collected post-
bankruptcy from exempt property.
Section 329. Dependent child defined
This section amends section 101 of Title 11 of the United
States Code. This section defines the term ``dependent child''
as a child who has not attained the age of 18 and who is a
dependent of that individual as within the Internal Revenue
Code.
TITLE IV--TECHNICAL CORRECTIONS
In general, the changes in this title of S. 1301 mirror
provisions of H.R. 764, which passed the House of
Representatives earlier this Congress.
Section 401. Definitions
This section amends the definitions contained in section
101 of Title 11 of the United States Code. Paragraphs (1), (2),
(4), (5)(B), (7), and (8) of section 401 make technical changes
to section 101 to convert each definition into a sentence
(thereby facilitating future amendments to the separate
paragraphs) and to redesignate the definitions in correct and
completely numerical sequence. Paragraph (8) of this section
makes the necessary conforming amendment to cross references to
the newly redesignated definitions and simplifies these
references to avoid future reference errors. Paragraph (5)(A)
of the section excludes family farms from the definition of
single asset real estate.
In general terms, single asset real estate is a single
piece of real estate which generates substantially all of the
gross income of the debtor, on which no other substantial
business is being conducted, and which as presently defined is
encumbered by no more than $4 million in outstanding debt.
Section 362 of the Bankruptcy Code effectively provides a
secured creditor with relief from the automatic stay's bar to
foreclosure on such property unless, within 90 days of the
order for relief, the debtor has filed a plan of reorganization
which stands a reasonable possibility of being confirmed, or
unless the debtor has commenced making monthly payments to each
secured creditor in an amount equal to interest at the current
fair market rate on the value of the creditor's interest in the
real estate.
The present $4 million cap prevents the use of the
expedited relief procedure in many commercial property
reorganizations, and effectively provides an opportunity for a
number of debtors to abusively file for bankruptcy in order to
obtain the protection of the automatic stay against their
creditors. The section removes the ceiling.
Section 402. Adjustment of dollar amounts
This section corrects an omission in section 104(b) of
Title 11 of the United States Code, as added by Public Law 103-
894, by adding references to section 522(f)(3), and 707(b)(5)
so that the triennial adjustment required by section 104(b)
extends to the figure representing an aggregate value of
certain implements, professional books, tools of the trade,
farm animals, and crops which the debtor may exempt from the
property of the estate and so protect from creditors' liens.
Section 522(f)(3) now sets the total permissible value of such
property at $5,000.
Section 403. Extension of time
The section makes a technical amendment by striking ``922''
and all that follows and inserting ``922, 1201 or.'' To correct
a reference error described in amendment notes contained in the
United States Code.
Section 404. Who may be a debtor
This section of the bill makes a technical amendment by
striking subsection ``(c) or (d)of''. Additionally, it amends
section 109(b)(2) of the United States Code.
Section 405. Penalty for persons who negligently or fraudulently
prepare bankruptcy petitions
This section of the bill makes a technical correction to
change from the singular possessive to the plural possessive
the reference to the fees payable to attorneys. This section
amends section 110(j)(3) of Title 11, of the United States
Code.
Section 406. Limitation on compensation of professional persons
This section amends 328(a) of Title 11 of the United States
Code to provide that a trustee or a creditors' and equity
security holders' committee may, with court approval, employ a
professional person on any reasonable terms and conditions of
employment, including on a retainer, on an hourly basis, or on
a contingent fee basis. This section amends section 328(a) to
include compensation ``on a fixed or percentage fee basis'' in
addition to the other specified forms of reimbursement.
Section 407. Special tax provisions
The section of the bill makes a technical correction in
section 346(g)(1)(C) of Title 11 of the United States Code to
remove language referring to a repealed section of the Internal
Revenue Code of 1986. Additional information regarding the
repealed section is indicated in the appropriate footnote, and
contained in the notes under the heading ``References in
Text,'' found in the United States Code.
Section 408. Effect of conversion
The section makes a technical correction in section
348(f)(2) of Title 11 of the United States Code to clarify that
the first reference to property, like the subsequent reference
to property, is a reference to property of the estate.
Section 409. Automatic stay
The section clarifies that the automatic stay does not
apply to a transfer that is not avoidable under sections 544 or
549 or Title 11. Further, this section prohibits using the
automatic stay to prevent the continuation of state law
eviction proceedings.
Section 410. Amendment to table of section
This section amends chapter 5 of Title 11 of the United
States Code. This section makes technical amendments by
striking the section 556 and replacing with, ``556. Contractual
right to liquidate a commodities contract or forward
contract.''
Section 411. Allowance of administrative expenses
This section provides that 503(b)(4) of Title 11 of the
United States Code, limits the types of compensable
professional services rendered by an attorney or accountant
that can qualify as administrative expenses in a bankruptcy
case. Expenses for attorneys or accountants incurred by
individual members of creditors' and equity security holders'
committees would not be recoverable, but expenses incurred for
such professional services by the committees themselves would
be.
Section 412. Priorities
This section makes technical amendments to section 507(a)
of Title 11 of the United States Code. The amendment made by
section 14(1) corrects an error in the punctuation at the end
of section 507(a)(3). The amendment made by section 14(2)
corrects an omission in paragraph (7) of section 507(a) and
conforms paragraph (7) to the other paragraphs of section
507(a) that provide priority only to unsecured claims.
Section 413. Exemptions
This section would make grammatical and clarifying
amendments to section 522(f)(1)(A)(ii)(II) and a conforming
amendment to section 522(g)(2) of the Bankruptcy Code.
Section 414. Exceptions to discharge
This section makes technical and conforming changes to
accommodate drafting errors in changes made to Title 11 from
the Bankruptcy Reform Act of 1994 and the Omnibus Consolidated
Rescissions and Appropriation Act of 1996.
Section 415. Effect of discharge
Section 17 of the bill makes technical amendments to
correct errors in section 524(a)(3) of Title 11 of the United
States Code.
Section 416. Protection against discriminatory treatment
The section amends section 525(c) of Title 11 of the United
States Code by making a technical amendment to conform a
reference to its antecedent reference. The omission of
``student'' before ``grant'' in the second place it appears in
section 525(c) made possible the interpretation that a broader
limitation on lender discretion was intended, so that no loan
could be denied because of a prior bankruptcy if the lending
institution was in the business of making student loans. The
section is intended to make clear that lenders involved in
making government guaranteed or insured student loans are not
barred by this Bankruptcy Code provision from denying other
types of loans based on an applicant's bankruptcy history; only
student loans and grants, therefore, cannot be denied under
section 525(c) because of a prior bankruptcy.
Section 417. Property of the estate
The section makes technical changes to Section 541 of the
Bankruptcy Code to clarify the original Congressional intent to
generally exclude production payments from the debtor's estate.
Section 418. Limitations on avoiding powers
The section amends section 546 of Title 11 of the United
States Code to redesignate subsection (g) as subsection (h).
Section 419. Preferences
Section 419 of the bill restates Congress's intent to
overrule the so-called DePrizio doctrine and verify the intent
behind section 547 of the Code. In 1994, the Congress first
attempted to clarify this situation by amending section 550 of
the Code. The section by section analysis placed in the
Congressional Record at that stated: ``This section by section
overrules the DePrizio line of cases and clarifies that non-
insider transferees should not be subject to the preference
provisions of the Bankruptcy Code beyond the 90 day statutory
period.'' (140 Cong. Rec. No. 142 at H10767 (October 6, 1994);
See also, Statement of Sen. Grassley, 140 Cong. Rec. No. 144 at
S14461 (October 6, 1994)). However, in a misapplication of the
plain language doctrine, certain courts have ignored the 1994
amendments and this legislative history. In the present bill,
yet again, it is the Committee's intent to expressly overrule
DePrizio by making a technical amendment to section 547 so as
to re-affirm the position that innocent lenders should not be
subject to the insider preference provisions of the Code.
Further, it is our intent that section 419 be applied to all
pending court actions where there has been no final judgement,
consistent with the original intent of section 547 as clarified
by the 1994 amendments.
Section 420. Postpetition transactions
The section amends section 549(c) to clarify its
application to an interest in real property.
Section 421. Technical amendment
The section provides a technical amendment that replaces
``product'' with its plural form ``products.''
Section 422. Setoff
The section amends section 553(b)(1) of Title 11 of the
United States Code to replace the current paragraph cross
reference to ``362(b)(17).''
Section 423. Disposition of property of the estate
The section amends section 726(b) of Title 11 of the United
States Code, by striking ``1009''.
Section 424. General provisions
The section amends section 901(a) of Title 11 of the United
States Code to correct an omission in a list of sections
applicable to cases under chapter 9 of Title 11.
Section 425. Appointment of elected trustee
This section refines existing law by clarifying the
procedure for giving effect to the election of a private
trustee in a chapter 11 reorganization case. Section 702(b) of
the Bankruptcy Code permits creditors at the meeting of
creditors to elect one person to serve as trustee in the case,
provided certain conditions are met. Section 1104(b) of the
Bankruptcy Code relates to the convening of the meeting of
creditors for this purpose and the conduct of the election. In
addition the section would renumber Section 1104(b) as Section
1104(b)(1) and would add a new subsection 1104(b)(2) requiring
the United States trustee to file a report certifying the
election when an eligible, disinterested trustee is elected
under paragraph (1). The effect of such filing would be to
consider such elected trustee as selected and appointed for
purposes of Section 1104 and to terminate the service of any
trustee appointed under subsection (d), which provides for the
appointment of a trustee or examiner by the United States
trustee, subject to court approval.
Section 426. Abandonment of railroad line
The section redesignates section ``11347'' as section
``11326(a).''
Section 427. Contents of plan
The section redesignates section ``11347'' as section
``11326(a).''
Section 428. Discharge under chapter 12.
The section amends section 1228 of Title 11 of the United
States Code, replacing each reference of ``1222(b)(10)'' with
``1222(b)(9)''.
Section 429. Extensions
The section amends section 302(d)(3) of the Bankruptcy,
Judges, United States Trustees, and Family Farmer Bankruptcy
Act of 1986 by removing ``or October 1, 2002 and or October 1,
2003,'' and ``whichever occurs first.''
Section 430. Bankruptcy cases and proceedings
This section makes a technical change to correct an
incomplete cross-reference.
Section 431. Knowing disregard of bankruptcy law or rule
This section amends section 156(a) of Title 18 of the
United States Code, which defined ``bankruptcy petition
preparer'' and ``document for filing,'' by making stylistic
changes and correcting a reference to Title 11 of the United
States Code.
Section 432. Effective date; application of amendments
This section provides that amendments made by this Title of
S. 1301 shall take effect on the date of enactment, but shall
apply only to cases commenced under Title 11 on or after the
date of enactment. The vast majority of Bankruptcy Code changes
made by this act are technical and will not change the results
in future cases.
IV. COST ESTIMATE
In accordance with paragraph 11(a) of rule XXVI of the
Standing Rules of the Senate and section 404 of the
Congressional Budget Act of 1974, the committee provides the
following cost estimate, prepared by the Congressional Budget
Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 18, 1998.
Hon. Orrin G. Hatch,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed federal cost estimate (including the
impact on state and local governments) and private-sector
mandates statement for S. 1301, the Consumer Bankruptcy Reform
Act of 1998.
If you wish further details on these items, we will be
pleased to provide them. The CBO staff contacts are Susanne S.
Mehlman and Mark Grabowicz (for federal costs), Leo Lex (for
the state and local impact), and Matthew Eyles (for the
private-sector impact).
Sincerely,
June E. O'Neill, Director.
Enclosures.
congressional budget office private-sector mandates statements
S. 1301--Consumer Bankruptcy Reform Act of 1998
Summary: S. 1301 would make many changes and additions to
the federal bankruptcy laws. By amending the bankruptcy code,
the bill would affect consumer debtors, creditors, private
bankruptcy trustees, attorneys, bankruptcy petition preparers,
debt relief counselors, and other entities in the private
sector.
Certain provisions in S. 1301 that effectuate means-testing
in the bankruptcy system would impose new private-sector
mandates, as defined in the Unfunded Mandates Reform Act
(UMRA). New mandates would be imposed on consumer bankruptcy
attorneys and bankruptcy petition preparers.
CBO estimates that the direct costs of new private-sector
mandates in S. 1301 would exceed the statutory threshold in
UMRA ($100 million in 1996, adjusted annually for inflation).
In 1999, mandate costs could be between $200 million and $525
million. Nearly all mandate costs would stem from requirements
for consumer bankruptcy attorneys to investigate and verify
financial information provided by their clients. Mandate costs
on bankruptcy petition preparers, which arise from new consumer
protection regulations, would be modest. Mandate costs can be
expected to grow in future years. By 2003, direct costs could
be between $300 million and $950 million.
Bankruptcy attorneys would initially bear those costs,
although they would be able to recoup most costs by increased
payments from bankruptcy estates. Administrative costs, which
include attorneys' fees and costs, receive priority treatment
in the bankruptcy system and are generally reimbursed before
creditors' claims.
S. 1301 would also provide financial benefits to creditors.
By incorporating means-testing into the bankruptcy system, the
number of debtors who would be required to file plans of
reorganization would rise. As a result, the pool of funds
available to creditors for repayment would likely increase. In
addition, other provisions in the bill would generate further
benefits to creditors. However, benefits to creditors would be
partially offset by higher costs of administering the
bankruptcy code. In isolated cases, where administrative costs
rise by more than the pool of debtors' funds, S. 1301 could
impose costs on some creditors.
Overview of the bill and private-sector mandates: Under
current law, most individual debtors who seek bankruptcy relief
have two options: liquidation (chapter 7) or reorganization
(chapter 13). S. 1301 would institute a ``needs-based system''
for relief under chapter 7 by requiring individuals (and
households) who file for bankruptcy to seek debt relief under
chapter 13 if they earn a regular income equal to or greater
than the national median income (adjusted for household size)
and could pay at least 20 percent of their unsecured debts. In
chapter 7 cases, debtors' nonexempt assets are sold and
distributed by a court-appointed trustee to creditors after
deducting administrative expenses. Chapter 7 debtors who are
discharged from the system receive a ``fresh start'' and are
not liable for creditors' claims not repaid in full. By
contrast, chapter 13 allows debtors to retain their assets in
exchange for agreeing to repay creditors out of future income
over a period of three to five years. In both chapters, certain
debts, such as taxes or those debts incurred fraudulently, may
not be discharged.
S. 1301 would amend current law by establishing a system of
means-testing provisions for determining the eligibility of
consumers for relief under the bankruptcy code. Some provisions
in the bill that carry out means-testing would impose new
private-sector mandates. S. 1301 would also expand the types of
debts that may not be discharged from bankruptcy. In addition,
S. 1301 would amend other provisions in federal bankruptcy law,
including those covering spousal or child support, family
farmers, collection of bankruptcy data, and single-asset real
estate debtors.
The Unfunded Mandates Reform Act (Public Law 104-4) defines
a private-sector mandate as any provision in legislation that
would impose an enforcement duty upon the private-sector except
a condition of federal assistance or a duty arising from
participation in a voluntary federal program. While a very
small portion of debtors is forced into bankruptcy, the
bankruptcy process is largely voluntary for debtors, and
debtor-initiated bankruptcies are equivalent to participation
in a voluntary federal program. Consequently, new duties
imposed by the bill on individuals who file as debtors do not
meet the definition of private-sector mandates, and additional
costs for debtors would not be counted as direct costs for
purposes of UMRA.
Provisions that would impose new enforceable duties on
other private entities, such as bankruptcy attorneys and
petition preparers (including debtors' attorneys), do meet the
definition of a private-sector mandate. Creditors, who are
subject to many requirements under the existing bankruptcy
code, would face changed duties under S. 1301. Creditors have
very specific obligations when they are a party in interest to
a bankruptcy case, and most creditors' duties in current law
would remain. While S. 1301 would alter the duties of some
creditors, in general, the bill would provide creditors with
additional rights in bankruptcy cases.
Private-sector mandates contained in the bill: S. 1301
would impose new private-sector mandates, as defined in UMRA,
on bankruptcy attorneys and bankruptcy petition preparers.
Bankruptcy attorneys would face new duties to investigate and
verify financial information of their clients. Section 102 of
the bill would apply Bankruptcy Rule 9011 from Title 11, United
States Code, to make bankruptcy attorneys liable for
misrepresentations of a debtor's financial condition. Rule 9011
requires attorneys to reasonably verify information provided by
debtors and attest, under threat of sanctions and other
penalties, that such information is well-grounded in fact. As a
result, attorneys in consumer bankruptcy cases would have a
duty to investigate and verify documents that their clients
must include in petitions for bankruptcy relief. Those
documents include a list of creditors, a schedule of assets and
liabilities, a schedule of current income and expenditures,
statements of projected monthly net income and reasonably
anticipated increases in income or expenditures, and other
financial information.
S. 1301 would also impose new consumer protection
regulations on bankruptcy petition preparers, including
attorneys. The bill would require bankruptcy petition preparers
to provide potential clients a written notice, prescribed by
the Executive Office for the United States Trustees (U.S.
Trustees) for the district in which the petition is filed, that
contains: a description of chapters 7, 11, 12, and 13,
including the costs and benefits of each chapter; a description
of services that may be available from nonprofit debt
counseling services; and information that would enable the
individual to contact nonprofit debt counseling services.
Estimated direct cost to the private sector: CBO estimates
that the direct costs of new private-sector mandates contained
in S. 1301 would exceed the statutory threshold in each of the
first five years that the mandates were effective. In 1999, new
mandates could impose direct costs of between $200 million and
$525 million. Costs would likely increase over the five-year
period and, by 2003, direct private-sector mandate costs could
total between $300 million and $950 million: Almost all costs
would result from additional duties of attorneys to investigate
and verify financial information provided by their clients.
Because reliable national data on the costs of the bankruptcy
system are lacking and the actual costs to attorneys are
uncertain, these estimates encompass a broad range.
CBO's estimate excludes: financial transfers between
debtors and creditors that would result from enacting S. 1301;
costs that could result from delaying distributions from
bankruptcy estates to certain creditors due to increased
litigation; and potential reductions in debtor repayments in
cases where the costs of administration rise by more than
payments by debtors.
Costs to Consumer Bankruptcy Attorneys. S. 1301 would make
consumer bankruptcy attorneys responsible for verifying the
financial information provided by debtors who file for relief.
CBO estimates that additional attorneys' costs could be between
$200 million and $525 million in 1999. By 2003, direct costs
could be between $300 million and $950 million. These estimates
are based on information from the U.S. Trustees about the
number of bankruptcy cases expected to be filed over the 1999-
2003 period, estimates of debtors who would choose not to file
if S. 1301 is enacted, estimates of debtors who would have
their cases filed as or converted to chapter 13 cases under the
bill's requirements, and estimates of the increased costs to
attorneys from performing inquiries into their client's
financial condition.
Information from the U.S. Trustees and trends in bankruptcy
filings indicate that, in 1999, more than 1.4 million consumer
bankruptcy petitions will likely be filed. Of those cases filed
in 1999, about 960,000 petitions would be filed under chapter 7
and about 390,000 petitions under chapter 13. CBO estimates
that, under S. 1301, 5 percent of chapter 7 debtors (about
48,000) would choose not to file, and 5 percent of all chapter
7 cases would be filed as or converted to chapter 13 cases.
Completing investigations of debtors' financial affairs and,
for chapter 7 cases, computing debtor-eligibility, would be
time consuming. The costs to attorneys could increase by
several hundred dollars per case. If attorneys' costs rise by
roughly $150 per case to $400 per case, applying that increase
to a reduced level of chapter 7 cases and a higher number of
chapter 13 cases, direct costs in 1999 would be within the $200
million to $525 million range.
Mandate costs would increase in subsequent years even if
bankruptcy filings drop initially as a result of enacting S.
1301. Bankruptcy filings, after a small decline in 2000, will
likely increase between 2001-2003. The U.S. Trustees estimate
that in 2003 more than 1.8 million nonbusiness petitions would
be filed (about 1.3 million under chapter 7 and 540,000 under
chapter 13). Applying the same assumptions about the number of
chapter 7 cases not filed for any bankruptcy protection, those
converted to chapter 13 cases, and increased attorneys' costs,
direct costs in 2003 would be about $250 million to $700
million. Furthermore, attorneys' responsibilities for cases
filed under chapter 13 in years before 2003 would carry forward
because chapter 13 cases have a duration of between three years
and five years. Despite a failure rate of 2 out of 3 plans
filed under chapter 13, duties for attorneys from cases filed
in previous years could add an additional $50 million to $250
million, depending on the amount of future litigation.
The costs of new mandates in S. 1301 would initially be
borne by bankruptcy attorneys. However, provisions in current
law exist for reimbursement of attorneys by increased payments
from bankruptcy estates. Attorneys' fees and costs are treated
as administrative expenses in the bankruptcy code and are paid
out of debtors' estates before distributions are made to
creditors. Consequently, the cost of new mandates are
ultimately paid out of the pool of funds available to
creditors.
Costs to Bankruptcy Petition Preparers. S. 1301 would apply
new consumer protection regulations to bankruptcy petition
preparers. The bill provides that petition preparers must
dispense notices to potential clients about the bankruptcy
system, alternatives to the system, and information about
nonprofit debt counseling services in the area. CBO estimates
that the direct cost of notice requirements would be modest.
Notices would be prescribed by the U.S. Trustees for each
district and, consequently, little effort would likely be
required of bankruptcy petition preparers to comply with the
new regulations.
Effects on Creditors. S. 1301 also contains many provisions
that would benefit creditors. Most significant for creditors
are provisions that would shift debtors from chapter 7 to
chapter 13 and provisions that would expand the types of debts
that would be nondischargeable. By expanding the types of debts
that are nondischargeable, such as many credit card debts over
$400 when incurred within 90 days of filing, some creditors
would continue to receive payments on debts that would be
discharged under current law. Means-testing in the bankruptcy
system would result in more individuals being required to seek
relief under chapter 13 rather than chapter 7 and fewer filing
for any bankruptcy protection. Because chapter 13 requires
debtors to develop a plan to repay creditors over a specified
period, the total pool of funds available for distribution for
creditors would likely increase. As long as the likelihood of
repayment by debtors and the pool of funds increases by an
amount that is greater than the rise in administrative costs,
creditors would be made better off under the bill.
Estimate prepared by: Matt Eyles.
Estimate approved by: Arlene Holen, Assistant Director for
Special Studies.
congressional budget office cost estimate
S. 1301--Consumer Bankruptcy Reform Act of 1998
Summary: S. 1301 would make changes and additions to the
laws relating to bankruptcy, including establishing a system of
means-testing for determining eligibility for obtaining relief
under chapter 7 of the U.S. bankruptcy code. CBO estimates that
implementing S. 1301 would cost $293 million over the 1999-2003
period--$277 million in discretionary spending, which would be
subject to appropriation of the necessary funds, and $16
million in mandatory spending. In addition, we estimate that
the bill would increase receipts by $1 million a year. Because
the bill would affect direct spending and receipts, pay-as-you-
go procedures would apply.
S. 1301 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would have no
significant impact on the budgets of state, local, or tribal
governments.
Description of the bill's major provisions: Title I of S.
1301 would establish a system of means-testing for determining
eligibility for relief under chapter 7 of the U.S. bankruptcy
code. Title II would provide various procedural protections to
debtors. title III would:
require the Administrative Office of the United
States Courts (AOUSC) to receive and maintain income
tax returns for all chapter 7 and chapter 13 debtors;
require the AOUSC to collect and publish certain
statistics on bankruptcy cases;
require that at least one out of every 500 bankruptcy
cases under chapter 13 or chapter 7 be audited by an
independent certified public accountant;
require the Executive Office for the United States
Trustees (U.S. Trustees) to establish a program to
educate debtors on financial management; and
authorize 18 new temporary judgeships and extend five
existing judgeships in 19 federal districts.
Title IV would make various technical changes to bankruptcy
laws.
Estimated cost to the Federal Government: The bill would
affect direct spending because it would authorize additional
bankruptcy judgeships, and the salaries and benefits of these
judges are considered mandatory. Costs for other personnel and
administrative expenses of the courts associated with
additional judgeships would be subject to the availability of
appropriated funds. Enacting the means-testing provisions in
Title I would result in fewer debtors filing for chapter 7
bankruptcy protection and more debtors filing for chapter 13
protection. As a result, CBO estimates a net increase in
revenues from bankruptcy filing fees each year.
As shown in the following table, CBO estimates that
implementing S. 1301 would cost the courts, the AOUSC, and the
U.S. Trustees $43 million in 1999 and $277 million over the
1999-2003 period, subject to appropriation of the necessary
funds. In addition, we estimate that mandatory spending for the
salaries and benefits of bankruptcy judges would increase by $1
million in 1999 and $16 million over the 1999-2003 period.
Additional revenues from filing fees would total $5 million
over five years. The costs of this legislation fall within
budget function 750 (administration of justice).
Basis of estimate: For purposes of this estimate, CBO
assumes that S. 1301 will be enacted by October 1, 1998, and
that all estimated authorization amounts will be appropriated
for each fiscal year.
[By fiscal year, in million of dollars]
----------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Means-Testing Litigation (Sections 101-102):
Estimated Authorization Level............................. 1 1 1 (\1\) (\1\)
Estimated Outlays......................................... 1 1 1 (\1\) (\1\)
Maintain Income Tax Information (Section 301):
Estimated Authorization Level............................. 6 5 6 7 9
Estimated Outlays......................................... 5 5 6 7 9
Data Compilation/Publication (Section 306):
Estimated Authorization Level............................. 2 6 8 8 9
Estimated Outlays......................................... 2 5 8 8 9
Audit Procedures (Section 307):
Estimated Authorization Level............................. 0 2 4 5 6
Estimated Outlays......................................... 0 2 4 5 6
Debtor Financial Management Training (Section 321):
Estimated Authorization Level............................. 40 33 32 26 27
Estimated Outlays......................................... 32 34 32 27 27
Support Costs for Additional Judgeships (Section 322):
Estimated Authorization Level............................. 3 9 10 10 11
Estimated Outlays......................................... 3 8 10 10 10
Total Changes:
Estimated Authorization Level............................. 52 56 61 56 62
Estimated Outlays......................................... 43 55 61 57 61
CHANGES IN DIRECT SPENDING
Additional Judgeships (Section 322):
Estimated Authorization Level............................. 1 3 4 4 4
Estimated Outlays......................................... 1 3 4 4 4
CHANGES IN REVENUES
Decrease in Chapter 7 Filing Fees and Increase in Chapter 13
Filing Fees:
Estimated Revenues, Title I............................... 1 1 1 1 1
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000 a year.
Spending subject to appropriation: The estimated increases
in discretionary spending would be required to fund the
additional workload that would be imposed on the courts, the
AOUSC, and the U.S. Trustees. Currently, the U.S. Trustees are
funded through the bankruptcy-related fees collected by the
courts. Without additional statutory authority, these fees
cannot be increased to cover any additional expenditures that
would result from enacting the bill. Because the legislation
does not provide for such increases in fees, any additional
costs would be subject to the availability of appropriated
funds.
Means-testing (sections 101-102).--The means-testing
provision in S. 1301 would require a bankruptcy judge to
consider two factors when deciding if a debtor's petition for a
chapter 7 bankruptcy would be abusive and therefore require
dismissal or conversion to a chapter 13 case. First, the court
would consider whether the debtor could repay 20 percent of his
or her general unsecured claims. Second, the court would
consider if the debtor filed the case in ``bad faith.'' Also,
creditors would be allowed to bring motions claiming abuse of
the bankruptcy system, unless the debtor and the debtor's
spouse have combined current monthly income less than or equal
to the national median income for a family of the same size. In
addition, a creditor would have to pay the debtor's attorney's
fees and litigation costs if the motion to dismiss the case was
denied and not substantially justified.
Under S. 1301, CBO estimates that the U.S. Trustees would
be required to compile and review income data necessary for
means-testing and to participate in any litigation that would
result from issues concerning eligibility. CBO expects that any
additional data collection requirements would not pose a
significant burden on the U.S. Trustees and thus would require
no additional appropriations. However, we expect that the U.S.
Trustees would incur additional costs for the work that would
result from increased litigation.
Based on information from the U.S. Trustees, CBO expects
that the bill's means-testing provisions could increase
litigation over a debtor's eligibility for chapter 7 relief
because of potential conflicts between the courts and debtors
over whether granting relief would be an ``abuse'' of the
bankruptcy code. Under the bill, additional motions for
dismissal would result as more objective criteria would be
applied to a debtor's income and expenses and because creditors
would have the ability to challenge petitions for chapter 7
relief. Some debtors whose petitions for chapter 7 relief would
be denied under S. 1301 would undoubted appeal those decisions.
Although CBO cannot predict the amount of additional
litigation, we expect that there would be some during the first
few years following enactment of S. 1301, as parties test the
new law's standards. We expect that the U.S. Trustees, who
would become gatekeepers to thebankruptcy system under the
bill, would be heavily involved in any litigation that would result, at
an estimated cost of about $1 million through 2001. In subsequent
years, the amount of litigation could diminish as precedents are
established, and we estimate that costs would decrease to about less
than $500,000 annually.
Maintenance of tax returns (section 301).--This section
would require the AOUSC to receive and retain tax returns for
the three most recent years preceding the commencement of the
bankruptcy case for all chapter 7 and chapter 13 debtors (about
7 million debtors over the 1999-2003 period). CBO estimates
that appropriations of $33 million over the next five years
would be required to store and provide access to over 20
million tax returns.
Compilation and publication of bankruptcy data and
statistics (section 306).--S. 1301 would require the AOUSC to
collect data on chapter 7, chapter 11, and chapter 13 cases and
to make the information available to the public. CBO estimates
that appropriations of about $33 million would be required over
the 1999-2003 period to meet these requirements. Of the total
estimated cost, about $22 million would be required over the
next five years for additional legal clerks, analysts, and data
base support. The remainder of the estimated cost ($11 million)
would be incurred for compiling data and providing Internet
access to records pertaining to bankruptcy cases.
Audit procedures (section 307).--Beginning 18 months after
enactment, S. 1301 would require that at least one out of every
500 bankruptcy cases under chapter 7 and chapter 13, plus other
selected cases under those chapters, be audited by an
independent certified public accountant. The U.S. Trustees
estimates that about 1.2 million cases would be subject to
audit in fiscal year 2000, increasing to about 1.8 million in
fiscal year 2003. Assuming that about 0.25 percent of all cases
would be audited and that each audit would cost about $1,200
(in 1998 dollars), implementing this provision would require
appropriations of $2 million in fiscal year 2000 and $17
million over the 1999-2003 period. Section 307 also would
require the Attorney General to attempt to recover some of the
costs of audits from debtors with sufficient income or assets.
As a result, it is possible that net costs for this section
could be less than the above estimate to the extent that
debtors could contribute to the funding of the audits; however,
CBO does not expect that such debtor contributions would be
significant.
Instructional courses in financial management (section
321).--This section would require the U.S. Trustees to
establish a training program to educate debtors on financial
management. Debtors would be required to undergo this training,
or comparable training approved by the U.S. Trustees, as a
condition of receiving relief from certain debts. Based on
information from the U.S. Trustees, CBO estimates that about 1
million debtors would participate if such a program were
administered by the U.S. Trustees in fiscal year 1999. In
future years, CBO expects that private companies would offer
comparable instruction that could be taken by debtors (at their
own expense) in place of a class administered by the U.S.
Trustees. As a result, we expect that the number of debtors
participating in the U.S. Trustees' instructional program would
drop to about 600,000 by fiscal year 2002. At a projected cost
of about $40 per debtor, CBO estimates that the U.S. Trustees
would require the appropriation of about $158 million over the
next five years to administer the training program.
Extension and authorization of bankruptcy judgeships--
Support costs (section 322).--This provision would extend five
temporary bankruptcy judgeships and authorize 18 new temporary
bankruptcy judgeships for 19 federal judicial districts. Based
on information from the AOUSC, CBO assumes that one half of the
18 new positions would be filled by the middle of fiscal year
1999 and the other half would be filled by the start of fiscal
year 2000. Also, we anticipate that all five temporary
judgeships would be extended by fiscal year 2001. We expect
that discretionary expenditures associated with each judgeship
would average about $400,000 (in 1998 dollars), after initial
costs of about $145,000. Therefore, CBO estimates that the
administrative support of additional bankruptcy judges would
require an appropriation of about $3 million in 1999 and about
$43 million over the 1999-2003 period.
direct spending and revenues
Means-testing (sections 101-103).--CBO estimates that
enacting the means-testing provisions would impose some
additional workload on the courts. Although the U.S. Trustees
would be responsible for conducting the initial review of
financial information under either bill, CBO expects that the
courts would also be involved in some level of review of such
data. In addition, many bankruptcy judges expect that
additional hearings and other court proceedings would be held
over eligibility and income data.
Section 322 of this bill authorizes 18 new temporary
bankruptcy judgeships and extends five existing temporary
judgeships. Based on information from the AOUSC and other
bankruptcy experts, CBO expects that such an increase in the
number of bankruptcy judges would be sufficient to meet the
increased workload. Assuming that the salary and benefits of a
bankruptcy judge would average about $152,000 a year (in 1998
dollars), CBO estimates that the mandatory costs associated
with the salaries and benefits of these additional judgeships
would be $1 million in 1999 and about $16 million over the
1999-2003 period.
The means-testing provisions would also affect the
government's income from bankruptcy filing fees because they
would cause changes in the number and type of bankruptcy
filings. CBO projects that, as a result of this bill, about 5
percent of all chapter 7 debtors (about 48,000 out of 960,000
cases each year) would not file for any type of bankruptcy
protectionand that about 5 percent of all chapter 7 cases would
be filed as or converted to chapter 13 cases. With a reduction in
chapter 7 filings, the government would lose income from chapter 7
filing fees. CBO estimates that for each case that would not be filed
under chapter 7 or any other chapter, there would be a $130 reduction
in the filing fee paid to the government. Income from this fee appears
in two different places in the budget. Of the $130, $70 is recorded as
part of the offsetting collections to the U.S. Trustee System Fund and
Judiciary, and $15 is recorded as governmental receipts (i.e.,
revenues). Under chapter 7, the remaining $45 is paid to the private
trustee assigned to the case and does not affect the federal budget.
Assuming that fees for about 48,000 cases would no longer be collected
each year, CBO estimates that enacting S. 1301 would result in a loss
of about $1 million a year in revenues and about $3 million in
offsetting collections. The loss of offsetting collections would reduce
the amount available for spending by the U.S. Trustees and the AOUSC;
however, CBO estimates that no additional appropriations would be
required to replace this projected loss of fees because it would be
matched by a reduction in workload associated with these chapter 7
cases.
The shift of cases from chapter 7 to chapter 13 would, in
contrast, lead to greater fee collections. In contrast to the
distribution of fees under chapter 7, $60 of the $130 filing
fee is collected as a governmental receipt under chapter 13.
(Private trustees are not paid out of the filing fee under
chapter 13.) Thus, the government collects an additional $45
for each shift of a case from chapter 7 to chapter 13. Because
CBO expects that about 48,000 chapter 7 cases would be filed as
or converted to chapter 13 cases, we estimate that revenues
would increase by about $2 million in each year. On balance,
the net change in revenues would be an increase of about $1
million each year.
Pay-as-you-go considerations: Section 252 of the Balanced
Budget and Emergency Deficit Control Act sets up pay-as-you-go
procedures for legislation affecting direct spending or
receipts. As shown in the table below, CBO estimates that
enacting S. 1301 would increase direct spending by about $16
million over the next five years for the salaries and benefits
of additional bankruptcy judges. In addition, enacting Title I
would result in fewer chapter 7 debtors filing for bankruptcy
protection and more debtors filing for chapter 13, protection.
As a result, CBO estimates a net increase in revenues of about
$1 million each year. For purposes of enforcing pay-as-you-go
procedures, only the effects in the current year, the budget
year, and the succeeding four years are counted.
[By fiscal year, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
----------------------------------------------------------------------------------------------------------------
Changes in outlays................. 0 1 3 4 4 4 4 4 3 2 2
Changes in receipts................ 0 1 1 1 1 1 1 1 1 1 1
----------------------------------------------------------------------------------------------------------------
Estimated impact on State, local, and tribal governments:
S. 1301 contains no intergovernmental mandates as defined in
the Unfunded Mandates Reform Act (UMRA) and would have no
significant impact on the budgets of state, local, or tribal
governments. Federal bankruptcy statutes currently allow states
to determine certain property exemptions for homes in
bankruptcy cases. The bill would place some limits on the value
of homes that individuals may protect under those statutes.
While this provision may limit the application of some state
laws, it may also fee up additional resources in cases where a
state or local government may have an outstanding tax claim.
Previous CBO estimates: On May 8, 1998, CBO transmitted a
preliminary cost estimate comparing the means-testing
provisions in S. 1301, as reported by the Senate Judiciary
Committee's Subcommittee on Administrative Oversight and the
Courts on April 2, 1998, with those in H.R. 3150, as introduced
on February 3, 1998. The May 8 letter indicated that
implementing the means-testing provisions in S. 1301 could
require between 10 and 15 additional judges to meet the
increased workload requirements that would be imposed on the
federal court system under S. 1301. Costs for the salaries and
benefits of judges, which are mandatory, would be about $2
million annually. CBO further indicated that the means-testing
provisions (in the subcommittee version of S. 1301) would not--
by themselves--affect direct spending because the earlier
version of the bill did not authorize any increase in the
number of bankruptcy judges.
Subsequently, on June 5, 1998, CBO transmitted a cost
estimate for H.R. 3150, as reported by the House Committee on
the Judiciary on May 20, 1998. Unlike S. 1301, H.R. 3150 would
not authorize additional bankruptcy judgeships. Thus, enacting
H.R. 3150 would not affect direct spending. Differences in
discretionary spending estimates between S. 1301 and H.R. 3150
reflect differences in the provisions of the two bills.
Estimate prepared by: Federal Costs: Susanne S. Mehlmand
and Mark Grabowicz; Impact on State, Local, and Tribal
Governments: Leo Lex.
Estimate approved by: Robert A. Sunshine, Deputy Assistant
Director for Budget Analysis.
V. REGULATORY IMPACT STATEMENT
In compliance with paragraph 11(b)(1), rule XXVI of the
Standing Rules of the Senate, the Committee, after due
consideration, concludes that S. 1301 will not have significant
regulatory impact.
VI. ADDITIONAL VIEWS OF SENATOR PATRICK LEAHY
Every American agrees with the basic principle that debts
should be repaid. The vast majority of Americans are able to
meet their obligations. But, for those who fall on financial
hard times, bankruptcy should be available in a fair and
balanced way.
Unfortunately, more and more Americans are filing for
bankruptcy. The numbers are disturbing. While the unemployment
rate keeps going down and inflation remains low, the Nation's
personal bankruptcies keep going up. Vermont's personal
bankruptcy rate increased by about 40 percent for each of the
last two years and Vermont was ranked next to last in personal
bankruptcy filings last year. In most other states, personal
bankruptcy rates increased even more dramatically.
I do not know all the answers as to why more and more
Americans are filing for bankruptcy. I think some may be
abusing the system. I think most are not. My guess is that
stagnant wages and more consumer credit card debt are the
primary reasons. Where there are abuses in the bankruptcy law,
we should move to correct them. I want to commend Senator
Durbin and Senator Grassley for moving forward to correct
abuses in a measured and balanced way.
I have consulted with our bankruptcy judge in Vermont and
will continue to do so. He cautions that we remember the
purpose bankruptcy serves, which is as a safety net for many of
our constituents. Those who use bankruptcy are the most
vulnerable of the American middle class. They are older
Americans who have lost their jobs or are unable to pay their
medical debts. They are women attempting to raise their
families or secure alimony and child support after a divorce.
They are individuals struggling to recover from unemployment.
As we move forward with reforms that are appropriate to
eliminate abuses in the system, we need to remember the people
who use the system, both the debtor and the creditor. We need
to balance the interests of creditors with those of middle
class Americans who need the opportunity to resolve
overwhelming financial burdens.
Patrick Leahy.
VII. ADDITIONAL VIEWS OF SENATOR HERB KOHL
The dramatic rise in bankruptcies is very troubling,
regardless of whether the blame lies with credit card
companies, a culture that disparages personal responsibility,
the bankruptcy code or, most probably, with all of the above.
While none of us wants to return to the era of ``debtors''
prison,'' we need to do something to reverse this trend.
But true ``reform'' will only occur if we target the abuses
without overburdening the vast majority of debtors who truly
need--and deserve--relief. That is why I support this bill. It
is also why Senator Sessions and I added a much-needed cap on
the homestead exemption. And, finally, it is the reason that we
need to go further by also taking steps to protect debtors from
abuses by the credit card industry. Let me explain.
First, I support the approach this bill takes because it
generally targets people who can afford to repay some of their
debts, not honest debtors who have fallen on hard times. Its
``means testing'' provisions send the message that abuse of the
bankruptcy code will not be tolerated, while still providing
flexibility to take into account debtors' individual
circumstances. Unlike other proposals under consideration, it
does not sweep too broadly, putting costly procedural burdens
on honest as well as abusive debtors. Of course, as with any
piece of legislation, this bill has room for improvement. I
look forward to refining and strengthening it on the floor.
Second, our cap on the homestead exemption will eliminate
one of the worst abuses of the bankruptcy system. This
proposal, adopted unanimously in subcommittee, closes a
loophole that allows too many debtors to shield their assets in
luxury homes, while their creditors get left out in the cold.
Currently, a handful of States allow debtors to protect their
homes no matter how high the value. And time after time,
millionaire debtors move to States with unlimited exemptions,
like Florida and Texas, declare bankruptcy--yet continue to
live like kings while their creditors get little or nothing. If
we want to restore the stigma attached to bankruptcy, these
high profile abuses are the best place to start.
Our proposal is simple and effective: It caps at $100,000
the maximum homestead exemption that an individual filing
bankruptcy can claim. With the cap in place, bankrupt debtors
will retain their right to a roof over their heads, but not to
luxury accommodations.
Finally, real reform should require a balanced approach
that not only targets abuses by debtors, but also curbs abuses
by creditors. The credit card industry has played no small role
in the explosion of consumer debt and consumer bankruptcies.
Mass credit card solicitations do more than overload our mail
boxes and pile up on our kitchen tables. They also tempt many
individuals to try to borrow their way out of financial
distress, often leaving them worse off and with little choice
other than bankruptcy. Perhaps, as an incentive to creditors,
the benefits of this measure should be denied to credit card
companies who deliberately extend credit to those who are
clearly too irresponsible to use it wisely. On the floor, I
hope we can address these abuses, or, at the very least, ensure
that consumers have the information they need to make
intelligent choices.
Overall, I commend Senators Grassley and Durbin for their
hard work and close collaboration. I look forward to a final
product that continues tackling the worst abuses, while still
helping honest debtors.
Herb Kohl.
VIII. ADDITIONAL VIEWS OF SENATORS RICHARD J. DURBIN, RUSSELL D.
FEINGOLD, DIANNE FEINSTEIN, HERB KOHL AND ROBERT G. TORRICELLI
We write to express our concerns that S. 1301 will not
adequately prevent bankruptcies, make insolvency less likely,
or improve the perilous financial situation that millions of
Americans find themselves in every year. S. 1301 does not
contain enough provisions that aim at improving the financial
lot of millions of Americans or that confront the question why
more than 1 million Americans filed for personal bankruptcy
last year.
The main goal of S. 1301 is to prevent abuse of the
bankruptcy code. Abuse is simply the manipulation of the law to
avoid paying debts that legitimately could be paid with a
reasonable amount of effort by the debtor. This is a goal that
we entirely support. We support the goals of S. 1301 because of
the overriding importance of preventing and catching abuse. But
we also believe that it has defects that should be cured before
final passage.
We firmly believe that S. 1301 must be accompanied by other
provisions--aimed at dealing with financial industry practices
that prey on the unfortunate and that increase the likelihood
of bankruptcy--in order for it to be fully effective and
thoughtful.
At the committee markup of S. 1301, Senator Torricelli
commented on a growing trend in America: ``There is bankruptcy
by entrapment in this country--unsolicited credit cards, credit
cards to very low income people, credit cards at usurious rates
of interest. The class of protections that we are offering to
legitimate corporations that extend credit, in my judgment,
should not be fully extended to those companies with these
usurious rates who prey on low-income people, and do so on an
unsolicited basis.''
A few facts may help put the situation into perspective.
In 1975, total household debt was 24 percent of aggregate
household income. Today, household debt is more than 100
percent of aggregate household income.\1\ In short, in the last
23 years, the average debt burden of the average American
family has quadrupled. Not surprisingly, this higher debt
burden has made more and more American families vulnerable to
financial catastrophe. A job loss, layoff, or income decline
can result in debts spinning out of control very quickly. A
divorce, a car crash, a health emergency, a sick parent, or a
lawsuit can lead to a financial emergency.
---------------------------------------------------------------------------
\1\ See Statistical Abstract of the United States.
---------------------------------------------------------------------------
The evidence indicates that most personal bankruptcies
filed are not for abusive purposes. Several facts illuminate
this case:
According to the National Bankruptcy Review Commission, in
1977 there were 0.74 bankruptcies for every million dollars of
consumer debt; in 1997, there were 0.73 bankruptcies for every
million dollars of consumer debt.\2\
---------------------------------------------------------------------------
\2\ Report of the National Bankruptcy Review Commission (1997) at
85.
---------------------------------------------------------------------------
The average income of a person in bankruptcy has steadily
declined since 1981. In 1981, the median income of a debtor in
bankruptcy was $23,254. In 1997, it was $17,652. Even as median
income was dropping, the median amount of unsecured debt owed
by the average debtor was growing from $20,230 in 1981 to
$28,949 in 1997.\3\
---------------------------------------------------------------------------
\3\ Elizabeth Warren, ``The Bankruptcy Crisis,'' 73 Indiana Law
Journal 1049 (1998).
---------------------------------------------------------------------------
Studies prepared by the Congressional Budget Office
indicate that personal bankruptcy filings increase almost in
lockstep with increases in household debt-to-income ratios.
(Chart attached).\4\
---------------------------------------------------------------------------
\4\ Statement of Kim Kowalewski, Chief, Financial and General
Macroeconomic Analysis Unit, Congressional Budget Offic, before the
Subcommittee on Administrative Oversight and the Courts, Committee on
the Judiciary, United States Senate at 4 (April 1997). See also Diane
Ellis, ``The Effect of Consumer Interest Rate Deregulation on Credit
Card Volumes, Charge-offs, and the Personal Bankruptcy Rate,'' Bank
Trends 98-05 (Division of Insurance, FDIC February 1998).
---------------------------------------------------------------------------
These facts persuade us of two things. First, most people
are going into bankruptcy because of debt, not because they are
lazy, shiftless, and morally corrupt. Second, any effort to
address the bankruptcy problem must not only deal with the
personal responsibility of the debtor but must also deal with
the corporate responsibility of the creditor.
A combination of industry practices have contributed
greatly to the bankruptcy crisis.
From 1994 to 1996, credit card issuers mailed more than two
and a half billion card solicitations each year. Each American
household probably received more than 41 credit card mailings--
not counting telephone solicitations or home equity loan
solicitations. In a little over four years, the credit card
companies offered about $1 million of credit to every household
in the United States.\5\
---------------------------------------------------------------------------
\5\ George M. Salem and Aaron C. Clark, GKM Banking Industry
Report, Bank Credit Cards: Loan Loss Risks are Growing, 5 (June 11,
1996).
---------------------------------------------------------------------------
And then in 1997, credit card solicitation jumped 20
percent to three billion mailings. Direct solicitations of both
college and high school students reached unprecedented heights.
More than half of the eighth grade students in one Peoria,
Illinois grade school class have received credit-card
applications in their own name.\6\ In upstate New York, nearly
every member of a group living house for people with learning
disabilities received credit card applications. One of them,
who could sign his name but could not add or subtract, had 13
credit cards with more than $11,000 in debt outstanding. His
only income is $7,000 a year from Social Security disability
benefits.\7\
---------------------------------------------------------------------------
\6\ Pam Adams, ``Differences From State to State Can Have a Major
Impact on Debtors,'' Peoria Journal Star, June 29, 1998.
\7\ Dan Herbeck, ``Where Credit Isn't Due Developmentally Disabled
Become Victims,'' Buffalo News, April 7, 1998.
---------------------------------------------------------------------------
In the last four years, outstanding credit card debt has
doubled so that by the end of 1997 $422 billion in credit card
loans were outstanding.\8\ Credit card usage has grown fastest
in recent years among debtors with the lowest incomes. Since
the early 1990s, Americans with incomes below the poverty line
nearly doubled their credit card usage, and those in the
$10,000 to $25,000 income bracket came in a close second in the
rise in debt. The result is not surprising: 27 percent of the
under $10,000 families have consumer debt that is more than 40
percent of their income. Nearly one in ten has at least one
debt that is more than 60 days past due.\9\
---------------------------------------------------------------------------
\8\ OCC Advisory Letter 96-7, September 26, 1996, (96-7.txt at
www.occ.treas.gov); FDIC Quarterly Banking Profile Graph Book, Fourth
Quarter 1997.
\9\ Federal Reserve Bulletin, Family Finances in the U.S.: Recent
Evidence from the Survey of Consumer Finances, Table 14 Aggregate and
median ratios of debt payments to family incomes, and shares of debtors
with ratios above 40 percent and those with any payment sixty days or
more past due, by selected family characteristics, 1989, 1992, and
1995.
---------------------------------------------------------------------------
Even as credit card lending has exploded, so too has home
equity lending with high loan-to-value ratios. Between 1995 and
1997, the amount of this high-risk home equity lending has
increased from $1 billion to $10 billion. This year, it is
expected to double from its 1997 level.\10\
---------------------------------------------------------------------------
\10\ Fred Bleakley, ``A 125% Solution to Card Debt Stirs Worry--
Second Mortgage Trend May Signal Economic Trouble,'' Wall St. Journal,
November 17, 1997; see also, `` Increased Home Equity Loans Raises
Specter of Card Delinquencies,'' 8 Credit Risk Management, July 13,
1998.
---------------------------------------------------------------------------
The increased availability of credit among many segments of
our society has been highly beneficial. But it also has its
dark side.
As the New York Times reported in 1996: ``A model developed
by Fair Isaac & Company, a consulting firm, finds that the
characteristics of many people who are about to file for
bankruptcy are also those of the most profitable customers:
They take a lot of cash advances, borrow up to their credit
limits and only make the minimum payment each month.'' \11\
---------------------------------------------------------------------------
\11\ Saul Hansell, ``The Debt Trap--A Special Report. Personal
Bankruptcies Surging as Economy Hums,'' The New York Times, August 25,
1996.
---------------------------------------------------------------------------
Ironically, a string of industry practices punish people
who engage in good personal financial management. For example,
a number of credit card issuers have begun terminating the
accounts of people who pay their debts off in full every month.
Other banks charge people monthly fees--on top of interest
paid--if they pay their debts off in full.
More troubling, another set of practices effectively pushes
overextended borrowers into deeper and deeper trouble. Late
fees, over-limit fees, other hidden charges and dramatic jumps
in interest rates mean that a person who suffers a minor
financial roadbump can quickly find himself speeding toward
financial catastrophe. Banks often almost double the interest
rate they charge for a consumer who misses two payments.
Getting behind on your credit cards today is not just a small
problem that can be cured easily with a new job at the same
salary or with a small loan from a friend willing to help.
Moreover, evidence indicates that creditors are unwilling to
help people who find themselves in financial trouble. A survey
of people who declared bankruptcy prepared by Visa in 1996
found that two-thirds of the people surveyed reported that
creditors did not try to work with them to help them avoid
filing for bankruptcy.\12\
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\12\ Visa, ``Consumer Bankruptcy: Bankruptcy Debtor Survey,'' 10
(July 1996).
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In addition, credit card companies encourage debtors to
only make minimum payments which do not pay down the loan.
Industry analysts estimate that using a typical minimum monthly
payment rate on a credit card it would take 34 years to pay off
a $2,500 loan and total payments would exceed 300 percent of
the original principal.\13\ But the average credit card holder
would never know this. Credit card companies also offer low
teaser rates that are designed to encourage consumers to run up
balances when the rate is low but that are inevitably paid off
at a much higher rate.
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\13\ Salem & Clark, supra note 5, at 25.
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These practices--a tidal wave of solicitations, aggressive
marketing among higher risk customers, and fees and penalties
that push people in trouble further down--are combined with
solicitations and bills that are virtually incomprehensible to
the average consumer. Trying to read or understand a credit
card offer, bill or contract is a lesson in frustration and
confusion. As a result, the vast majority of Americans are
stymied in their efforts to fully understand the implications
of their financial decisions. They pay only the monthly minimum
not knowing that at that rate it will take them almost 35 years
to pay off the full amount. They transfer balances to cards
with low introductory rates only to be surprised by higher
interest rates on other purchases. Not surprisingly, consumer
confusion mixed with tantalizing offers and aggressive
solicitation from credit card companies is a recipe for
financial trouble.
And the sad fact is that many Americans seem to believe
that they can literally borrow their way out of debt. Credit
card companies and home equity lenders encourage this
impression by attempting to persuade consumers to consolidate
all of their debt and then get an extra line of credit. As
Senator Feinstein commented at the committee mark up: ``But one
of the things that is happening more and more is the almost
entrapment that takes place from credit card companies who
provide credit cards with up to a $10,000 limit to people who
really have no business having those credit cards. I have two
people close to me that [were] * * * very close to bankruptcy,
with seven or eight different credit cards and figuring they
could get out of debt by sort of playing one against the other
and really not having the kind of credit rating to have any of
those cards. * * * It seems to me that any legislation really
ought to put some obligation on those who sell credit so
loosely, that at least they be required under the law of this
land to look at the creditworthiness of the individual who is
getting that credit.''
So we write today to make clear that we must take aim at
these practices. Real reform must assure not only that
consumers have clear and comprehensible information about
credit card debt, but that the institutions that engage in
risky and predatory lending are neither encouraged nor
protected by the bankruptcy law. We intend to insist on
comprehensive bankruptcy reform.
Dick Durbin.
Russ Feingold.
Dianne Feinstein.
Herb Kohl.
Robert G. Torricelli.
IX. ADDITIONAL VIEWS OF SENATOR RICHARD J. DURBIN
Much of our discussion concerning reform of the nation's
bankruptcy laws has focused upon perceived abuses of the
bankruptcy system by consumer debtors. Far less discussion has
occurred with regard to abuses by creditors that help usher the
nation's consumers into bankruptcy. I believe that abuses exist
on both sides of the debtor-creditor relationship and that
bankruptcy reform is incomplete if it fails to address
documented abuses among creditors.
Studies have identified a host of predatory financial
practices directed at the nation's financially vulnerable.
These studies suggest that many low-income Americans
participate in a virtual ``fringe'' economy. They may lack
access to mainstream financial institutions--often because of
high minimum balance requirements or excessive fees--and may
also lack the collateral or the credit rating needed to secure
loans for a home, for home repairs, or for other essential
needs.
This segment of the economy is at the mercy of a variety of
credit practices by a variety of offerors that can lead to
financial ruin. High pressure consumer finance companies have
bilked unsophisticated consumers out of substantial sums by
aggressively marketing expensive loan insurance products,
charging usurious interest rates, urging repeated refinancings,
and loading their products with hidden fees and costs. High
cost mortgage lenders have defrauded millions of older
Americans with modest income but substantial home equity of
their lifelong homeownership investments. Some auto lenders in
the used-car industry have gouged customers with interest rates
as high as 50%, and with assessments for credit insurance,
repair warranties, and hidden fees, adding thousands of dollars
to the cost of an otherwise inexpensive used car. Pawn shops in
some states have charged annual rates of 240% or more to
consumers who have nowhere else to turn for small, short-term
loans.
Abusive credit practices of every stripe harm millions of
older and low-income Americans each year. During the committee
debate on S. 1301, I offered an amendment designed to address
and curtail just one bad practice among many--the predatory,
high-cost mortgage loans targeted at the low-income elderly and
the financially unsophisticated. This amendment was adopted
unanimously, and I write to day to discuss it in further
detail.
In recent years, there has been an explosion in the market
for these home mortgages, generally for secondary mortgages
that are not used to fund the purchase or construction of a
home. The market is known as the ``subprime mortgage''
industry. The subprime mortgage industry offers home mortgage
loans to higher-risk borrowers--loans carrying far greater
interest rates and fees than conventional loans, and also
carrying extremely high profit margins for these lenders.
In 1997 alone, subprime lenders originated over $125
billion dollars in home equity loans. By the first half of 1997
they accounted for 15.5% of the total home equity lending
market. The companies engaging in subprime mortgage lending
have grown from small companies into large corporations with
nationwide operations. According to a recent study of predatory
financial practices by the Public Policy Institute, a part of
the Research Group for the American Association of Retired
Persons, ``[t]he evidence indicates that, nationally, the
losses to mortgage fraud and rate-gouging may reach into the
billions of dollars over the past decade--representing hundreds
of thousands and perhaps more than one million individual
victims.'' Michael Hudson, ``Predatory Financial Practices: How
Can Consumers Be Protected?'' (Winter 1997).
The growth of the subprime lending industry is of concern
to us for two reasons--first, because of the reprehensible
tactics, called predatory lending practices, which some of
these companies use to conduct their business, and second,
because of the vulnerable people--senior citizens and the low-
income, the financially unwary--whom they often target with
their loans.
The story of Genie McNab, a 70-year-old woman living in
Decatur, Georgia, demonstrates both aspects of the problem. Ms.
McNab is retired and lives alone on Social Security and
retirement benefits. In November of 1996, with the ``help'' of
a mortgage broker, Ms. McNab obtained a 15-year mortgage loan
for $54,300 from a large national finance company. Her annual
percentage rate is 12.85%. Under the terms of the mortgage, she
will pay $596.49 a month until the year 2011, when she will be
required to make a final payment of $47,599.14. By the time she
is done, her $54,200 loan will have cost her $154,967.
Fifteen years from now, when she is 83 years old, Genie
McNab will be saddled with a balloon payment she will never be
able to make. She'll face foreclosure, and she'll be forced to
consider bankruptcy. She'll face the loss of herhome and her
financial security, not to mention her dignity and sense of well-being.
Ironically, Ms. McNab paid a mortgage broker $700 to find her this
unconscionable loan--a mortgage broker who also collected a $1,100 fee
from the mortgage lender.
Unfortunately, Ms. McNab is a typical target of the high-
cost mortgage lender--an elderly person, living alone on a
fixed income. She is just the type of person who may suddenly
have encountered an unexpected financial obstacle--the death of
a spouse and the loss of that spouse's income, a large medical
bill, an expensive home repair, or a mounting credit card debt
incurred to deal with that income loss or with those medical
bills. These are the real life circumstances which make her an
irresistible target for some members of the subprime mortgage
industry.
According to a former career employee of the industry, who
testified anonymously at a hearing before Senate Special
Committee on Aging in March of this year, ``my perfect customer
would be an uneducated woman who is living on a fixed income--
hopefully from her deceased husband's pension and social
security--who has her house paid off, is living off of credit
cards, but having a difficult time keeping up her payments, and
who must make a car payment in addition to her credit card
payments.'' This industry professional candidly acknowledged
that unscrupulous lenders specifically market their loans to
elderly widowed women, blue-collar workers, people who haven't
gone to college, people on fixed incomes, non-English speaking
people and people who have significant equity in their homes.
They targeted another such person in the District of
Columbia. Her name is Helen Ferguson. She is 76 years old and
lives in Northwest D.C. As a result of predatory lending
practices, her home is in jeopardy. In 1991, Ms. Ferguson had a
total monthly income of about $504 from Social Security and
Supplemental Security Income. With the help of her family, she
made a $229 monthly mortgage payment on her house. However, on
her fixed income, she was unable to make needed home repairs.
She began hearing and seeing radio and television ads for low
interest home improvement loans and contacted a lender. Ms.
Ferguson thought she signed up for a $25,000 loan, but in
reality, the lender collected over $5,000 in fees and
settlement charges for a $15,000 loan. The interest rate the
lender charged her was 17%. Her mortgage payments went up to
$400 a month--almost twice her old payment.
Over the next few years, the lender repeatedly tried to
convince Ms. Ferguson to take out more loans, calling her and
her sister at home and work, sending letters and Christmas
cards. In March of 1993, she gave in to the lender, borrowing
money to make home repairs. By March of 1994, she could not
keep up with her mortgage payments. She signed for a loan with
another lender, unaware that it had a variable interest rate
and terms that would cause her payments to rise to $600 and
eventually $723 a month. For this loan she paid over $5,000 in
broker fees, and more than 14% in total fees and settlement
charges. The first lender also continued to solicit her, and
she eventually signed up for even more loans. Each time the
lender persuaded her that a refinancing would enable her to
meet her monthly payments.
Ms. Ferguson was the target of a predatory loan practice
known as ``loan flipping.'' In such cases, lenders purposely
structure the loans with monthly payments they know the
homeowner cannot afford so that at the point of default they
will return to the lender to refinance. The refinancing
provides the lender with additional points and fees. And in the
case of some Ms. Ferguson's loans, not only did the lender
prepare two sets of documents, and rush the signing, but the
lender's representatives took with them all the papers from the
mortgage closing, mailing them to her only after the 3-day
rescission period was expired and the check for home repairs
was spent.
Ms. Ferguson eventually was obligated to make monthly
payments of more than $800, although her income was only $504 a
month, and the lenders knew it. In 5 years the debt on her home
increased from $20,000 to over $85,000. She felt helpless and
overwhelmed, and it was only after contacting the American
Association of Retired Persons that she realized these lenders
were violating federal law.
Lump sum balloon payments on short-term loans, loan
flipping, the extension of credit with a complete disregard for
the borrower's ability to repay--these aren't the only abusive
mortgage practices. Lenders on these secondary mortgages
sometimes include harsh repayment penalties in the loan terms,
or roll over fees and charges into the loan, or negatively
amortize the loan payments so that principal actually increases
over time--all of which is prohibited by law, although ordinary
homeowners are unlikely to be aware of that. Some of these
homeowners will not make it to a lawyer or other source of help
before financial meltdown occurs. When they realize what has
happened, these consumers are often on the brink of foreclosure
and bankruptcy. Often, the people soliciting these loans have
won their trust and confidence, and the homeowners are
reluctant to believe that they have been so ruthlessly taken
in.
The problem of predatory financial practices in the high-
cost mortgage industry is relevant to bankruptcy because it is
driving vulnerable people into bankruptcy. These people are not
entering bankruptcy in order to abuse the system, they are
filing bankruptcy because the reprehensible tactics of
unscrupulous lenders have driven them into insolvency.
My amendment prohibits a high-cost mortgage lender that
extended credit in violation of the provisions of the Truth-In-
Lending Act from collecting its claim in bankruptcy. The result
of my amendment will be that when an individual like Genie
McNab or Helen Ferguson goes to the bankruptcy court--seeking
last-resort help for the financial distress an unscrupulous
lender has caused her--the claim of the predatory home lender
will not be allowed. If the lender has failed to comply with
the requirements of the Truth in Lending Act for high-cost
second mortgages, the lender will have absolutely no claim
against the bankruptcy estate.
My amendment is not aimed at all subprime lenders or at all
second mortgages. Indeed, it is aimed only at the worst, most
predatory, of these by and large worthy lenders. My provision
is aimed only at practices that are already illegal. It does
not deal with technical or immaterial violations of the Truth
in Lending Act. Disallowing the claims of predatory lenders in
bankruptcy cases will not end these predatory practices
altogether. Yet it is one step we can take to curb creditor
abuse in a situation where the lender bears primary
responsibility for the deterioration of a consumer's financial
situation.
Dick Durbin.
X. MINORITY AND DISSENTING VIEWS OF SENATOR EDWARD M. KENNEDY AND
SENATOR RUSSELL D. FEINGOLD
I. Introduction
There is no doubt that more and more Americans are turning
to the consumer bankruptcy system and the financial protections
it offers. In 1997, more than 1.3 million families filed for
bankruptcy. This represents nearly a 400 percent increase since
1980. Clearly, steps must be taken to reign in the number of
individuals and families filing for bankruptcy. Where there is
fraud and abuse we must take steps to reduce and eliminate it.
The Consumer Bankruptcy Reform Act of 1997 is not a well-
balanced solution to this problem. Instead, it has the
potential to harm women and children, the elderly, and the
unemployed. It elevates unsecured credit card debt to the same
levels as alimony and child support, student loans, and taxes.
It penalizes an attorney for vigorously representing a debtor.
In short, this bill takes a good idea--reducing the number of
bankruptcy filings--and twists it into a bad deal for some of
our most vulnerable Americans.
S. 1301 assumes that debtors are by nature irresponsible or
intent on committing fraud. In part, this is a result of using
erroneous assumptions to craft public policy. Despite evidence
that debtors now wait longer to file bankruptcy and are deeper
in debt than those who filed for bankruptcy a decade ago,
proponents of this bill argue that a declining social stigma is
responsible for an increase in bankruptcy filings.
Supporters of this legislation also use an October 1997,
Credit Research Center report entitled, Personal Bankruptcy: A
Report on Petitioners Ability to Pay as a foundation for the
claim that most debtors could actually repay more of their
debts than is currently required by law. But the General
Accounting Office (GAO) found that the Center's report had
several methodological flaws that make both its validity and
its reliability suspect. The GAO concluded that ``[t]he methods
used in the Center's analysis do not provide a sound basis for
generalizing the Center report's findings to the annual 1996
filings in each of the 13 locations nor to the national
population of personal bankruptcy filings.''
In reality, the causes of increased bankruptcy filings are
far more complex than a declining social stigma. Increased
bankruptcy filings can be attributed to job loss, divorce,
increasing health care costs, and declining real wages. A more
complete explanation for the increase in bankruptcy filings
includes the conclusions of numerous scholars and researchers,
who believe that increased marketing and high credit card
interest rates are major contributors to increased bankruptcy
filings. For example, Harvard Business School researchers David
Moss and Gibbs Johnson note that ``the evidence suggests that
shifts in the volume of and distribution of consumer credit--
rather than declining stigma--are the most likely sources of
the recent surge in consumer filings.'' They add that another
explanation for the surge of filings that began in the late
1980s ``is that consumer creditors began reaching substantially
further down into the income distribution beginning in the mid
1980s.''
A report issued by the Consumer Federation of America
earlier this year indicates that credit card mail solicitations
reached an all-time high in 1997--in the second quarter alone,
credit card companies sent out 881 million mail solicitations.
In total, credit card companies sent out 3.1 million mail
solicitations last year. Credit card manufacturers also
increased their advertising 14 percent between 1995 and 1996.
But even in the face of mounting evidence that credit card
marketing and skyrocketing interest rates have contributed to
increased bankruptcy filings, this bill does nothing to prevent
credit card companies from targeting low-income families. It
does nothing to curb high credit card interest rates or to slow
the flow of unsolicited, pre-approved credit card applications.
It demands no new consumer protections or disclosures from the
credit card industry.
This is irresponsible legislating, since evidence suggests
a strong link between credit card interest rates, credit card
defaults, and bankruptcy. University of Maryland professor
Lawrence Ausubel, in a 1997 article in the American Bankruptcy
Law Journal, noted this link and added that bankruptcy filings
``follow exceedingly closely changes in the rate of credit card
delinquencies.''
How can we turn a blind eye to credit card lending
practices that allow--even encourage--people who can't afford
credit cards to incur enormous debts? Students, low-income
families, even people who have declared bankruptcy routinely
receive unsolicited, pre-approved credit card applications.
When job loss, divorce, or medical emergency strike, some
of these individuals have no choice but to file for bankruptcy
in order to stabilize themselves. Congress must balance the
interests of creditors with those of Americans who need the
opportunity to resolve overwhelming financial burdens. As we
address abuses by debtors, we must also address creditor
abuses. This bill does not do that.
In light of these substantial concerns, we believe that the
Judiciary Committee moved too rapidly in its consideration of
S. 1301 and ignored the recommendations of numerous bankruptcy
judges, scholars, and practitioners. After only two days of
subcommittee hearings on the issue of consumer bankruptcy and
one hearing on the proposed bill, the Committee passed
legislation embodying the most ambitious changes in the
bankruptcy law in the 100 years of the modern bankruptcy
system. This is a dramatic departure from the attention
Congress usually gives to major bankruptcy reform legislation.
The majority's criticism of Senators' hearing attendance
does not change the fact that there were very few hearings
devoted to the topic of consumer bankruptcy or S. 1301.
Moreover, one of the dissenters does not sit on the
Subcommittee, and the only Full Committee hearing on S. 1301
was canceled without explanation. The hearing was not
rescheduled. As noted above, this contrasts significantly with
Congress' intensive and thorough review of the 1978 bankruptcy
bill.
In 1978, the last time Congress reformed the bankruptcy
laws, the Subcommittee on Improvements in Judicial Machinery
held 21 days of hearings, and the Full Committee held three
more hearings on the bill. Similarly, the House Subcommittee on
Civil and Constitutional Rights held 35 days of hearings.
The Committee also gave little consideration to the report
of the bi-partisan National Bankruptcy Review Commission that
sent its findings and recommendations to Congress in October
1997. While the Commission did not reach unanimous agreement in
the area of consumer bankruptcy, the legislation diverges
sharply from the recommendations of both the majority and the
four-person minority. When the Commission was authorized in
1994, Congress specifically pronounced itself ``generally
satisfied with the basic framework established in the current
Bankruptcy Code,'' and counseled the Commission ``not [to]
disturb the fundamental tenets of current law.''
Keeping in mind its mandate, the Commission held 21 public
meetings, which were attended by 2600 people. After hearing
from 602 participants, the Commission adopted 172 proposals,
which were forwarded to Congress. Although S. 1301 adopts a few
of those recommendations, it primarily consists of proposals
that were specifically rejected or not acted upon by the
Commission.
Congress has not reached consensus on the catalyst for
increased bankruptcy filings, nor has it adequately explored
all alternatives to reduce filings. We do know, however, that
single parents and children, older Americans, minorities, and
working families, among others, will be especially hard-hit by
the provisions included in S. 1301. Before passing bankruptcy
reform legislation, Congress should fully examine the
complexities of the problem and carefully craft legislation
that will eliminate creditor and debtor abuses without
eliminating an important safety net for middle class Americans.
Anything less is a disservice to our constituents.
II. The Effect of S. 1301 on Single Parents and Children
S. 1301 has been criticized for its effects on single
parents and children, both as debtors and as creditors trying
to collect past-due support. Many of the provisions producing
these concerns do not explicitly mention ex-spouses, children
or support obligations. Rather, the especially problematic
provisions increase dividends and collection rights for
nonpriority unsecured creditors (such as credit card lenders)
through forced repayment plans,\1\ additional exceptions to
discharge,\2\ or provisions enhancing creditors' leverage to
obtain reaffirmations \3\ at the expense of priority creditors
(such as child support recipients). Other provisions inflate
the claims and entitlements of secured institutional
lenders,\4\ leaving a smaller proportion of income available
for payment of priority claims. In addition, numerous
provisions in S. 1301 complicate bankruptcy procedure or
encourage unilateral action by particular creditors such that
scarce resources will be consumed through litigation or through
addressing the consequences of ejection from the system.\5\
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\1\ See S. 1301 Sec. 102.
\2\ Id. Sec. Sec. 314, 315, 316.
\3\ Id. Sec. Sec. 102, 308, 310, 315, 316, 317, 318.
\4\ Id. Sec. Sec. 302, 305, 310, 311, 317, 318, 319, 321.
\5\ Id. Sec. Sec. 102, 301, 303, 305, 309, 319, 321, 409.
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Some proponents of S. 1301 put forth a set of amendments
with the express purpose of protecting support obligations.
While those amendments include some well-intentioned proposals
that may enhance the legal status of support obligations, the
amendments are largely cosmetic. Rather than clearing the way
for women and children to collect past due and current support
obligations, many of the new provisions would have little
effect in practice, and, in some instances, actually could
hamper the ability of women and children to collect support
obligations because those provisions also would increase
competition for scarce resources by expanding the priority and
nondischargeability of additional government obligations and of
nonsupport debts.
The following discussion analyzes the components of the
``child support amendments.''
A. Legal Priority of Child Support
1. chapter 7
During the weeks preceding the Judiciary Committee markup
of S. 1301, several Members of Congress raised concerns about
the bill's effect on the payment of spousal and child support
obligations. Specifically, on May 5, 1998, 31 Senators wrote
Chairman Hatch and Ranking Member Leahy that,
Under current law, outstanding spouse and child
support, in addition to past taxes and educational
loans, are debts that cannot be discharged in
bankruptcy like other debts. Thus, for example, when a
non-custodial parent files for bankruptcy and is able
to discharge certain debts, the custodial parent is
better able to retrieve child support without competing
with commercial creditors for the limited resources
available post-bankruptcy. This treatment is wholly
appropriate: a child is not something one borrows,
rather, he or she is someone to whom one has a moral
and legal obligation * * * [p]rovisions in S. 1301 and
H.R. 3150 would dramatically alter the priority placed
on this support. The legislation effectively places
spousal and child support obligations on equal footing
with some consumer debt. This means that custodial
parents and ex-spouses may have to compete in
bankruptcy and post-bankruptcy courts with the vast
resources of these commercial lenders with little
likelihood of success. (Emphasis added)
In response to this concern, the Judiciary Committee
amended 11 U.S.C. Sec. 507 to subordinate administrative
expenses to prepetition priority support obligations. While
this amendment is being highlighted as exemplary of a
commitment to protect support obligations, the amendment may
not be workable and is not likely to have an appreciable
effect.
The order of priority is relevant only with respect to
distributions of nonexempt unencumbered property in Chapter 7.
The vast majority of Chapter 7 cases are ``no asset'' cases,
and creditors receive no distributions, making one's level of
priority irrelevant. In the handful of ``asset'' consumer
Chapter 7 cases, it is necessary to be able to pay
administrative expenses to liquidate property for other
priority creditors, and thus subordinating administrative
expenses may not be in the best interests of support recipients
if it precludes the liquidation of property altogether. In
Chapter 13, all priority debts are entitled to the same
treatment and must be paid in full unless the creditors agree
to lesser treatment, again making priority irrelevant.
Overall, this provision does not ameliorate the adverse
consequences of this bill on support recipients, which are
unrelated to the level of priority accorded to prepetition
arrearages on support obligations. Rather, the effect of this
bill is felt most severely after bankruptcy when spousal and
child support will have to compete with newly-nondischargeable
consumer debt.
2. chapter 13
Section 324 would amend 11 U.S.C. Sec. 1322(b)(1) so that
priority prepetition support debts can be paid in a Chapter 13
plan prior to other priority claims, notwithstanding the order
of priorities set forth in 11 U.S.C. Sec. 507(a). The amendment
would not be binding because section 1322(b) delineates the
debtor's options for crafting a Chapter 13 plan but does not
prescribe mandatory treatment. In any event, while well-
intentioned, the amendment would not change current practice
since support obligations normally are frontloaded in Chapter
13 plans.
B. Payment of Child Support as Prerequisite to Chapter 13 Plan
Confirmation and Discharge
Section 325 would amend 11 U.S.C. Sec. 1325(a) to condition
confirmation of a Chapter 13 plan on the payment of support
obligations. To the extent that this provision requires the
payment of regular support obligations, it is not objectionable
and is consistent with public policy. If, however, the language
of this provision is construed to include arrears, this
requirement might be infeasible and thus may not be in the best
interest of the support recipient, the debtor, or other
creditors. The language therefore should be modified slightly
to clarify that the provision intends to refer to ongoing, not
past-due, support. In addition, as currently drafted, the
provision does not address the consequences of discovering
after confirmation that preconfirmation payments were not
complete. The remedy for such a discovery should be plan
modification, dismissal or conversion, but not revocation of
confirmation.
Section 325 also would condition a Chapter 13 discharge on
a certification that the debtor made postpetition support
payments in accordance with the plan or otherwise paid those
obligations in full. Again, while this provision probably would
be fine in most cases, it is unclear whether the provision is
intended to refer to past due obligations, ongoing obligations,
or both. Moreover, a support recipient should be permitted to
agree different treatment in the debtor's plan, like other
creditors are entitled to do. See, e.g., 11 U.S.C.
Sec. 1322(a)(2). Overall, one should bear in mind that the
majority of Chapter 13 debtors never receives a discharge, and
thus this amendment is not likely to be an issue in a large
percentage of the cases.
C. Wage Orders
Section 326 would amend 11 U.S.C. Sec. 362(b) so that the
automatic stay that enjoins most collection actions in
bankruptcy cases would not enjoin actions to impose or enforce
a wage order for domestic support obligations or actions to
withhold, suspend, or restrict licenses of the debtor for his
delinquency in support obligations. This amendment would
obviate the need for parties to seek relief from the stay, and
thus in some instances could minimize costs, although section
362(b)(2), which was added to the Bankruptcy Code in 1994,
already permits the continuation of garnishment in most cases.
In addition, since some wage assignments are for debts owed to
a government unit rather than to the ex-spouse or child
directly, this provision sometimes will divert funds away from
individual support recipients when a government unit exercises
its wage order rights for its own benefit. For this amendment
to be truly pro-family, government units should be required to
hold such withheld payments in trust for application to any
outstanding obligations owed directly to support recipients.
An automatic stay exception for wage orders may have
limited efficacy, since bankruptcy cases with claims for
domestic support obligations do not necessarily involve wage
orders. The ability to obtain a wage order depends on the laws
of a given state and whether the ex-spouse's employment
situation makes this possible. Since individuals who file for
bankruptcy are likely to have experienced a prebankruptcy
period of unemployment or marginal employment for cash payment,
it is less likely that a support recipient will have a wage
order against a debtor spouse. Moreover, a wage order or
license revocation may be useless if a financially troubled ex-
spouse cannot shed his high interest unsecured debts; S. 1301
would impose restrictions on access to Chapter 7 and decrease
all debtors' ability to discharge unsecured debts, and thus
will increase a debtor's incentives to leave his job, move to
another jurisdiction, and get paid on a cash basis. Thus, while
permitting continued wage garnishment may be helpful in some
instances, it falls short of addressing the detrimental impact
of this legislation on single parents and children.
D. Exceptions to discharge
1. debts incurred to pay nondischargeable debts
Section 315 would add an exception to discharge for debts
incurred to pay obligations that would not have been
dischargeable if unpaid on the date of the bankruptcy filing.
This provision is problematic due to the lack of policy
justification for making general unsecured debts
nondischargeable unless they were incurred fraudulently. The
fact that the debt was incurred to pay a debt that may have
been nondischargeable does not change this analysis, since the
societal need for repayment of the underlying debt has been
satisfied. In some cases, excepting a general unsecured debt
from discharge actually will frustrate Congress' original
policy determination to make a debt nondischargeable. For
example, excepting from discharge an obligation to a financial
institution used to pay a domestic support obligation would
make it more difficult for ex-spouses and children to collect
debts owed directly to them, as they would face additional
competition from institutional lenders for limited resources.
Moreover, one cannot always predict which debts will be deemed
nondischargeable, since courts have reached variable
interpretations of the exceptions to discharge. This amendment
therefore could expand the number of complicated
nondischargeability threats and allegations, providing
increased leverage for certain lenders to pursue and obtain
reaffirmations of unsecured debt.
The attempt in the ``child support amendments'' to
ameliorate this provision for support recipients is well-
meaning but unfortunately may not accomplish its intended goal.
The amended provision actually goes farther than the original
provision to expand the number of potentially nondischargeable
debts by including debts incurred to pay obligations that would
be nondischargeable under any subsection of section 523(a). In
cases involving dependent children or support obligations, a
debt would be nondischargeable if the debtor ``intentionally
incurred the debt'' to pay a nondischargeable debt. This
language is likely to be construed to mean that the general
unsecured debt survives bankruptcy as long as the payment was
made ``intentionally'' and not accidentally, which is not a
meaningful requirement. To the extent that the amendment is
seeking to target individuals who incur debts with the
intention not to repay them at all, this behavior already is
addressed in current Bankruptcy Code section 523(a)(2)(A).
2. consumer debts incurred within 90 days prior to filing for
bankruptcy
Section 316 would create a presumption of
nondischargeability for any consumer debt $400 or greater and
not reasonably necessary for the maintenance or support of the
debtor or a dependent child of the debtor incurred within 90
days prior to bankruptcy. Clearly, debtors should not incur
debts with the intention not to repay them, e.g., if they know
that they are going to file for bankruptcy; section
523(a)(2)(A) of current law already makes such debts
nondischargeable. Yet, debts incurred within 90 days prior to
filing may not have been incurred in contemplation of
bankruptcy, and thus the isolation of these debts for special
treatment is somewhat arbitrary. This type of bright line rule
does not catch the abusers of the system, who can plan around
this provision and delay their filings. Such rules instead
catch the least sophisticated and least well-represented
families who are legitimate candidates for debt relief. This
amendment also might capture older debts that were refinanced
within 90 days prior to bankruptcy, and thus could discourage
debtors' attempts to privately resolve financial problems.
In response to concerns that this expansion of credit card
debt nondischargeability adversely affects the collection of
support obligations, the ``child support amendments'' added
additional language limiting the amendment's effects to debts
greater than or equal to $400 and for goods and services not
reasonably necessary for the maintenance or support of the
debtor or a dependent child of the debtor. This positive step
is commendable. However, due to the realities of bankruptcy
practice, this amendment is not likely to ameliorate the
adverse consequences of this provision. Lenders could allege in
nearly every case that goods were not ``reasonably necessary,''
and fighting the claim would cost more than the amount of the
claim itself. Rather than litigating, with the attendant drain
on money, time and legal resources, it is more likely that the
debtor will concede nondischargeability or reaffirm the debt.
Either way, the litigation costs or the surviving debt and
accompanying interest charges would adversely affect the
ability of the debtor to meet his obligation to pay other
important debts and expenses.
E. Protection of Property Settlement Debts
Section 327 would amend 11 U.S.C. Sec. 523(a)(5) to except
from discharge all debts resulting from property settlements.
This amendment does not expand nondischargeability for debts
that are actually in the nature of support (e.g., many hold
harmless agreements), which already are protected under the
current section 523(a)(5). The amendment instead would expand
protection for nonsupport debts between ex-spouses. Although
this sounds reasonable on its face, it could have odd
consequences in some cases.
First, a support recipient who files for bankruptcy him or
herself may not be able to discharge property settlement debts
under this amendment. As another example, consider a debtor who
has been married and divorced twice and owes support
obligations to his second ex-wife and children, but does not
support his first ex-wife because she is the successful owner
of her own business. If the first divorce decree dealt with
business debts, this change would elevate business debts to his
wealthy first wife to the status of support obligations to his
second ex-wife and her children, who thus would face increased
competition for the debtors' resources (along with unsecured
lenders whose debts would ride through bankruptcy through
increased nondischargeable debts and reaffirmations).
F. Collection From Otherwise Exempt Property
Section 328 of S. 1301 would permit nondischargeable
support obligations to be collected from exempt property
notwithstanding federal or state law. Perhaps more
significantly, it would grant this entitlement to taxing
authorities, which are more likely to be able to take advantage
of this provision. By overriding all state and federal laws
exempting property, the amendment would nullify wage
exemptions, federal wage garnishment laws, and exemptions in
section 6334 of the Internal Revenue Code and comparable state
laws, all of which limit the property that can be seized by
taxing agencies to satisfy a tax debt. For example, the
amendmentwould permit the Internal Revenue Service to seize
items that otherwise would be exempt under the Internal Revenue Code,
such as clothing and school books. The amendment would override state
laws protecting tenancies by the entireties from the tax debts of one
spouse and, for the first time, would jeopardize a separated spouse's
interest in such property as to tax claims that are solely against the
bankrupt spouse. Aside from the latitude that this provision grants to
the Internal Revenue Service, the efficacy of this type of provision
for a support recipient depends greatly upon the ability of an ex-
spouse to hire a lawyer, find property to attach, and pursue these
legal rights.
G. Application of the Co-Debtor Stay Only When the Stay Protects the
Debtor
Under section 305, the Chapter 13 co-debtor stay would be
terminated automatically 30 days after the bankruptcy filing if
the debtor did not receive consideration for the creditor's
claim or if property securing debt was not in the debtor's
possession. The co-debtor stay could be retained if the debtor
could show that receipt of property was not part of a scheme to
defraud or hinder any creditor. The co-debtor stay would be
lifted upon Chapter 13 plan confirmation as to a lease that has
been surrendered or abandoned. The exception to the co-debtor
stay would not apply if the debtor was maintaining property
pursuant to a legally binding separation agreement or divorce
decree. However, this carveout would not prevent a creditor
from acting unilaterally against property that is the subject
of an informal agreement or if the lender did not know the
details of the support order or divorce decree. Thus, section
305 still could be harmful to support recipients and is less
preferable than current law. In any event, the Bankruptcy Code
should provide a specific remedy for violations of the co-
debtor stay.
H. Definition of Household Goods and Antiques
Section 317 would define ``household goods'' using the
definition employed by the Federal Trade Commission Trade
Regulation Rule on Credit Practices, 16 C.F.R. Sec. 444.1, but
also would include tangible personal property reasonably
necessary for maintenance or support of a dependent child.
Providing statutory definitions can have a beneficial
clarifying effect in some instances, but the recommended FTC
definition would diverge from the prevailing current
interpretations of ``household goods'' in section 522(f) and
probably increase litigation. See, e.g., In re McGreevy, 955
F.2d 957 (4th Cir. 1992) (defining household goods as items of
personal property typically found in or around home and used by
debtor or his dependents to support and facilitate day-to-day
living within home, including maintenance and upkeep of home);
see also In re Reid, 121 B.R. 875 (Bankr. D.N.M. 1990)
(rejecting narrow FTC definition for purposes of section
522(f), In re Boyer, 63 B.R. 153 (Bankr. E.D. Mo. 1986) (same).
III. S. 1301 Will Harm Older Americans and Minorities
Proponents of S. 1301 assert that the bill will reduce
bankruptcy system abuses. They claim that many debtors utilize
the current system to avoid debts that they have the ability,
at least in part, to repay. The bill advocates use of a ``needs
based'' approach in order to significantly reduce Chapter 7
filings and force some debtors to utilize Chapter 13. The bill
compels some debtors who are ``able'' to pay 20% of their
unsecured debt to file Chapter 13. In addition to forcing many
debtors to file for Chapter 13 bankruptcy, the bill creates new
categories of non-dischargeable debt. By expanding categories
of non-dischargeable debt (e.g., certain credit card debt) and
altering many of the requirements of Chapter 7 and Chapter 13,
the proposed reforms will make it more difficult for debtors to
achieve financial stability and rebuild their long-term
financial futures. The proposed structural alterations in the
bankruptcy laws will likely have deleterious effects on some of
the most vulnerable sectors of the population, including older
Americans, and African-American and Latino families.
A. S. 1301 May Cause Financial Distress Among Older Americans
Many of those who call for bankruptcy reform point to the
recent increase in credit card debt and consumer bankruptcy
filings and suggest that many debtors are guilty of fiscal
irresponsibility; however, most older Americans who file for
bankruptcy cite job loss and catastrophic medical problems as
the cause of their financial distress. In recent years
thousands of older Americans have been the victims of
downsizing; some are able to find other employment but often at
substantially lower wages and without the health and other
benefits that become increasingly important with age. Moreover,
for older victims of downsizing, loss of income may not be
temporary. As Harvard University Law Professor Elizabeth Warren
has noted, when a thirty-year worker loses a job at age 54, the
person's economic survival is severely threatened.
Older Americans, particularly those who are under 65 and do
not yet have access to the social safety nets of Social
Security and Medicare, often resort to short-term, high-
interest credit when faced with unemployment because they
assume that their unemployment will be temporary. Due to their
age, however, many of these individuals never earn a salary
comparable to that which they lost; thus, they find themselves
unable to deal with the debt they have incurred. Under existing
bankruptcy laws, these people could file for Chapter 7 relief
and discharge all of their short-term, high-interest debt
(principally credit card and finance company debt, along with
some medical debt). This increases the possibility that they
will be able to continue making priority debt payments.
S. 1301 would radically increase the burden on older
Americans. Many will not be able to obtain bankruptcy relief
unless they commit every available penny of disposable income
to a multi-year repayment plan, although two-thirds of debtors
who currently file Chapter 13 already fail to complete their
repayment plans. Those who file for Chapter 7 relief will be
saddled with nondischargeable credit card debt. By increasing
the amount of non-dischargeable debt, S. 1301 will create
hardships for older Americans, who are unlikely to be able to
increase their income and regain financial stability.
The negative impact of S. 1301, however, may be felt most
harshly by older Americans over the age of 65 who suffer a
significant health problem or job loss. It is very unlikely
thatthose seniors--many who have already been pushed out of the
job market--can find suitable new employment. Moreover, when they are
in financial distress, Social Security and Medicare are often
insufficient to allow them to maintain their financial stability. S.
1301, by broadening the definition of nondischargeable debt, may
eliminate valuable safeguards that protect older Americans from
financial ruin.
B. S. 1301 May Make It More Difficult for Minorities to Save Their
Homes
Current bankruptcy law recognizes that home ownership is a
focal point of the American dream. For American homeowners,
current law provides an opportunity to segregate the consumer
and medical debt incurred during unemployment or medical
emergencies from delinquent mortgage payments, and allows
homeowners to remedy any mortgage arrearages.
Many minority homeowners commit a larger percentage of
their take-home pay to their mortgages than the average
homeowner; often, their homes represent virtually all of their
family wealth. Thus, when faced with a period of unemployment
or temporarily disabling illness, African American and Latino
families are six hundred percent more likely to seek bankruptcy
protection in order to prevent the loss of their homes. These
families, who may have already faced discrimination in home
mortgage lending and housing purchases, and who often face
inequality in hiring opportunities, seek bankruptcy protection
to stabilize their economic circumstances and protect the
middle class lives they have struggled to achieve.
The changes to bankruptcy law proposed in S. 1301 will
dramatically decrease the ability of these families to protect
their homes. If S. 1301 becomes law, these families will not be
able to focus their limited resources on paying their mortgages
due to the expansion of non-dischargeable debt and new rules
governing the treatment and payment of other types of debt;
thus, they are far more likely to lose their homes. As noted
above, because African-American and Latino families dedicate a
larger percentage of their income to their homes and because
they are forced to file bankruptcy more often, S. 1301 will
have a disproportionately severe impact on these groups.
IV. S. 1301 May Deny Debtors Equal Access to Justice
S. 1301 attempts to implement needs-based bankruptcy
reforms either by dismissing Chapter 7 cases or compelling
conversion to Chapter 13. The bill proposes amending Section
707(b) of the Bankruptcy Code, which currently allows the court
to dismiss or convert a bankruptcy petition due to
``substantial abuse'' of the system by the debtor. The bill
would strike the ``substantial'' requirement and delineate a
set of factors that a court must consider when deciding whether
to dismiss or convert a case. As stated earlier, a threshold
issue would be the debtor's ability to pay at least 20% of his
unsecured debts. If he is able to do so, he would be forced to
file Chapter 13. Currently, only the court or the U.S. Trustee
can initiate a 707(b) motion. S. 1301, however, would allow
creditors and case trustees to file such motions in any case in
which the debtor has an income at or above the 1996 national
median figures. Under the bill, many debtors' access to Chapter
7 protection would be essentially eliminated.
A. The Detrimental Effects of Allowing Creditors To File 707(b) Motions
If S. 1301 becomes law, creditors will have a tremendous
incentive to file--or threaten to file--a 707(b) motion in
virtually every case. Although some bill proponents argue that
the bill contains safeguards against such abuse, these
protections are largely illusory. S. 1301 provides that if the
court finds that the creditor's 707(b) motion was
``substantially unjustified,'' the bill would allow for the
award of costs and fees to the debtor. However, this supposed
safeguard would be essentially meaningless for debtors who lack
access to counsel. Indeed, the ``safeguard'' would also impose
a substantial additional burden on debtors who do have counsel,
because they would be forced to file yet another motion.
Experience with fee shifting under other provisions of the
Bankruptcy Code has revealed that fee shifting is an
insufficient deterrent. Respondents to 707(b) motions are
debtors. Forcing people who are, by definition, financially
distressed to assume the additional cost of litigating the
merits of a 707(b) motion is unreasonable. In fact, even if the
debtor wins the 707(b) motion and seeks fees and costs, he must
access more funds to file another motion charging that the
creditor's motion was not substantially justified. Creditors
will, therefore, have little disincentive to file 707(b)
motions and debtors will be left with little to no real
recourse against creditor abuse.
Moreover, under S. 1301, creditors can use their ability to
file a 707(b) motion as a threat to get debtors to reaffirm
their debts. Giving creditors such a powerful bargaining chip
will undoubtedly intimidate many debtors legitimately seeking
Chapter 7 relief and deter them from seeking the protection of
the bankruptcy system.
B. The Detrimental Effects of Allowing Trustees To File 707(b) Motions
Enabling trustees to file 707(b) motions seems, on its
face, to be a potentially worthwhile reform. The original
version of Section 102(A)(3), however, would have made a
debtor's attorney responsible for the trustee's costs and fees
if the motion failed. The penalty would not have been
predicated on bad faith or the filing of a frivolous motion,
but simply losing the 707(b) motion. Fortunately, the Judiciary
Committee accepted an amendment that will make the debtor's
attorney liable only if he was ``not substantially justified''
in filing the petition. Even this standard, however, is
untenable.
This provision of S. 1301 applies a stricter standard to
consumer debtors' attorneys than to attorneys in any other
federal proceeding. The conduct of consumer debtors' attorneys
should meet the standards set for all attorneys in Rule 11,
which is incorporated in Federal Rule of Bankruptcy Procedures
9011.\6\ Every other fee-shifting provision in federal law that
holds the attorney liable requires affirmative wrongdoing by
the attorney. There is no legitimate basis for different and
more punitive standards for consumer bankruptcy attorneys.
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\6\ Federal Rule of Bankruptcy Procedure, Rule 9011 provides that
the court may issue ``sanctions upon the attorney [or] law firm''
representing a party in a bankruptcy proceeding if the attorney filed a
paper that was for an ``improper purpose'' or was ``frivolous.''
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Ultimately, this provision punishes debtors, not only their
attorneys. Very few debtors' attorneys are likely to risk their
own finances and welfare for a Chapter 7 bankruptcy filing. The
cumulative effect of this proposal is that many truly needy
debtors will be denied the benefit of counsel if they wish to
file for Chapter 7 protection, thus, forcing them to file pro
se.
Pro se debtors are particularly susceptible to exploitation
by well-organized, powerful institutional creditors. The
inherent disadvantages of filing pro se will only be
exacerbated by the proposed measures. Pro se cases are often
dismissed for trivial, procedural mistakes such as incorrect or
untimely filings. This bill, by likely increasing the number of
pro se cases, will increase the number of such dismissals. For
example, Section 303 of the bill creates a presumption of bad
faith when a case is dismissed for failure to file the papers
in proper form. This provision, combined with the likely
increase in pro se filers, will mean that many debtors who are
legitimately seeking bankruptcy protection will be denied such
relief due to administrative error and will have a difficult
time re-entering the system due to the new repeat filing
prohibition.
Moreover, if the bill's current attorney's fees provision
is maintained, it would have the perverse result of increasing
systemic abuses. As noted above, attorneys will likely raise
their fees, therefore, more debtors will turn to less
expensive, non-attorney petition preparers. Many non-attorney
preparers are helpful to debtors, but, in some cases,
unscrupulous, non-attorney petition preparers have been known
to abuse the system. If attorneys are forced to raise their
fees, even more pro se debtors will turn to these preparers,
and some will pay for poor work and faulty legal advice.
As noted above, these attorneys' fees provisions are
designed to intimidate lawyers into counseling against Chapter
7 filings. Not only is this fact troubling in and of itself,
but it also creates a conflict of interest between a debtor's
attorney and his client. Even if the client would be better
served by a Chapter 7 filing, the lawyer would be faced with
the dubious incentive to counsel the client to file Chapter 13
in order to protect the attorney's financial interests. Rule
1.7(b) of the Rules of Professional Conduct specifically
prohibits a lawyer from handling a case ``if representation of
that client may be materially limited by the lawyer's * * * own
interests.'' This bill would create a scenario in which
debtors' attorneyswould arguably be in violation of this rule
on a regular basis. S. 1301, thus, sets the stage for extremely
problematic attorney-client dynamics that will ultimately harm
vulnerable consumers.
C. The Existing Prohibition Against Debtors Filing In Forma Pauperis
Presents an Additional Barrier to Justice
The existing prohibition against debtors filing in forma
pauperis is an additional barrier to debtors' access to justice
in the bankruptcy system. Ironically, bankruptcy is the only
federal proceeding in which a poor person cannot file in forma
pauperis. Currently the filing fee for consumer bankruptcy is
$175, a considerable amount of money for the indigent--those
who truly need bankruptcy protection. A study by the Federal
Judicial Center of the in forma pauperis pilot project
concluded last year revealed that permitting in forma pauperis
filings enable low income consumers to use the bankruptcy
system without having an appreciable effect on the filing rate
overall. The Judiciary Committee, by a 9 to 9 vote, rejected an
amendment that would have eliminated this counterintuitive
prohibition. Allowing this anomaly to remain as part of the
Bankruptcy Code amounts to yet another aspect of the consumer
bankruptcy system that reduces access to justice for those poor
people the system was designed to protect.
D. S. 1301 May Create Advantages for Wealthier, More Sophisticated
Debtors
Finally, recall that S. 1301 would in some circumstances
compel those who are able to pay at least 20% of their
unsecured debt after standardized living expenses and secured
debt to file Chapter 13. Debtors of some sophistication and/or
who have access to counsel could manipulate their financial
situations to make it appear as if they are incapable of
meeting the threshold requirements and are, therefore, entitled
to Chapter 7 protection under the bill. Some of the ways in
which wealthier, knowledgeable debtors could manipulate the
system include: reducing his or her income or having a spouse
quit a job, increasing his or her debt (e.g., buying a new
car), or increasing his or her unsecured debt (e.g., taking an
expensive vacation paid for on credit cards before declaring
bankruptcy). Thus, the proposed reforms actually facilitate
abuse of the system by wealthier, more sophisticated debtors
who have access to counsel. Many minorities and elderly
Americans seeking bankruptcy protection do not have access to
such counsel. This puts our neediest citizens at even greater
risk of financial ruin.
V. Bankruptcy Reform Legislation Must Address the Issue of Debt
Reaffirmation
One of our main concerns is that this legislation will
significantly increase the opportunity for abusive behavior by
creditors. One of the main areas of abuse in recent years has
been the solicitation and enforcement of reaffirmation
agreements--both legal and illegal. A reaffirmation is an
agreement made between a debtor and creditor to continue paying
off a debt despite bankruptcy. In short, a promise to continue
paying the debt even after bankruptcy.
Often reaffirmations are made for good reasons. Many people
want to keep their cars, so they reaffirm the debt. Other
people want to keep one of their credit cards and in order to
do so, they reaffirm the debt. Unfortunately, however, other
people reaffirm debt because they cannot fight coercive
creditor tactics.
This problem is very real. In one Boston bankruptcy court,
Sears had 2,733 illegal reaffirmation agreements that had been
entered into without complying with the law. Nationwide, in a
two year period, more than 80,000 people were affected by these
abusive reaffirmations. There is an ongoing federal criminal
investigation of this problem.
The U.S. Attorney in Boston filed suit alleging that Sears
had committed mail and wire fraud in its reaffirmation
practices. He commented that ``In obtaining these agreements,
Sears deceived debtors into thinking they were obligated to pay
back debts which had already been discharged by the Bankruptcy
Court.''
The attorneys general in 40 states also began
investigations into reaffirmation practices. And, as a result,
Sears was forced to agree to pay $165 million to consumers and
the attorney general is looking into these practices. In
Illinois, for example, almost 2,300 residents were affected and
Sears reimbursed them nearly $2 million.
But it does not stop with Sears. Federated Department
stores--which includes Bloomingdale's, Macy's, and Sterns--
agreed to pay $14.64 million in settlement of several state
suits involving Alabama, California, Illinois, Massachusetts,
New Jersey, Ohio, Pennsylvania, South Carolina, Tennessee and
11 other states. The U.S. Trustees office commented that
Federated ``enticed and threatened customers who filed for
bankruptcy * * * to sign contracts agreeing to repay their
debts to Federated.''
In addition, Montgomery Ward had to provide refunds on
about 30,000 accounts and is now reviewing 180,000 other
agreements. GE Capital Corp, Discover Card, May Department
Stores, and AT&T are other companies that have faced similar
problems.
These types of practices contribute to significant problems
in the bankruptcy system. Not only are the practices of many
creditors offensive to the letter of the law, but in many
instances creditors obtain reaffirmations by behavior that can
only be called extortionate. Oftentimes, creditors threaten to
repossess largely worthless household goods knowing that the
desperate debtor, anxious to keep goods of some sentimental
value or goods that are vital, will reaffirm the debt under
pressure.
S. 1301 will make a terrible problem worse. This
legislation contains numerous provisions that will increase the
power of a creditor to coerce a reaffirmation. The measure
broadens the ability of creditors to threaten to repossess
household goods. In allowscreditors to threaten to bring
motions asserting that debts accumulated 90 days before bankruptcy were
not ``necessary.'' It will allow creditors to threaten to assert that a
certain debt was fraudulent or that it was incurred to pay an otherwise
non-dischargeable debt. Creditors will be able to bring 707(b) motions.
They will be able to threaten dismissal motions if paperwork is not in
perfect order. The list goes on. And every new provision in S. 1301
that provides a new leverage point for creditors is a prescription for
extortionate reaffirmations.
These types of reaffirmations present real problems for two
reasons: first, they force people to unknowingly give up their
legitimate and legal rights, and second, reaffirmations are the
financial equivalent of an undischarged debt. In short, every
new reaffirmation that can be coerced as a result of this bill
is another debt that is competing in a post-bankruptcy world
with debts like child support, alimony, taxes, student loans,
mortgages and car payments. As we have previously discussed,
this competition for scarce resources is a prescription for
peril.
The majority asserts that S. 1301 contains provisions that
will mitigate abusive reaffirmations. But this is a bit like
putting one finger in the dyke while using the others to turn
the switch to open the flood gates.
The bill does contain some provisions that attempt to
address creditor abuses. But these provisions barely confront
the problem. The majority points to the provision that would
impose penalties on creditors who file reaffirmations that do
not comply with section 524. They then assert that this will
deal with coercive reaffirmations. This is not the case for two
reasons. First, section 524 has virtually no impact on stopping
coercive practices, and second, people in bankruptcy only
rarely have the wherewithal to seek enforcement of penalties
for failure to comply with section 524.
Section 524 contains a series of disclosure requirements.
For example, a reaffirmation agreement must contain a notice of
the right of the debtor to rescind the agreement. It must also
clearly disclose that the reaffirmation is not required under
bankruptcy law. While well intentioned, these disclosure
requirements are of little use in dealing with coercive
creditor tactics. Being told that you can rescind and that the
agreement is not mandatory has little impact when
counterbalanced by the threat that your microwave or child's
swing set may be repossessed or that a series of expensive
motions that you cannot defend may be brought against you.
Creditors have been remarkably effective in developing
coercive tactics. They know that debtors are acutely vulnerable
to these tactics. A bankrupt debtor is virtually incapable of
opposing a creditor motion. Bankruptcy debtors simply cannot
afford the legal fees to defend a motion. The vast majority of
the time, then, they simply and quickly accede to anything the
creditor wants.
Most abusive or coercive creditor behavior occurs in the
shadows. Reaffirmations are solicited in the hallways of the
court house or by phone at night. The threats that lead to
reaffirmation are implied or sometimes overt. And the debtors
who deal with this behavior are poor and virtually
unrepresented by counsel. To suggest that a string of changes
to the code will solve the problem is to turn a blind eye to
the real world where the threat of a motion is more effective
than an actual motion. In the real world, bankruptcy debtors,
who typically make less than $18,000 a year, cannot afford to
find a lawyer to contest a motion, much less win the motion and
then pursue sanctions--which are largely discretionary.
In addition to pointing out the sanctions authorized in
Section 203, the majority asserts that the section also bars
creditors from using many collection tactics if they refused an
offer of compromise. Again, this is an illusory provision. As
written, the debtor must prove that he made an effort to
negotiate a reasonable alternative repayment schedule and that
the creditor unreasonably refused to negotiate. The sad fact is
that this provision will merely benefit the well-off and
manipulative debtor who is trying to game the system, but it
will be virtually useless for the poor and under represented,
i.e. the average, debtor.
Finally, the majority points to a provision dealing with
predatory loans to the elderly. The majority, however, cannot
even support that provision unreservedly. It says that the one
worthy provision in the bill ``may need technical refinements
to avoid excessive litigation and abuse.'' We dare not venture
to guess what will fall under the rubric of ``technical''
changes. And we are not surprised to learn that at least as to
consumer friendly provisions, the majority is suddenly
concerned about ``excessive litigation.''
VI. The Consumer Credit Industry Shares Responsibility for Rising
Consumer Bankruptcy Filings
Congress is concerned about the increasing number of
families that file bankruptcy every year. Proponents and
opponents of the Consumer Bankruptcy Reform Act have vigorously
debated the source of this problem. Many proponents of the
legislation argue that consumer abuses have precipitated the
rise in filings. Accordingly, they believe sweeping legislative
reform is necessary to curb abuses and eliminate so-called,
``bankruptcies of convenience.''
We disagree with their assessment of the problem and the
solution. The only support offered for the assertions of the
proponents of the legislation about consumer abuse come from
studies paid for by the credit industry. These studies have
been thoroughly discredited by the Government Accounting Office
and the Congressional Budget Office. Virtually all independent
academic studies and all government studies of the increase in
bankruptcy demonstrate that the rise in bankruptcy filings
follows equally sharp rises in the amount of consumer debt per
household.\7\ Proponents urge significant structural change to
the consumer bankruptcy system with no verifiable data to
document the source of the problem, no independent analysis of
whether this legislation will solve any problems, and no
consideration of the unintended consequences of such a sweeping
change.
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\7\ E. Warren, Consumer Bankruptcy: Issues Summary (April 2, 1998).
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More families are in bankruptcy because more families are
carrying too much debt. Bankruptcy is the hospital for families
overloaded with debt. If we saw a sharp rise in hospital
admissions, we would ask what had happened to the health of our
people--not how much we could change the hospital treatment
rules. To consider changes in the bankruptcy laws without
addressing broader questions about consumer lending practices
is irresponsible, and is likely to do more injury to already
troubled families.
A. Credit Card Issuers Are Aggressively Targeting Consumers Who Cannot
Afford Additional Debt, Increasing the Risk That They Will File for
Bankruptcy
Because of the high profitability of consumer credit
lending, credit card issuers are using many tools to increase
their customer base and encourage debtors to carry large card
balances. They aggressively solicit new customers, encourage
debtors to make minimum payments which will not decrease the
loan principal, offer ``teaser'' interest rates designed to
encourage customers to increase debt, switch credit rates with
no advance notification to customers, use confusing and
sometimes misleading descriptions of interest calculations,
fail to disclose how long or how expensive repayment will be
using minimum monthly payments, market cards to college and
high school students, and increase credit limits for customers
who carry large debt balances without further credit
investigation or even a request from the customer.
Although credit card issuers are aggressively targeting
American families, many families have fewer resources to pay
their debts. The real incomes of the bottom 60 percent of
American consumers have declined since 1989. More than one of
every nine families pay more than 40 percent of their income in
debt service, and credit card usage has grown fastest in recent
years among debtors with the lowest incomes. Since the early
1990s, Americans with incomes below the poverty level nearly
doubled their credit card usage, and those in the $10,000 to
$25,000 income bracket are similarly positioned.
Credit card issuers make no effort to educate consumers
about the true costs and risks of credit card debt. They give
increasingly complex credit terms designed to increase the
likelihood of longer payments over time. Effectively, consumer
interest rates have risen with the tacking on of a series of
fees and charges. For example, credit card industry analysts
estimate that if an individual made typical monthly payments,
it would take 34 years to eliminate a $2,500 credit card debt.
Total payments would exceed 300 percent of the original
principal. Most borrowers are not aware of this fact, and,
unlike mortgage loans and car loans, credit card statements do
not disclose the amortization rates or the total interest that
will be paid if the cardholder makes only the minimum monthly
payment.\8\
---------------------------------------------------------------------------
\8\ George M. Salem and Aaron C. Clark, GKM Banking Industry
Report, Bank Credit Cards: Loan Loss Risks are Growing, p.25 (June 11,
1996).
---------------------------------------------------------------------------
Despite current economic growth, it is not surprising that
these families are more likely to file for bankruptcy. Their
incomes are lower and their debt loads are higher. They are
carrying more short-term, high interest credit card debt, and,
as a result, they are more susceptible to financial failure
and, eventually, bankruptcy.
Although credit card debt is not the sole factor
responsible for consumer bankruptcies, for many families, it
may be a critical component of financial failure. The credit
card industry's willingness to ignore the practical effect of
their lending practices while advocating legislation that
increases the amount of unsecured debt that may not be
discharged no matter how hopeless the debtor's financial
condition is of grave concern to us. Such legislation is not in
the best interest of consumers. It is designed only to increase
the already burgeoning profit margins of the credit card
industry.
B. The Credit Card Industry Is Willing To Take Greater Risks To
Increase Profits
1. Background
Since 1993, credit card lending has been the fastest
growing component of consumer lending. The growth of the
industry was precipitated by the deregulation of consumer
credit interest rates in the late 1970s, which gave states
greater flexibility to raise interest rates (See, Marquette
National Bank of Minneapolis v. First of Omaha Service Corp.,
439 U.S. 299 (1978) and Smiley v. Citibank (South Dakota),
N.A., 116 S.Ct. 1730 (1996)).
In the Marquette case, the Court determined that the
National Banking Act permits national banks to charge out-of-
state customers the maximum interest rate allowable in the
bank's home state. Similarly, the Court determined in the
Smiley case that national banks may export late-payment fees,
annual fees, cash advance fees, and other fees related to the
extension of credit.
Credit card issuers and some states capitalized on the new
environment created by these decisions and deregulation. ``Some
states quickly seized the opportunity to deregulate interest
and other banking functions to attract banks and other consumer
lenders * * * [M]ost leading banking states had relaxed or
repealed their interest rate ceilings by 1982, and the bank
credit market was functionally deregulated.'' \9\ Lenders then
began to broaden their customer base by extending credit to
those further down the spectrum of credit quality.\10\
---------------------------------------------------------------------------
\9\ Diane Ellis, The Effect of Consumer Interest Rate Deregulation
on Credit Card Volumes, Charge-offs, and the Personal Bankruptcy Rate,
Bank Trends 98-05, at pg. 3, (Division of Insurance, FDIC, February
1998).
\10\ Id.at 5.
---------------------------------------------------------------------------
2. Aggressive Solicitation of Customers Who Represent A Greater Risk
The result is aggressive marketing and a loosening of
underwriting standards in an effort to attract more credit card
customers and increase profits.
More than two and a half billion card solicitations
were mailed every year between 1994 and 1996. This
means more than 41 mailings went out each year to every
American household--not counting telephone
solicitations. Based on industry estimates, those
offers add up to about $243,000 of credit per household
per year. At this rate, in a little over four years,
the credit card companies have offered about a million
dollars of credit to every household in the United
States.\11\
---------------------------------------------------------------------------
\11\ George M. Salem and Aaron C. Clark, supra note 8, at 5.
In addition to mail solicitations, in 1996, for example, credit
card companies logged 24.1 million telemarketing hours.
Some credit card issuers argue that solicitations should be
compared to fast food advertising and ``[j]ust as consumers
ought not go have a Big Mac every time they see a McDonald's
ad, they probably ought not avail themselves of every credit
card solicitation they receive.'' \12\ Americans do not avail
themselves of every credit card solicitation, but they have
responded to the billions of dollars in advertising that have
urged them to buy on credit without considering either the
long-term consequences or how high-cost, short-term debt
increases their economic vulnerability to some other economic
shock. Credit card issuers suggest that a credit product is no
more difficult to understand than a Big Mac and requires no
more sophisticated analysis than whether to buy one with cheese
or one without. But as the bankruptcy files amply demonstrate,
the long-term effects of credit that outstrips income can be
catastrophic. Borrowing decisions are important and require
sober reflection and detailed information. They should not be
made so lightly as the credit card issuers'' advertisements
urge.
---------------------------------------------------------------------------
\12\ Shenk, Bankrupt Policy, The New Republic, May 18, 1998, at 16,
17 (quoting William Binzel, a spokesperson for the credit card
industry).
---------------------------------------------------------------------------
Aggressive solicitation has dramatically increased the
number of credit cards issued to consumers. Three-quarters of
all households have at least one credit card, and three-
quarters of those households carry credit card debt from month-
to-month. Of great concern is the fact that solicitations are
not limited to working adults. Direct solicitation of college
and high school students has increased in recent years. Cards
are available at many colleges to almost any student--no
income, no credit history, and no parental signature
required.\13\ The National Bankruptcy Review Commission
received an advertisement for a two-day workshop for creditors
entitled, ``Competing in the Sub Prime Credit Card Market,''
including a presentation entitled, ``Targeting College
Students: Real Life 101,'' with tips on how to ``target the
money makers of tomorrow.''
---------------------------------------------------------------------------
\13\ Report of the National Bankruptcy Review Commission 93
(October 20, 1997); George M. Salem and Aaron C. Clark, GKM Banking
Industry Report, Bank Credit Cards: Loan Loss Risks are Growing, pg. 9
(June 11, 1996).
---------------------------------------------------------------------------
We fully support efforts to eliminate discriminatory
lending practices, but the relaxation of industry standards is
of great concern. The democratization of credit should not be
confused with overly aggressive solicitation of customers who
are clearly unable to accommodate additional debt and the
failure to inform customers about the full risks of the
products they use. Credit card issuers have a responsibility to
carefully consider the credit worthiness of their potential
customers in an effort to limit the number of consumer
bankruptcies.\14\
---------------------------------------------------------------------------
\14\ Although humorous, the following example makes it clear that
credit card issuers will solicit the business of almost anyone--or
anything. Last year, Barbara Fazio of Windsor, Connecticut received a
credit card solicitation for her 9-year-old cat, Daisy. Fazio had
answered a television advertisement for free insulation and used her
cat's name as a joke. Six weeks later, Visa offered Daisy a Gold Card
with a $2,500 line of credit.
---------------------------------------------------------------------------
3. Credit Card Issuers Are Selling High Priced, High Profit Debt--Not
Consumer Protection
Credit card issuers are not motivated to consider the best
interests of their potential customers. Credit card issuers
earn approximately 75 percent of their revenues from the
interest paid by borrowers who do not pay in full every month.
Several companies charge fees or cancel cards if customers pay
in full every month.\15\ For example, Beneficial National Bank
of Delaware canceled 12,000 customers' MasterCards because the
customers paid their balances every month. NationsBank and GE
Rewards MasterCard have imposed fees or canceled cards for
customers who pay their bills in full.
---------------------------------------------------------------------------
\15\ David S. Evans & Richard L. Schmalensee, The Economics of the
Payment Card Industry, Fig. 3 (1993).
---------------------------------------------------------------------------
Of even greater concern is the aggressive targeting of
those who have filed bankruptcy. Industry analysts explain that
these debtors are attractive because they have proven that they
will take on credit and, by law, they cannot seek a bankruptcy
discharge for another six years.\16\
---------------------------------------------------------------------------
\16\ Dr. Michael Staten, Director, Credit Research Center, Krannert
School of Management, Purdue University, Working Paper No.58, The
Impact of Post-Bankruptcy Credit on the Number of Personal Bankruptcies
(January 1993).
---------------------------------------------------------------------------
In addition to discouraging debt payment, credit card
issuers have identified new means to increase profits through
credit card lending--the securitization of credit card debt.
Asset backed securities are debt or investment securities
backed by receivables such as credit card, automobile, or home
equity loans. Securitization creates its own growth imperative.
By promising investors steady or even increased returns from
customer debt over time, credit issuers must persuade more
people to borrow more money or find new customers to replace
those who have paid off their debts. To meet these contractual
commitments, securitization may encourage credit card issuers
to pursue customers that are less credit worthy. Credit card
issuers loaned consumers $422 billion by the end of 1997;
credit card loans totaling $191 billion were securitized and
sold by the companies.
Increased sophistication in credit collection also
increases the willingness of credit card issuers to lend to
poor credit risks. Computer analysis, direct telephoning, more
effective mail campaigns, better ability to reach relatives and
employers, and other techniques permit creditors to wring more
out of accounts that would have been written off just a few
years ago. Investors have learned about the growth industry for
bad debt. For example, Commercial Financial Services (CFS)
acquires credit card debt that has been charged off as
uncollectible from 25 of the largest credit card issuers,
packages the debt into securities, sells the securities to
investors, and pursues new collection activities against the
customers. CFS securitized $1 billion in charged-off credit
cards in 1997 and plans to securitize $1.5 billion in 1998.\17\
Armed with tools that make poor lending practices profitable,
credit card issuers expand credit availability and increase
consumer credit problems, including bankruptcy.
---------------------------------------------------------------------------
\17\ See, Office of the Comptroller of the Currency, Comptroller's
Handbook on Credit Card Lending, at 44-48 (September 1996); CFS Stays
Private While Getting Bigger, Private Placement Report, January 12,
1998, 1, 1998, WL 5034591.
---------------------------------------------------------------------------
C. Industry Regulators and Analysts Have Expressed Concern About Credit
Card Issuer Practices
The risks taken by credit card issuers have not escaped
criticism and concern by industry regulators and analysts. The
Office of the Comptroller of the Currency issued an Advisory
Letter on September 25, 1996, that alerted national banks to
the risks associated with preapproved solicitations of credit
cards. The letter said:
Although accounting for only a relatively small
percentage of total commercial bank assets, credit card
loans have grown faster than any other type of consumer
loans over the past 3 years. Recently there have been
pronounced increases in the rates of default and
delinquency for credit card loans.
Aggressive competition recently has pressured some
banks to forgo customary and effective testing of new
credit card products and preapproved solicitation
campaigns in hopes of capturing a product market before
a competitor. Despite the relatively small average loan
size and high net interest margins in credit card
lending, the default and delinquency trends are areas
of concern for both bankers and regulators.
The alert was issued by the OCC almost two years ago, but
there are few signs that credit card issuers have reassessed
their solicitation and lending practices. The FDIC has noted
that ``by marketing high-risk debt to customers who are at
substantial risk for non- payment, credit card issuers have
contributed to the rise in consumer bankruptcies.'' \18\
---------------------------------------------------------------------------
\18\ Diane Ellis, supra note 8.
---------------------------------------------------------------------------
There are private solutions to the problems of high
bankruptcies and increasing bad debts. Industry consultants
estimate that credit card companies could cut their bankruptcy
losses by more than 50 percent if they would institute minimal
credit screening.\19\ Instead, however, this legislation would
provide a government subsidy for bad debt collection while it
increased the rewards for credit card issuers who aggressively
market high cost credit products to customers already in
financial trouble. There are a number of factors that
contribute to the rise in consumer bankruptcy filings. It is a
complex problem and simplistic answers are short-sighted and
potentially harmful to millions of consumers. Congress must
consider the many factors that have created this problem,
including credit card issuer solicitation and lending
practices.
---------------------------------------------------------------------------
\19\ Fair, Isaac & Co. released a new bankruptcy predictor that it
says can eliminate 54 percent of bankruptcy losses by screening
potential nonpayers from the bottom 10 percent of credit card holders.
Fair, Isaac & Co. @www.fairisaac.com; Credit Cards: Fight for
Bankruptcy Law Reform Masks Truth, 162 Am. Banker 30 (September 8,
1997).
---------------------------------------------------------------------------
VII. Conclusion
In conclusion, we want to stress that we do not oppose
efforts to reform the bankruptcy system--there are problems
that should be addressed by Congress. We do, however, strongly
object to the hurried manner in which S. 1301 was debated and
voted upon in the Judiciary Committee. The result is a bill
that does not appropriately address debtor and creditor abuses.
We will, of course, continue to work with proponents of the
bill to improve S. 1301. To that end, a number of amendments
should be adopted during the Senate floor debate. Before
passing comprehensive reform legislation, the Senate should:
(1) ensure that the interests of women and children are not
pushed aside in favor of the interests of credit card
companies, (2) address the predatory lending practices that
disproportionately affect older Americans, (3) protect debtors'
access to the bankruptcy system and to justice, (4) ensure
procedural safeguards that will protect consumers from bad
faith debt reaffirmation agreements, and (5) pass reforms that
will eliminate the abuses of the consumer credit industry. It
is only through efforts such as these, that Congress can truly
``reform'' the bankruptcy system for the benefit of all
Americans.
Ted Kennedy.
Russ Feingold.
XI. CHANGES IN EXISTING LAW
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
S. 130, as reported, are shown as follows (existing law which
would be omitted is enclosed in bold brackets, new matter is
printed in italic, and existing law in which no change is
proposed is shown in roman type):
UNITED STATES CODE
* * * * * * *
TITLE 11--BANKRUPTCY
* * * * * * *
CHAPTER 1--GENERAL PROVISIONS
Sec.
101. Definitions.
* * * * * * *
111. Credit counseling services; financial management instructional
courses.
Sec. 101. Definitions
[In this title--] In this title:
(1) The term ``accountant'' means accountant
authorized under applicable law to practice public
accounting, and includes professional accounting
association, corporation, or partnership, if so
authorized[;].
(2) The term ``affiliate'' means--
(A) entity that directly or indirectly owns,
controls, or holds with power to vote, 20
percent or more of the outstanding voting
securities of the debtor, other than an entity
that holds such securities--
* * * * * * *
(D) entity that operates the business or
substantially all of the property of the debtor
under a lease or operating agreement[;].
[(3) Redesignated (21B)]
(4) The term ``attorney'' means attorney,
professional law association, corporation, or
partnership, authorized under applicable law to
practice law[;].
(5) The term ``claim'' means--
(A) * * *
(B) right to an equitable remedy for breach
of performance if such breach gives rise to a
right to payment, whether or not such right to
an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured,
disputed, undisputed, secured, or unsecured[;].
(6) The term ``commodity broker'' means futures
commission merchant, foreign futures commission
merchant, clearing organization, leverage transaction
merchant, or commodity options dealer, as defined in
section 761 of this title, with respect to which there
is a customer, as defined in section 761 of this
title[;].
(7) The term ``community claim'' means claim that
arose before the commencement of the case concerning
the debtor for which property of the kind specified in
section 541(a)(2) of this title is liable, whether or
not there is any such property at the time of the
commencement of the case[;].
(8) The term ``consumer debt'' means debt incurred by
an individual primarily for a personal, family, or
household purpose[;].
(9) The term ``corporation''--
(A) includes--
* * * * * * *
(B) does not include limited partnership[;].
(10) The term ``creditor'' means--
(A) * * *
* * * * * * *
(C) entity that has a community claim[;].
(11) The term ``custodian'' means--
(A) * * *
* * * * * * *
(C) trustee, receiver, or agent under
applicable law, or under a contract, that is
appointed or authorized to take charge of
property of the debtor for the purpose of
enforcing a lien against such property, or for
the purpose of general administration of such
property for the benefit of the debtor's
creditors[;].
(12) The term ``debt'' means liability on a claim[;].
[(12A)] (13) The term ``debt for child support''
means a debt of a kind specified in section 523(a)(5)
of this title for maintenance or support of a child of
the debtor[;].
[(13)] (14) The term ``debtor'' means person or
municipally concerning which a case under this title
has been commenced[;].
[(13A)] (15) The term ``debtor's principal
residence''--
(A) means a residential structure, including
incidental property, without regard to whether
that structure is attached to real property;
and
(B) includes an individual condominium or co-
operative unit[;].
[(14)] (16) The term ``disinterested person'' means
person that--
(A) is not a creditor, an equity security
holder, or an insider;
* * * * * * *
(E) does not have an interest materially
adverse to the interest of the estate or of any
class of creditors or equity security holders,
by reason of any direct or indirect
relationship to, connection with, or interest
in, the debtor or an investment banker
specified in subparagraph (B) or (C) of this
paragraph, or for any other reason[;].
[(14A)] (17) The term ``dependent child'' means, with
respect to an individual, a child who has not attained
the age of 18 and who is a dependent of that
individual, within the meaning of section 152 of the
Internal Revenue Code[;].
[(15)] (18) The term ``entity'' includes person,
estate, trust, governmental unit, and United States
trustee[;].
[(16)] (19) The term ``equity security'' means--
(A) share in a corporation, whether or not
transferable or denominated ``stock'', or
similar security;
(B) interest of a limited partner in a
limited partnership; or
(C) warrant or right, other than a right to
convert, to purchase, sell, or subscribe to a
share, security, or interest of a kind
specified in subparagraph (A) or (B) of this
paragraph[;].
[(17)] (20) The term ``equity security holder'' means
holder of an equity security of he debtor[;].
[(18)] (21) The term ``family farmer'' means--
(A) * * *
* * * * * * *
(i) more than 80 percent of the value
of its assets consists of assets
related to the farming operation;
* * * * * * *
(iii) if such corporation issues
stock, such stock is not publicly
traded[;].
[(19)] (22) The term ``family farmer with regular
annual income'' means family farmer whose annual income
is sufficiently stable and regular to enable such
family farmer to make payments under a plan under
chapter 12 of this title[;].
[(20)] (23) The term ``farmer'' means (except when
such term appears in the term ``family farmer'') person
that received more than 80 percent of such person's
gross income during the taxable year of such person
immediately preceding the taxable year of such person
during which the case under this title concerning such
person was commenced from a farming operation owned or
operated by such person[;].
[(21)] (24) The term ``farming operation'' includes
farming, tillage of the soil, dairy farming, ranching,
production or raising of crops, poultry, or livestock,
and production of poultry or livestock products in an
unmanufactured state[;].
[(21A)] (25) The term ``farmout agreement'' means a
written agreement in which--
(A) * * *
(B) such other entity (either directly or
through its agents or its assigns), as
consideration, agrees to perform drilling,
reworking, recompleting, testing, or similar or
related operations, to develop or produce
liquid or gaseous hydrocarbons on the
property[;].
[(21B)] (26) The term ``Federal depository
institutions regulatory agency'' means--
(A) * * *
* * * * * * *
(D) with respect to any insured depository
institution for which the Federal Deposit
Insurance Corporation has been appointed
conservator or receiver, the Federal Deposit
Insurance Corporation[;].
[(22)] (27) The term ``financial institution'' means
a person that is a commercial or savings bank,
industrial savings bank, savings and loan association,
or trust company and, when any such person is acting as
agent or custodian for a customer in connection with a
securities contract, as defined in section 741 of this
title, such customer[;].
[(23)] (28) The term ``foreign proceeding'' means
proceeding, whether judicial or administrative and
whether or not under bankruptcy law, in a foreign
country in which the debtor's domicile, residence,
principal place of business, or principal assets were
located at the commencement of such proceeding, for the
purpose of liquidating an estate, adjusting debts by
composition, extension, or discharge, or effecting a
reorganization[;].
[(24)] (29) The term ``foreign representative'' means
duly selected trustee, administrator, or other
representative of an estate in a foreign proceeding[;].
[(25)] (30) The term ``forward contract'' means a
contract (other than a commodity contract) for the
purchase, sale, or transfer of a commodity, as defined
in section 761(8) of this title, or any similar good,
article, service, right, or interest which is presently
or in the future becomes the subject of dealing in the
forward contract trade, or product or byproduct
thereof, with a maturity date more than two days after
the date the contract is entered into, including, but
not limited to, a repurchase transaction, reverse
repurchase transaction, consignment, lease, swap, hedge
transaction, deposit, loan, option, allocated
transaction, unallocated transaction, or any
combination thereof or option thereon[;].
[(26)] (31) The term ``forward contract merchant''
means a person whose business consists in whole or in
part of entering into forward contracts as or with
merchants in a commodity, as defined in section 761(8)
of this title, or any similar good, article, service,
right, or interest which is presently or in the future
becomes the subject of dealing in the forward contract
trade[;].
[(27)] (32) The term ``government unit'' means United
States; State; Commonwealth; District; Territory;
municipality; foreign state; department, agency, or
instrumentality of the United States (but not a United
States trustee while serving as a trustee in a case
under this title), a State, a Commonwealth, a District,
a Territory, a municipality, or a foreign state; or
other foreign or domestic government[;].
[(27A)] (33) The term ``household goods'' has the
meaning given that term in section 444.1(i) of title
16, of the Code of Federal Regulations (as in effect on
the effective date of this paragraph), which is part of
the regulations issued by the Federal Trade Commission
that are commonly known as the ``Trade Regulation Rule
on Credit Practices,'' except that the term shall also
include any tangible personal property reasonably
necessary for the maintenance or support of a dependent
child[;].
[(27B)] (35) The term ``incidental property'' means,
with respect to a debtor's principle residence--
(A) property commonly conveyed with a
principal residence in the area where the real
estate is located;
(B) all easements, rights, appurtenances,
fixtures, rents, royalties, mineral rights, oil
or gas rights or profits, water rights, escrow
funds, or insurance proceeds; and
(C) all replacements or additions[;].
[(28)] (35) The term ``indenture'' means mortgage,
deed of trust, or indenture, under which there is
outstanding a security, other than a voting-trust
certificate, constituting a claim against the debtor, a
claim secured by a lien on any of the debtor's
property, or an equity security of the debtor[;].
[(29] (36) The term ``indenture trustee means trustee
under an indenture[;].
[(30)] (37) The term ``individual with regular
income'' means individual whose income is sufficiently
stable and regular to enable such individual to make
payments under a plan under chapter 13 of this title,
other than a stockbroker or a commodity broker[;].
[(31)] (38) The term ``insider'' includes--
(A) if the debtor is an individual--
* * * * * * *
(F) managing agent of the debtor[;].
[(32)] (39) ``insolvent'' means--
(A) * * *
* * * * * * *
(C) with reference to a municipality,
financial condition such that the municipality
is--
(i) generally not paying its debts as
they become due unless such debts are
the subject of a bona fide dispute[;].
or
(ii) unable to pay its debts as they
become due[;].
[(33)] (40) The term ``institution-affiliated
party''--
(A) * * *
(B) with respect to an insured credit union
has the meaning given it in section 206(r) of
the Federal Credit Union Act[;].
[(34)] (41) The term ``insured credit union'' has the
meaning given it in section 101(7) of the Federal
Credit Union Act[;].
[(35)] (42) The term ``insured depository
institution''--
(A) has the meaning given it in section
3(c)(2) of the Federal Deposit Insurance Act;
and
(B) includes an insured credit union (except
in the case of [paragraphs (21B) and (33)(A)]
paragraphs (23) and (35) of this subsection[;].
[(35A)] (43) The term ``intellectual property''
means--
(A) trade secret;
* * * * * * *
(F) mask work protected under chapter 9 of
title 17; to the extent protected by applicable
nonbankruptcy law[; and].
[(36)] (44) The term ``judicial lien'' means lien
obtained by judgment, levy, sequestration, or other
legal or equitable process or proceeding[;].
[(37)] (45) The term ``lien'' means charge against or
interest in property to secure payment of a debt or
performance of an obligation[;].
[(38)] (46) The term ``margin payment'' means, for
purposes of the forward contract provisions of this
title, payment or deposit of cash, a security or other
property, that is commonly known in the forward
contract trade as original margin, initial margin,
maintenance margin, or variation margin, including
mark-to-market payments, or variation payments[; and].
[(39)] (47) The term ``mask work'' has the meaning
given it in section 901(a)(2) of title 17.
[(40)] (48) The term ``municipality'' means political
subdivision or public agency or instrumentality of a
State[;].
[(41)] (49) The term ``person'' includes individual,
partnership, and corporation, but does not include
governmental unit, except that a governmental unit
that--
(A) acquires an asset from a person--
* * * * * * *
(C) is the legal or beneficial owner of an
asset of--
(i) an employee pension benefit plan
that is a governmental plan, as defined
in section 414(d) of the Internal
Revenue Code of 1986; or
(ii) and eligible deferred
compensation plan, as defined in
section 457(b) of the Internal Revenue
Code of 1986;
shall be considered, for purposes of section
1102 of this title, to be a person with respect
to such asset or such benefit[;].
[(42)] (50) The term ``petition'' means petition
filed under section 301, 302, 303, or 304 of this
title, as the case may be, commencing a case under this
title[;].
[(42A)] (51) The term ``production payment'' means a
term overriding royalty satisfiable in cash or in
kind--
(A) contingent on the production of a liquid
or gaseous hydrocarbon from particular real
property; and
(B) from a specified volume, or a specified
value, from liquid or gaseous hydrocarbon
produced from such property, and determined
without regard to production costs[;].
[(43)] (52) The term ``purchaser'' means transferee
of a voluntary transfer, and includes immediate or
mediate transferee of such a transferee[;].
[(44)] (53) The term ``railroad'' means common
carrier by railroad engaged in the transportation of
individuals or property or owner of trackage facilities
leased by such a common carrier[;].
[(45)] (54) The term ``relative'' means individual
related by affinity or consanguinity within the third
degree as determined by the common law, or individual
in a step or adoptive relationship within such third
degree[;].
[(46)] (55) The term ``repo participant'' means an
entity that, on any day during the period beginning 90
days before the date of the filing of the petition, has
an outstanding repurchase agreement with the debtor[;].
[(47)] (56) The term ``repurchase agreement'' (which
definition also applies to a reverse repurchase
agreement) means an agreement, including related terms,
which provides for the transfer of certificates of
deposit, eligible bankers' acceptances, or securities
that are direct obligations of, or that are fully
guaranteed as to principal and interest by, the United
States or any agency of the United States against the
transfer of funds by the transferee of such
certificates of deposit, eligible bankers' acceptances,
or securities with a simultaneous agreement by such
transferee to transfer to the transferor thereof
certificates of deposit, eligible bankers' acceptances,
or securities as described above, at a date certain not
later than one year after such transfers or on demand,
against the transfer of funds[;].
[(48)] (57) The term ``securities clearing agency''
means person that is registered as a clearing agency
under section 17A of the Securities Exchange Act of
1934 or whose business is confined to the performance
of functions of a clearing agency with respect to
exempted securities, as defined in section 3(a)(12) of
such Act for the purposes of such section 17A[;].
[(49)] (58) ``security''--
(A) includes--
* * * * * * *
(B) does not include--
(i) currency, check, draft, bill of
exchange, or bank letter of credit;
* * * * * * *
(vii) debt or evidence of
indebtedness of goods sold and
delivered or services rendered[;].
[(50)] (59) ``The term ``security agreement'' means
agreement that creates or provides for a security
interest[;].
[(51)] (60) The term ``security interest'' means lien
created by an agreement[;].
[(51A)] (61) The term ``settlement payment'' means,
for purposes of the forward contract provisions of this
title, a preliminary settlement payment, a partial
settlement payment, an interim settlement payment, a
settlement payment on account, a final settlement
payment, a net settlement payment, or any other similar
payment commonly used in the forward contract trade[;].
[(51B)] (62) The term ``single asset real estate''
means real property constituting a single property or
project, other than residential real property with
fewer than 4 residential units, which generates
substantially all of the gross income a debtor whi is
not a family farmer and on which no substantial
business is being conducted by a debtor other than the
business of operating the real property and activities
incidental [thereto having aggregate noncontingent,
liquidated secured debts in an amount no more than
$4,000,000;].
[(51C)] (63) The term ``small business'' means a
person engaged in commercial or business activities
(but does not include a person whose primary activity
is the business of owning or operating real property
and activities incidental thereto) whose aggregate
noncontingent liquidated secured and unsecured debts as
of the date of the petition do not exceed
$2,000,000[;].
[(52)] (64) The term ``State'' includes the District
of Columbia and Puerto Rico, except for the purpose of
defining who may be a debtor under chapter 9 of this
title[;].
[(53)] (65) The term ``statutory lien'' means lien
arising solely by force of a statute on specified
circumstances or conditions, or lien of distress for
rent, whether or not statutory, but does not include
security interest or judicial lien, whether or not such
interest or lien is provided by or is dependent on a
statute and whether or not such interest or lien is
made fully effective by statute[;].
[(53A)] (66) The term ``stockbroker'' means person--
(A) with respect to which there is a
customer, as defined in section 741 of this
title; and
(B) that is engaged in the business of
effecting transactions in securities--
(i) for the account of others; or
(ii) with members of the general
public, from or for such person's own
account[;]
[(53B)] (67) The term ``swap agreement'' means--
(A) * * *
* * * * * * *
(C) a master agreement for any of the
foregoing together with all supplements[;].
[(53C)] (68) The term ``swap participant'' means an
entity that, at any time before the filing of the
petition, has an outstanding swap agreement with the
debtor[;].
[(53D)] (69) The term ``timeshare plan'' means and
shall include that interest purchased in any
arrangement, plan, scheme, or similar device, but not
including exchange programs, whether by membership,
agreement, tenancy in common, sale, lease, deed, rental
agreement, license, right to use agreement, or by any
other means, whereby a purchaser, in exchange for
consideration, receives a right to use accommodations,
facilities, or recreational sites, whether improved or
unimproved, for a specific period of time less than a
full year during any given year, but not necessarily
for consecutive years, and which extends for a period
of more than three years. A ``timeshare interest'' is
that interest purchased in a timeshare plan which
grants the purchaser the right to use and occupy
accommodations, facilities, or recreational sites,
whether improved or unimproved, pursuant to a timeshare
plan[;].
[(54) ``stockbroker'' means person--
[(A) with respect to which there is a
customer, as defined in section 741(2) of this
title; and
[(B) that is engaged in the business of
effecting transactions in securities--
[(i) for the account of others; or
[(ii) with members of the general
public, from or for such person's own
account;]
[(54)] (70) The term ``transfer'' means--
(A) the creation of a lien;
(B) the retention of title as a security
interest;
(C) the foreclosure of a debtor's equity of
redemption; or
(D) each mode, direct or indirect, absolute
or conditional, voluntary or involuntary, of
disposing of or parting with--
(i) property; or
(ii) an interest in property[;].
[(55)] (71) The term ``United States'', when used in
a geographical sense, includes all locations where the
judicial jurisdiction of the United States extends,
including territories and possessions of the United
States[;].
[(56A] (72) The term ``term overriding royalty''
means an interest in liquid or gaseous hydrocarbons in
place or to be produced from particular real property
that entitles the owner thereof to a share of
production, or the value thereof, for a term limited by
time, quantity, or value realized[;].
* * * * * * *
Sec. 104. Adjustment of dollar amounts
(a) * * *
(b)(1) On April 1, 1998, and at each 3-year interval ending
on April 1 thereafter, each dollar amount in effect under
sections 109(e), 303(b), 507(a), [522(d),] 522(f)(3),
707(b)(5), and 523(a)(2)(C) immediately before such April 1
shall be adjusted--
* * * * * * *
(2) Not later than March 1, 1998, and at each 3-year
interval ending on March 1 thereafter, the Judicial Conference
of the United States shall publish in the Federal Register the
dollar amounts that will become effective on such April 1 under
sections 109(e), 303(b), 507(a), [522(d),] 522(f)(3),
707(b)(5), and 523(a)(2)(C) of this title.
* * * * * * *
Sec. 108. Extension of time
(a) If applicable * * *
* * * * * * *
(c) Except as provided in section 524 of this title, if
applicable nonbankruptcy law, an order entered in a
nonbankruptcy proceeding, or an agreement fixes a period for
commencing or continuing a civil action in a court other than a
bankruptcy court on a claim against the debtor, or against an
individual with respect to which such individual is protected
under section 1201 or 1301 of this title, and such period has
not expired before the date of the filing of the petition, then
such period does not expire until the later of--
(1) the end of such period, including any suspension
of such period occurring on or after the commencement
of the case; or
(2) 30 days after notice of the termination or
expiration of the stay under section 362, [922, 1201,
or] 922, 1201, or 1301 of this title, as the case may
be, with respect to such claim.
Sec. 109. Who may be a debtor
(a) * * *
(b) A person may be a debtor under chapter 7 of this title
only if such person is not--
(1) a railroad;
(2) a domestic insurance company, bank, savings bank,
cooperative bank, savings and loan association,
building and loan association, homestead association, a
small business investment company licensed by the Small
Business Administration under [subsection (c) or (d)
of] section 301 of the Small Business Investment Act of
1958, credit union, or industrial bank or similar
institution which is an insured bank as defined in
section 3(h) of the Federal Deposit Insurance Act; or
* * * * * * *
(h) Notwithstanding any other provision of this section, an
individual may not be a debtor under this title unless that
individual has, during the 90-day period preceding the date of
filing of the petition of that individual, made a good-faith
attempt to create a debt repayment plan outside the judicial
system for bankruptcy law (commonly referred to as the
``bankruptcy system''), through a credit counseling program
(offered through credit counseling services described in
section 111(a)) that has been approved by--
(1) the United States trustee; or
(2) the bankruptcy administrator for the district in
which the petition is filed.
Sec. 110. Penalty for persons who negligently or fraudulently prepare
bankruptcy petitions
(a) In this section--
* * * * * * *
(j)(1) A debtor for whom a bankruptcy petition preparer has
prepared a document for filing, the trustee, a creditor, or the
United States trustee in the district in which the bankruptcy
petition preparer resides, has conducted business, or the
United States trustee in any other district in which the debtor
resides may bring a civil action to enjoin a bankruptcy
petition preparer from engaging in any conduct in violation of
this section or from further acting as a bankruptcy petition
preparer.
* * * * * * *
(3) The court shall award to a debtor, trustee, or creditor
that brings a successful action under this subsection
reasonable [attorney's] attorneys' fees and costs of the
action, to be paid by the bankruptcy petition preparer.
* * * * * * *
Sec. 111. Credit counseling services; financial management
instructional courses
(a) The clerk of each district shall maintain a list of
credit counseling services that provide 1 or more programs
described in section 109(h) and that have been approved by--
(1) the United States trustee; or
(2) the bankruptcy administrator for the district.
(b) The United States trustee or each bankruptcy
administrator referred to in subsection (a)(1) shall--
(1) make available to debtors who are individuals and
instructional course concerning personal financial
management, under the direction of the bankruptcy
court; and
(2) maintain a list of instructional courses
concerning personal financial management that are
operated by a private entity and that have been
approved by the United States trustee or that
bankruptcy administrator.
* * * * * * *
CHAPTER 3--CASE ADMINISTRATION
* * * * * * *
Subchapter II--Officers
* * * * * * *
Sec. 328. Limitation on compensation of professional persons
(a) The trustee, or a committee appointed under section
1102 of this title, with the court's approval, may employ or
authorize the employment of a professional person under section
327 or 1103 of this title, as the case may be, on any
reasonable terms and conditions of employment, including on a
retainer, on an hourly basis, on a fixed or percentage fee
basis, or on a contingent fee basis. Notwithstanding such terms
and conditions, the court may allow compensation different from
the compensation provided under such terms and conditions after
the conclusion of such employment, if such terms and conditions
prove to have been improvident in light of developments not
capable of being anticipated at the time of fixing of such
terms and conditions.
* * * * * * *
Subchapter III--Administration
* * * * * * *
Sec. 341. Meetings of creditors and equity security holders
(a) * * *
* * * * * * *
(c) The court may not preside at, and may not attend, any
meeting under this section including any final meeting of
creditors. Notwithstanding any local court rule, provision of a
State constitution, any other Federal or State law that is not
a bankruptcy law, or other requirement that representation a
the meeting of creditors under subsection (a) be by an
attorney, a creditor holding a consumer debt or any
representative of the creditor (which may include an entity or
an employee of an entity and may be a representative for more
than one creditor) shall be permitted to appear at and
participate in the meeting of creditors in a case under chapter
7 or 13, either alone or in conjunction with an attorney for
the creditor. Nothing in this subsection shall be construed to
require any creditor to be represented by an attorney at any
meeting of creditors.
* * * * * * *
Sec. 342. Notice
(a) * * *
[(b) Prior to the commencement of a case under this title
by an individual whose debts are primarily consumer debts, the
clerk shall give written notice to such individual that
indicates each chapter of this title under which such
individual may proceed.]
(b) Before the commencement of a case under this title by
an individual whose debts are primarily consumer debts, that
individual shall be given or obtain (as required in section
521(a)(1), as part of the certification process under
subchapter 1 of chapter 5) a written notice prescribed by the
United States trustee for the district in which the petition is
filed pursuant to section 586 of title 28. The notice shall
contain the following:
(1) A brief description of chapters 7, 11, 12, and 13
and the general purpose, benefits, and costs of
proceeding under each of those chapters.
(2) A brief description of services that may be
available to that individual from an independent
nonprofit debt counseling service.
(3)(A) The name, address, and telephone number of
each nonprofit debt counseling service with an office
located in the district in which the petition is filed,
if any.
(B) Any nonprofit debt counseling service described
in subparagraph (A) that has registered with the clerk
of the bankruptcy court on or before December 10 of the
preceding year shall be included in the list referred
to in that clause, unless the chief bankruptcy judge of
the district involved, after giving notice to the debt
counseling service and the United States trustee and
opportunity for a hearing, orders, for good cause, that
a particular debt counseling service shall not be so
listed.
(c) If notice is required to be given by the debtor to a
creditor under this title, any rule, any applicable law, or any
order of the court, such notice shall contain the name,
address, and taxpayer identification number of the debtor[, but
the failure of such notice to contain such information shall
not invalidate the legal effect of such notice].
(d)(1) If the credit agreement between the debtor and the
creditor or the last communication before the filing of the
petition in a voluntary case from the creditor to a debtor who
is an individual states an account number of the debtor that is
the current account number of the debtor with respect to any
debt held by the creditor against the debtor, the debtor shall
include that account number in any notice to the creditor
required to be given under this title.
(2) If the creditor has specified to the debtor, in the
last communication before the filing of the petition, an
address at which the creditor wishes to receive correspondence
regarding the debtor's account, any notice to the creditor
required to be given by the debtor under this title shall be
given at such address.
(3) For purposes of this section, the term ``notice'' shall
include--
(A) any correspondence from the debtor to the
creditor after the commencement of the case;
(B) any statement of the debtor's intention under
section 521(a)(2);
(C) notice of the commencement of any proceeding in
the case to which the creditor is a party; and
(D) any notice of a hearing under section 1324.
(e)(1) At any time, a creditor, in a case of an individual
under chapter 7 or 13, may file with the court and serve on the
debtor a notice of the address to be used to notify the
creditor in that case.
(2) If the court or the debtor is required to give the
creditor notice, not later than 5 days after receipt of the
notice under paragraph (1), that notice shall be given at that
address.
(f) An entity may file with the court a notice stating its
address for notice in cases under chapter 7 or 13. After the
date that is 30 days following the filing of that notice, any
notice in any case filed under chapter 7 or 13 given by the
court shall be to that address unless specific notice is given
under subsection (e) with respect to a particular case.
(g)(1) Notice given to a creditor other than as provided in
this section shall not be effective notice until that notice
has been brought to the attention of the creditor.
(2) If the creditor has designated a person or department
to be responsible for receiving notices concerning bankruptcy
cases and has established reasonable procedures so that
bankruptcy notices received by the creditor will be delivered
to that department or person, notice shall not be brought to
the attention of the creditor until that notice is received by
that person or department.
* * * * * * *
Sec. 346. Special tax provisions
(a) * * *
* * * * * * *
(g)(1) Neither gain nor loss shall be recognized on a
transfer--
(A) * * *
* * * * * * *
(C) in a case under chapter 11 or 12 of this title
concerning a corporation, of property from the estate
to a corporation that is an affiliate participating in
a joint plan with the debtor, or that is a successor to
the debtor under the plan[, except that gain or loss
may be recognized to the same extent that such transfer
results in the recognition of gain or loss under
section 371 of the Internal Revenue Code of 1986].
* * * * * * *
Sec. 348. Effect of conversion
(a) * * *
* * * * * * *
(f)(1) Except as provided in paragraph (2), when a case
under chapter 13 of this title is converted to a case under
another chapter under this title--
(A) property of the estate in the converted case
shall consist of property of the estate, as of the date
of filing of the petition, that remains in the
possession of or is under the control of the debtor on
the date of conversion; [and]
(B) valuations of property and of allowed secured
claims in the chapter 13 case shall apply [in the
converted case, with allowed secured claims] only in a
case converted to chapter 11 or 12 but not in a case
converted to chapter 7, with allowed secured claims in
cases under chapters 11 and 12 reduced to the extent
that they have been paid in accordance with the chapter
13 plan[.]; and
(C) with respect to cases converted from chapter 13,
the claim of any creditor holding security as of the
date of the petition shall continue to be secured by
that security unless the full amount of that claim
determined under applicable nonbankruptcy law has been
paid in full as of the date of conversion,
notwithstanding any valuation or determination of the
amount of an allowed secured claim made for the
purposes of the chapter 13 proceeding.
(2) If the debtor converts a case under chapter 13 of this
title to a case under another chapter under this title in bad
faith, the property of the estate in the converted case shall
consist of the property of the estate as of the date of
conversion.
* * * * * * *
Subchapter IV--Administrative Powers
* * * * * * *
Sec. 362. Automatic stay
(a) * * *
* * * * * * *
(b) The filing of a petition under section 301, 302, or 303
of this title, or of an application under section 5(a)(3) of
the Securities Investor Protection Act of 1970, does not
operate as a stay--
(1) * * *
* * * * * * *
(17) under subsection (a) of this section, of the
setoff by a swap participant, of any mutual debt and
claim under or in connection with any swap agreement
that constitutes the setoff of a claim against the
debtor for any payment due from the debtor under or in
connection with any swap agreement against any payment
due to the debtor from the swap participant under or in
connection with any swap agreement or against cash,
securities, or other property of the debtor held by or
due from such swap participant to guarantee, secure or
settle any swap agreement; [or]
(18) under subsection (a) of the creation or
perfection of a statutory lien for an ad valorem
property tax imposed by the District of Columbia, or a
political subdivision of a State, if such tax comes due
after the filing of the petition[.];
The provisions of paragraphs (12) and (13) of this subsection
shall apply with respect to any such petition filed on or
before December 31, 1989.
(19) under subsection (a) with respect to the
withholding of income pursuant to an order as specified
in section 466(b) of the Social Security Act (42 U.S.C.
666(b));
(20) under subsection (a) with respect to the
withholding, suspension, or restriction of drivers'
licenses, professional and occupational licenses, and
recreational licenses pursuant to State law, as
specified in section 466(a)(15) of the Social Security
Act (42 U.S.C. 666(a)(15)) or with respect to the
reporting of overdue support owed by an absent parent
to any consumer reporting agency as specified in
section 466(a)(7) of the Social Security Act (42 U.S.C.
666(a)(7));
(21) under subsection (a) of this section of any
transfer that is not avoidable under section 544 and
that is not avoidable under section 549;
(22) under subsection (a)(3) of this section, of the
continuation of any eviction, unlawful detainer action,
or similar proceeding by a lessor against a debtor
involving residential real property in which the debtor
resides as a tenant under a rental agreement; or
(23) under subsection (a)(3) of this section, of the
commencement of any eviction, unlawful detainer action,
or similar proceeding by a lessor against a debtor
involving residential real property in which the debtor
resides as a tenant under a rental agreement that has
terminated.
(c)(1) Except as provided in subsections (d), [(e), and
(f)] (e), (f), and (h) of this section--
[(1) the stay] (A) the stay of an action against
property of the estate under subsection (a) of this
section continues until such property is no longer
property of the estate; and
[(2) the stay] (B) the stay of any other act under
subsection (a) of this section continues until the
earliest of--
[(A) the time] (i) the time the case is
closed;
[(B) the time] (ii) the time the case is
dismissed; or
[(C)] (iii) if the case is a case under
chapter 7 of this title concerning an
individual or a case under chapter 9, 11, 12,
or 13 of this title, the time a discharge is
granted or denied.
(2) Except as provided in subsections (d) through
(f), the stay under subsection (a) with respect to any
action taken with respect to a debt or property
securing such debt or with respect to any lease shall
terminate with respect to the debtor on the 30th day
after the filing of the later case if--
(A) a single or joint case is filed by or
against an individual debtor under chapter 7,
11, or 13; and
(B) a single or joint case of that debtor
(other than a case refiled under a chapter
other than chapter 7 after dismissal under
section 707(b)) was pending during the
preceding year but was dismissed.
(3) If a party in interest so requests, the court may
extend the stay in a particular case with respect to 1
or more creditors (subject to such conditions or
limitations as the court may impose) after providing
notice and a hearing completed before the expiration of
the 30-day period described in paragraph (2) only if
the party in interest demonstrates that the filing of
the later case is in good faith with respect to the
creditors to be stayed.
(4) A case shall be presumed to have not been filed
in good faith (except that such presumption may be
rebutted by clear and convincing evidence to the
contrary)--
(A) with respect to the creditors involved,
if--
(i) more than 1 previous case under
any of chapters 7, 11, or 13 in which
the individual was a debtor was pending
during the 1-year period described in
paragraph (1);
(ii) a previous case under any of
chapters 7, 11, or 13 in which the
individual was a debt or was dismissed
within the period specified in
paragraph (2) after--
(I) the debtor, after having
received from the court a
request to do so, failed to
file or amend the petition or
other documents as required by
this title; or
(II) the debtor, without
substantial excuse, failed to
perform the terms of a plan
that was confirmed by the
court; or
(iii)(I) during the period commencing
with the dismissal of the next most
previous case under chapter 7, 11, or
13 there has not been a substantial
change in the financial or personal
affairs of the debtor;
(II) if the case is a chapter 7 case,
there is no other reason to conclude
that the later case will be concluded
with a discharge; or
(III) if the case is a chapter 11 or
13 case, there is not a confirmed plan
that will be fully performed; and
(B) with respect to any creditor that
commenced an action under subsection (d) in a
previous case in which the individual was a
debtor, if, as of the date of dismissal of that
case, that action was still pending or had been
resolved by terminating, conditioning, or
limiting the stay with respect to actions of
that creditor.
(5)(A) If a request is made for relief from
the stay under subsection (a) with respect to
real or personal property of any kind, and the
request is granted in whole or in part, the
court may, in addition to making any other
order under this subsection, order that the
relief so granted shall be in rem either--
(i) for a definite period of not less
than 1 year; or
(ii) indefinitely.
(B)(i) After an order is issued under
subparagraph (A), the stay under subsection (a)
shall not apply to any property subject to such
an in rem order in any case of the debtor.
(ii) If an in rem order issued under
subparagraph (A) so provides, the stay shall,
in addition to being inapplicable to the debtor
involved, not apply with respect to an entity
under this title if--
(I) the entity had reason to know of
the order at the time that the entity
obtained an interest in the property
affected; or
(II) the entity was notified of the
commencement of the proceeding for
relief from the stay, andat the time of
the notification, no case in which the entity was a debtor was pending.
(6) For purposes of this section, a case is
pending during the period beginning with the
issuance of the order for relief and ending at
such time as the case involved is closed.
* * * * * * *
(e)(1) Thirty days after a request under subsection (d) of
this section for relief from the stay of any act against
property of the estate under subsection (a) of this section,
such stay is terminated with respect to the party in interest
making such request, unless the court, after notice and a
hearing, orders such stay continued in effect pending the
conclusion of, or as a result of, a final hearing and
determination under subsection (d) of this section. A hearing
under this subsection may be a preliminary hearing, or may be
consolidated with the final hearing under subsection (d) of
this section. The court shall order such stay continued in
effect pending the conclusion of the final hearing under
subsection (d) of this section if there is a reasonable
likelihood that the party opposing relief from such stay will
prevail at the conclusion of such final hearing. If the hearing
under this subsection is a preliminary hearing, then such final
hearing shall be concluded not later than thirty days after the
conclusion of such preliminary hearing, unless the 30-day
period is extended with the consent of the parties in interest
or for a specific time which the court finds is required by
compelling circumstances.
(2) Notwithstanding paragraph (1), in the case of an
individual filing under chapter 7, 11, or 13, the stay under
subsection (a) shall terminate on the date that is 60 days
after a request is made by a party in interest under subsection
(d), unless--
(A) a final decision is rendered by the court during
the 60-day period beginning on the date of the request;
or
(B) that 60-day period is extended--
(i) by agreement of all parties in interest;
or
(ii) by the court for such specific period of
time as the court finds is required for good
cause.
* * * * * * *
[(h) An individual injured by any willful violation of a
stay provided by this section shall recover actual damages,
including costs and attorneys' fees, and, in appropriate
circumstances, may recover punitive damages.]
(h) In an individual case under chapter 7, 11, or 13 the stay
provided by subsection (a) is terminated with respect to
property of the estate securing in whole or in part a claim
that is in an amount greater than $3,000, or subject to an
unexpired lease with a remaining term of at least 1 year (in
any case in which the debtor owes at least $3,000 for a 1-year
period), if within 30 days after the expiration of the
applicable period under section 521(a)(2)--
(1)(A) the debtor fails to timely file a statement of
intention to surrender or retain the property; or
(B) if the debtor indicates in the filing that the
debtor will retain the property, the debtor fails to
meet an applicable requirement to--
(i) either--
(I) redeem the property pursuant to
section 722; or
(II) reaffirm the debt the property
secures pursuant to section 524(c); or
(ii) assume the unexpired lease pursuant to
section 365(d) if the trustee does not do so;
or
(2) the debtor fails to timely take the action
specified in a statement of intention referred to in
paragraph (1)(A) (as amended, if that statement is
amended before expiration of the period for taking
action), unless--
(A) the statement of intention specifies
reaffirmation; and
(B) the creditor refuses to reaffirm the debt
on the original contract terms for the debt.
(i)(1) An individual who is injured by any willful violation
of a stay provided in this section shall be entitled to
recover--
(A) actual damages; and
(B) reasonable costs, including attorneys' fees.
(2) In addition to recovering actual damages, costs, and
attorneys' fees under paragraph (1), an individual described in
paragraph (1) may recover punitive damages in appropriate
circumstances.
* * * * * * *
CHAPTER 5--CREDITORS, THE DEBTOR, AND THE ESTATE
Subchapter I--Creditors and Claims
* * * * * * *
Sec. 502. Allowance of claims or interests
(a) A claim * * *
(b) Except as provided in subsections (e)(2), (f), (g), (h)
and (i) of this section, if such objection to a claim is made,
the court, after notice and a hearing, shall determine the
amount of such claim in lawful currency of the United States as
of the date of the filing of the petition, and shall allow such
claim in such amount, except to the extent that--
(1) such claim is unenforceable against the debtor
and property of the debtor, under any agreement or
applicable law for a reason other than because such
claim is contingent or unmatured;
* * * * * * *
(8) such claim results from a reduction, due to late
payment, in the amount of an otherwise applicable
credit available to the debtor in connection with an
employment tax on wages, salaries, or commissions
earned from the debtor; [or]
(9) proof of such claim is not timely filed, except
to the extent tardily filed as permitted under
paragraph (1), (2), or (3) of section 726(a) of this
title or under the Federal Rules of Bankruptcy
Procedure, except that a claim of a governmental unit
shall be timely filed if it is filed before 180 days
after the date of the order for relief or such later
time as the Federal Rules of Bankruptcy Procedure may
provide[.]; or
(10) the claim is based on a secured debt if the
creditor has failed to comply with the requirements of
subsection (a), (b), (c), (d), (e), (f), (g), (h), or
(i) of section 129 of the Truth in Lending Act (15
U.S.C. 1639).
* * * * * * *
(j) A claim * * *
(k)(1) The court may award the debtor reasonable attorneys'
fees and costs if, after an objection if filed by a debtor, the
court--
(A)(i) disallows the claim; or
(ii) reduces the claim by an amount greater than 20
percent of the amount of the initial claim filed by a
party in interest; and
(B) finds the position of the party filing the claim
is not substantially justified.
(2) If the court finds that the position of a claimant
under this section is not substantially justified, the court
may, in addition to awarding a debtor reasonable attorneys'
fees and costs under paragraph (1), award such damages as may
be required by the equities of the case.
Sec. 503. Allowance of administrative expenses
(a) An entity may timely file a request for payment of an
administrative expense, or may tardily file such request if
permitted by the court for cause.
(b) After notice and a hearing, there shall be allowed,
administrative expenses, other than claims allowed under
section 502(f) of this title, including--
(1)(A) the actual, necessary costs and expenses of
preserving the estate, including wages, salaries, or
commissions for services rendered after the
commencement of the case;
* * * * * * *
(4) reasonable compensation for professional services
rendered by an attorney or an accountant of an entity
whose expense is allowed under subparagraph (A), (B),
(C), (D), or (E) of paragraph (3) of this subsection,
based on the time, the nature, the extent, and the
value of such services, and the cost of comparable
services other than in a case under this title, and
reimbursement for actual, necessary expenses incurred
by such attorney or accountant;
* * * * * * *
Sec. 506. Determination of secured status
(a) An allowed * * *
* * * * * * *
(e) Subsection (a) shall not apply to an allowed claim to
the extent attributable in whole or in part to the purchase
price of personal property acquired by the debtor during the
90-day period preceding the date of filing of the petition.
Sec. 507. Priorities
(a) The following expenses and claims have priority in the
following order, except that, notwithstanding any other
provision of this title, any expense or claim entitled to
priority under paragraph (7) shall have first priority over any
other expense or claim that has priority under any other
provision of this subsection:
(1) First, administrative expenses allowed under
section 503(b) of this title, and any fees and charges
assessed against the estate under chapter 123 or title
28.
* * * * * * *
(3) Third, allowed unsecured claims, but only to the
extent of $4,000 for each individual or corporation, as
the case may be, earned within 90 days before the date
of the filing of the petition or the date of the
cessation of the debtor's business, whichever occurs
first, for--
(A) wages, salaries, or commissions,
including vacation, severance, and sick leave
pay earned by an individual; or
(B) sales commissions earned by an individual
or by a corporation with only 1 employee,
acting as an independent contractor in the sale
of goods or services for the debtor in the
ordinary course of the debtor's business if,
and only if, during the 12 months preceding
that date, at least 75 percent of the amount
that the individual or corporation earned by
acting as an independent contractor in the sale
of goods or services was earned from the
debtor[;].
* * * * * * *
(7) Seventh allowed unsecured claims for debts to a
spouse, former spouse, or child of the debtor, for
alimony to, maintenance for, or support of such spouse
or child, in connection with a separation agreement,
divorce decree or other order of a court of record,
determination made in accordance with State or
territorial law by a governmental unit, or property
settlement agreement, but not to the extent that such
debt--
* * * * * * *
Subchapter II--Debtor's Duties and Benefits
* * * * * * *
Sec. 521. Debtor's duties
(a) The debtor shall--
[(1) file a list of creditors, and unless the court
orders otherwise, a schedule of assets and liabilities,
a schedule of current income and current expenditures,
and a statement of the debtor's financial affairs;]
(1) file--
(A) a list of creditors; and
(B) unless the court orders otherwise--
(i) a schedule of assets and
liabilities;
(ii) a schedule of current income and
current expenditures;
(iii) a statement of the debtor's
financial affairs and, if applicable, a
certificate--
(I) of an attorney whose name
is on the petition as the
attorney for the debtor or any
bankruptcy petition preparer
signing the petition pursuant
to section 110)b)(1) indicating
that such attorney or
bankruptcy petition preparer
delivered to the debtor any
notice required by section
342(b); or
(II) if no attorney for the
debtor is indicated and no
bankruptcy petition preparer
signed the petition, of the
debtor that such notice was
obtained and read by the
debtor;
(iv) copies of any Federal tax
returns, including any schedules or
attachments, filed by the debtor for
the 3-year period preceding the order
for relief;
(v) copies of all payment advices or
other evidence of payment, if any,
received by the debtor from any
employer of the debtor in the period 60
days prior to the filing of the
petition;
(vi) a statement of the amount of
projected monthly net income, itemized
to show how calculated; and
(vii) a statement disclosing any
reasonably anticipated increase in
income or expenditures over the 12-
month period following the date of
filing;
* * * * * * *
(2) if an individual debtor's schedule of assets and
liabilities includes [consumer] debts which are secured
by property of the estate--
(A) * * *
(B) within [forty-five days after the filing
of a notice of intent under this section] 30
days after the first meeting of creditors under
section 341(a), or within such additional time
as the court, for cause, within such [forty-
five day period] 30 day period fixes, the
debtor shall perform his intention with respect
to such property, as specified by subparagraph
(A) of this paragraph; and
(C) nothing in subparagraphs (A) and (B) of
this paragraph shall alter the debtor's or the
trustee's rights with regard to such property
under this title, except as provided in section
362(h);
* * * * * * *
(5) appear at the hearing required under section
524(d) of this title.
(b)(1) At any time, a creditor, in the case of an
individual under chapter 7 or 13, may file with the court
notice that the creditor requests the petition, schedules, and
a statement of affairs filed by the debtor in the case and the
court shall make those documents available to the creditor who
requests those documents.
(2) At any time, a creditor, in a case under chapter 13,
may file with the court notice that the creditor requests the
plan filed by the debtor in the case and the court shall make
that plan available to the creditor who requests that plan.
(c) An individual debtor in a case under chapter 7 or 13
shall file with the court--
(1) at the time filed with the taxing authority, all
tax returns, including any schedules or attachments,
with respect to the period from the commencement of the
case until such time as the case is closed;
(2) at the time filed with the taxing authority, all
tax returns, including any schedules or attachments,
that were not filed with the taxing authority when the
schedules under subsection (a)(1) were filed with
respect to the period that is 3 years before the order
for relief;
(3) any amendments to any of the tax returns,
including schedules or attachments, described in
paragraph (1) or (2); and
(4) in a case under chapter 13, a statement subject
to the penalties of perjury by the debtor of the
debtor's income and expenditures in the preceding tax
year and monthly income, that shows how the amounts are
calculated--
(A) beginning on the date that is the later
of 90 days after the close of the debtor's tax
year or 1 year after the order for relief,
unless a plan has been confirmed; and
(B) thereafter, on or before the date that is
45 days before each anniversary of the
confirmation of the plan until the case is
closed.
(d)(1) A statement referred to in subsection (c)(4) shall
disclose--
(A) the amount and sources of income of the debtor;
(B) the identity of any persons responsible with the
debtor for the support of any dependents of the debtor;
and
(C) the identity of any persons who contributed, and
the amount contributed, to the household in which the
debtor resides.
(2) The tax returns, amendments, and statement of income
and expenditures described in paragraph (1) shall be available
to the United States trustee, any bankruptcy administrator, any
trustee, and any party in interest for inspection and copying,
subject to the requirements of subsection (e).
(e)(1) Not later than 30 days after the date of enactment
of the Consumer Bankruptcy Reform Act of 1998, the Director of
the Administrative Office of the United States Courts shall
establish procedures for safeguarding the confidentiality of
any tax information required to be provided under this section.
(2) The procedures under paragraph (1) shall include
restrictions on creditor access to tax information that is
required to be provided under this section.
(3) Not later than 1 year after the date of enactment of
the Consumer Bankruptcy Reform Act of 1998, the Director of the
Administrative Office of the United States Courts shall
prepare, and submit to Congress a report that--
(A) assesses the effectiveness of the procedures
under paragraph (1); and
(B) if appropriate, includes proposed legislation--
(i) to further protect the confidentiality of
tax information; and
(ii) to provide penalties for the improper
use by any person of the tax information
required to be provided under this section.
(e) In addition to the requirements under subsection (a),
an individual debtor shall file with the court--
(1) a certificate from the credit counseling service
that provided the debtor services under section 109(h)
or other substantial evidence of a good-faith attempt
to create a debt repayment plan outside the bankruptcy
system in the manner prescribed in section 109(h); and
(2) a copy of the debt repayment plan developed under
section 109(h) through the credit counseling service
referred to in paragraph (1).
Sec. 522. Exemptions
(a) In this section--
* * * * * * *
(b) Notwithstanding * * *
* * * * * * *
(2)(A) subject to subsection (n), any property that
is exempt under Federal law, other than subsection (d)
of this section, or State or local law that is
applicable on the date of the filing of the petition at
the place in which the debtor's domicile has been
located for the 180 days immediately preceding the date
of the filing of the petition, or for a longer portion
of such 180-day period than in any other place; and
* * * * * * *
(c) Unless the case is dismissed, property exempted under
this section is not liable during or after the case for any
debt of the debtor that arose, or that is determined under
section 502 of this title as if such debt had arisen, before
the commencement of the case, except--
(1) a debt of a kind specified in section 523(a)(1)
or 523(a)(5) of this title, except that,
notwithstanding any other Federal law or State law
relating to exempted property, such exempt property
shall be liable for debts of a kind specified in
paragraph (1) or (5) of section 523(a);
* * * * * * *
(f)(1) Notwithstanding any waiver of exemptions but subject
to paragraph (3), the debtor may avoid the fixing of a lien on
an interest of the debtor in property to the extent that such
lien impairs an exemption to which the debtor would have been
entitled under subsection (b) of this section, if such lien
is--
(A) a judicial lien, other than a judicial lien that
secures a debt--
(i) to a spouse, former spouse, or child of
the debtor, for alimony to, maintenance for, or
support of such spouse or child, in connection
with a separation agreement, divorce decree or
other order of a court of record, determination
made in accordance with State or territorial
law by a governmental unit, or property
settlement agreement; and
(ii) to the extent that such debt--
(I) is not assigned to another
entity, voluntarily, by operation of
law, or otherwise; and
(II) [includes a liability designated
as] is for a liability that is
designated as, and is actually in the
nature of, alimony, maintenance, or
support[, unless such liability is
actually in the nature of alimony,
maintenance or support.]; or
* * * * * * *
(g) Notwithstanding sections 550 and 551 of this title, the
debtor may exempt under subsection (b) of this section property
that the trustee recovers under section 510(c)(2), 542, 543,
550, 551, or 553 of this title, to the extent that the debtor
could have exempted such property under subsection (b) of this
section if such property had not been transferred, if--
(1)(A) such transfer was not a voluntary transfer of
such property by the debtor; and
(B) the debtor did not conceal such property; or
(2) the debtor could have avoided such transfer under
[subsection (f)(2)] subsection (f)(1)(B) of this
section.
* * * * * * *
(n)(1) Except as provided in paragraph (2), as a result of
electing under subsection (b)(2)(A) to exempt property under
State or local law, a debtor may not exempt any amount of
interest that exceeds in the aggregate $100,000 in value in--
(A) real or personal property that the debtor or a
dependent of the debtor uses as a residence;
(B) a cooperative that owns property that the debtor
or a dependent of the debtor uses as a residence; or
(C) a burial plot for the debtor or a dependent of
the debtor.
(2) The limitation under paragraph (1) shall not apply to
an exemption claimed under subsection (b)(2)(A) by a family
farmer for the principal residence of that farmer.
Sec. 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a), 1228(b),
or 1328(b) of this title does not discharge an individual
debtor from any debt--
(1) for a tax or a customs duty--
* * * * * * *
(2) for money, property, services, or an extension,
renewal, or refinancing of credit, to the extent
obtained by--
(A) false pretenses, [a false representation]
a material false representation upon which the
defrauded person justifiably relied, or actual
fraud, other than a statement respecting the
debtor's or an insider's financial condition[;]
(and, for purposes of this subparagraph,
consumer debts owed in an aggregate amount
greater than or equal to $400 incurred for
goods or services not reasonably necessary for
the maintenance or support of the debtor or a
dependent child of the debtor to a single
creditor that are incurred during the 90-day
period preceding the date of the order for
relief shall be presumed to be nondischargeable
under this subparagraph); or
(B) use of a statement in writing--
(i) that is materially false;
* * * * * * *
(iv) that the debtor caused to be
made or published with intent to
deceive; [or]
[(C) for purposes of subparagraph (A) of this
paragraph, consumer debts owed to a single
creditor and aggregating more than $1,000 for
``luxury goods or services'' incurred by an
individual debtor on or within 60 days before
the order for relief under this title, or cash
advances aggregating more than $1,000 that are
extensions of consumer credit under an open end
credit plan obtained by an individual debtor on
or within 60 days before the order for relief
under this title, are presumed to be
nondischargeable; ``luxury goods or services''
do not include goods or services reasonably
acquired for the support or maintenance of the
debt or a dependent of the debtor; an extension
of consumer credit under an open end credit
plan is to be defined for purposes of this
subparagraph as it is defined in the Consumer
Credit Protection Act;]
(3) neither listed nor scheduled under section 521(1)
of this title, with the name, if known to the debtor,
of the credit to whom such debt is owed, in time to
permit--
(A) if such debt is not of a kind specified
in paragraph (2), (4), [or (6))] (6), or (15)
of this subsection, timely filing of a proof of
claim, unless such credit had notice or actual
knowledge of the case in time for such timely
filing; or
(B) if such debt is of a kind specified in
paragraph (2), (4), [or (6)] (6), or (15) of
this subsection, timely filing of a proof of
claim and timely request for a determination of
discharge-ability of such debt under one of
such paragraphs, unless such creditor had
notice or actual knowledge of the case in time
for such timely filing and request;
* * * * * * *
[(5) to a spouse, former spouse, or child of the
debtor, for alimony to, maintenance for, or support of
such spouse or child, in connection with a separation
agreement, divorce decree or other of a court of
record, determination made in accordance with State or
territorial law by a governmental unit, or property
settlement agreement, but not to the extent that--]
(5) to a spouse, former spouse, or child of the
debtor--
(A) for actual alimony to, maintenance for,
or support of that spouse or child;
(B) that was incurred by the debtor in the
course of a divorce or separation or in
connection with a separation agreement,
property settlement agreement, divorce decree,
other order of a court of record, or
determination made in accordance with State or
territorial law by a governmental unit; or
(C) that is described in subparagraph (A) or
(B) and that is assigned pursuant to section
408(a)(3) of the Social Security Act (42 U.S.C.
608(a)(3)), or to the Federal Government, a
State, or any political subdivision of a State,
but not to the extent that the debt (other than a debt
described in subparagraph (C)) is assigned to another
entity, voluntarily, by operation of law, or otherwise;
* * * * * * *
(9) for death or personal injury caused by the
debtor's operation of a motor vehicle, watercraft, or
aircraft if such operation was unlawful because the
debtor was intoxicated from using alcohol, a drug, or
another substance;
* * * * * * *
(14) incurred to pay a tax to the United States that
would be nondischargeable pursuant to paragraph (1);
(14A) incurred to pay a debt that is nondischargeable
by reason of section 727, 1141, 1228 (a) or (b), or
1328(b), or any other provision of this subsection,
except for any debt incurred to pay such a
nondischargeable debt in any case in which--
(A)(i) the debtor who paid the
nondischargeable debt is a single parent who
has 1 or more dependent children at the time of
the order for relief; or
(ii) there is an allowed claim for alimony
to, maintenance for, or support of a spouse,
former spouse, or child of the debtor payable
under a judicial or administrative order to
that spouse or child (but not to any other
person) that was unpaid by the debtor as of the
date of the petition; and
(B) the creditor is unable to demonstrate
that the debtor intentionally incurred the debt
to pay the nondischargeable debt;
(15) to a spouse, former spouse, or child of the
debtor and not of the kind described in paragraph (5)
that is incurred by the debtor in the course of a
divorce or separation or in connection with a
separation agreement, divorce decree or other order of
a court of record, a determination made in accordance
with State or territorial law by a governmental unit
unless--
* * * * * * *
(17) for a fee imposed [by a court] on a prisoner by
any court for the filing of a case, motion, complaint,
or appeal, or for other costs and expenses assessed
with respect to such filing, regardless of an assertion
of poverty by the debtor under [section 1915(b) or (f)]
subsection (b) or (f)(2) of section 1915 of title 28
(or a similar non-Federal law), or the debtor's status
as a prisoner, as defined in section 1915(h) of title
28 (or a similar non-Federal law); or
* * * * * * *
(c)(1) Except as provided in subsection (a)(3)(B) of this
section, the debtor shall be discharged from a debt of a kind
specified in paragraph (2), (4), (6), or (15) of subsection (a)
of this section, unless, on request of the creditor to whom
such debt is owed, and after notice and a hearing, the court
determines such debt to be excepted from discharge under
paragraph (2), (4), [(6), or (15)] or (6), as the case may be,
of subsection (a) of this section.
[(d) If a creditor requests a determination of
dischargeability of a consumer debt under subsection (a)(2) of
this section, and such debt is discharged, the court shall
grant judgment in favor of the debtor for the costs of, and a
reasonable attorney's fee for, the proceeding if the court
finds that the position of the creditor was not substantially
justified, except that the court shall not award such costs and
fees if special circumstances would make the award unjust.]
(d)(1) Subject to paragraph (3), if a creditor requests a
determination of dischargeability of a consumer debt under this
section and that debt is discharged, the court shall award the
debtor reasonable attorneys' fees and costs.
(2) In addition to making an award to a debtor under
paragraph (1), if the court finds that the position of a
creditor in a proceeding covered under this section is not
substantially justified, the court may award reasonable
attorneys' fees and costs under paragraph (1) and such damages
as may be required by the equities of the case.
(3)(A) A creditor may not request a determination of
dischargeability of a consumer debt under subsection (a)(2)
if--
(i) before the filing of the petition, the debtor
made a good faith attempt pursuant to section 109(h) to
negotiate a reasonable alternative repayment schedule
(including making an offer of a reasonable alternative
repayment schedule); and
(ii) that creditor refused to negotiate an
alternative payment schedule, and that refusal was not
reasonable.
(B) For purposes of this paragraph, the debtor shall have
the burden of proof of establishing that--
(i) an offer made by that debtor under subparagraph
(A)(i) was reasonable; and
(ii) the refusal to negotiate by the creditor
involved was not reasonable.
(e) Any institution-affiliated party of [a insured] an
insured depository institution shall be considered to be acting
in a fiduciary capacity with respect to the purposes of
subsection (a) (4) or (11).
Sec. 524. Effect of discharge
(a) A charge in a case under this title--
(1) voids * * *
* * * * * * *
(3) operates as an injunction against the
commencement or continuation of an action, the
employment of process, or an act, to collect or recover
from, or offset against, property of the debtor of the
kind specified in section 541(a)(2) of this title that
is acquired after the commencement of the case, on
account of any allowable community claim, except a
community claim that is excepted from discharge under
[section 523, 1228(a)(1), or 1328(a)(1) of this title,
or that] section 523, 1228(a)(1), or 1328(a)(1) of this
title, or that would be so excepted, determined in
accordance with the provisions of section 523(c) and
523(d) of this title, in a case concerning the debtor's
spouse commenced on the date of the filing of the
petition in the case concerning the debtor, whether or
not discharge of the debt based on such community claim
is waived.
(h) Application to Existing Injunctions.--For purposes of
subsection (g)--
(1) subject to paragraph (2), if an injunction of the
kind described in subsection (g)(1)(B) was issued
before the date of the enactment of this Act, as part
of a plan of reorganization confirmed by an order
entered before such date then the injunction shall be
considered to meet the requirements of subsection
(g)(2)(B) for purposes of subsection (g)(2)(A), and to
satisfy subsection (g)(4)(A)(ii), if--
* * * * * * *
(i) The willful failure of a creditor to credit payments
received under a plan confirmed under this title (including a
plan of reorganization confirmed under chapter 11 of this
title) in the manner required by the plan (including crediting
the amounts required under the plan) shall constitute a
violation of an injunction under subsection (a)(2).
(j) An individual who is injured by the failure of a
creditor to comply with the requirements for a reaffirmation
agreement under subsections (c) and (d), or by any willful
violation of the injunction under subsection (a)(2), shall be
entitled to recover--
(1) the greater of--
(A)(i) the amount of actual damages;
multiplied by
(ii) 3; or
(B) $5,000; and
(2) costs and attorney's fees.
Sec. 525. Protection against discriminatory treatment
(a) Except * * *
* * * * * * *
(c)(1) A governmental unit that operates a student grant or
loan program and a person engaged in a business that includes
the making of loans guaranteed or insured under a student loan
program may not deny a student grant, loan, loan guarantee, or
loan insurance to a person that is or has been a debtor under
this title or a bankrupt or debtor under the Bankruptcy Act, or
another person with whom the debtor or bankrupt has been
associated, because the debtor or bankrupt is or has been a
debtor under this title or a bankrupt or debtor under the
Bankruptcy Act, has been insolvent before the commencement of a
case under this title or during the pendency of the case but
before the debtor is granted or denied a discharge, or has not
paid a debt that is dischargeable in the case under this title
or that was discharged under the Bankruptcy Act.
(2) In this section, ``student loan program'' means [the
program operated under part B, D, or E of] any program operated
under title IV of the Higher Education Act of 1965 or a similar
program operated under State or local law.
Subchapter III--The Estate
Sec.
541. Property of the estate.
* * * * * * *
[556. Contractual right to liquidate a commodity contract or forward
contract.]
556. Contractual right to liquidate a commodities contract or forward
contract.
* * * * * * *
Sec. 541. Property of the estate
(a) The * * *
* * * * * * *
(b) Property of the estate does not include--
(1) any power that the debtor may exercise solely for
the benefit of an entity other than the debtor;
* * * * * * *
(A)(i) the debtor has transferred or has
agreed to transfer such interest pursuant to a
farmount agreement or any written agreement
directly related to a farmount agreement; and
* * * * * * *
(B)(i) the debtor has transferred such
interest pursuant to a written conveyance of a
production payment to an entity that does not
participate in the operation of the property
from which such production payment is
transferred; and
(ii) but the operation of this paragraph, the
estate could include the interest referred to
in clause (i) by virtue of section 365 or 542
of this title; or
* * * * * * *
Sec. 546. Limitations on avoiding powers
(a) An action or proceeding under section 544, 545, 547,
548, or 553 of this title may not be commenced after the
earlier of--
* * * * * * *
(g) Notwithstanding sections 544, 545, 547, 548(a)(1)(B)
and 548(b) of this title, the trustee may not avoid a transfer
under a swap agreement, made by or to a swap participant, in
connection with a swap agreement and that is made before the
commencement of the case, except under section 548(a)(1)(A) of
this title.
[(g)] (h) Notwithstanding the rights and powers of a
trustee under sections 544(a), 545, 547, 549, and 553, if the
court determines on a motion by the trustee made not later than
120 days after the date of the order for relief in a case under
chapter 11 of this title and after notice and a hearing, that a
return is in the best interests of the estate, the debtor, with
the consent of a creditor, may return goods shipped to the
debtor by the creditor before the commencement of the case, and
the creditor may offset the purchase price of such goods
against any claim of the creditor against the debtor that arose
before the commencement of the case.
Sec. 547. Preferences
(a) In this section--
(1) ``inventory'' means * * *
* * * * * * *
(b) Except as provided in [subsection (c)] subsections (c)
and (h) of this section, the trustee may avoid any transfer of
an interest of the debtor in property--
* * * * * * *
(h) If the trustee avoids under subsection (b) a security
interest given between 90 days and 1 year before the date of
the filing of the petition, by the debtor to an entity that is
not an insider for the benefit of a creditor that is an
insider, such security interest shall be considered to be
avoided under this section only with respect to the creditor
that is an insider.
* * * * * * *
Sec. 549. Postpetition transactions
(a) Except as provided in subsection (b) or (c) of this
section, the trustee may avoid a transfer of property of the
estate--
* * * * * * *
(c) The trustee may not avoid under subsection (a) of this
section a transfer of an interest in real property to a good
faith purchaser without knowledge of the commencement of the
case and for present fair equivalent value unless a copy or
notice of the petition was filed, where a transfer of such real
property may be recorded to perfect such transfer, before such
transfer is so perfected that a bona fide purchaser of [such
property] such real property, against whom applicable law
permits such transfer to be perfected, could not acquire an
interest that is superior to [the interest] such interest of
such good faith purchaser. A good faith purchaser without
knowledge of the commencement of the case and for less than
present fair equivalent value has a lien on the property
transferred to the extent of any present value given, unless a
copy or notice of the petition was so filed before such
transfer was so perfected.
* * * * * * *
Sec. 552. Postpetition effect of security interest
(a) Except * * *
(b)(1) Except as provided in sections 363, 506(c), 522,
544, 545, 547, and 548 of this title, if the debtor and an
entity entered into a security agreement before the
commencement of the case and if the security interest created
by such security agreement extends to property of the debtor
acquired before the commencement of the case and to proceeds,
[product] products, offspring, or profits of such property,
then such security interest extends to such proceeds, [product]
products, offspring, or profits acquired by the estate after
the commencement of the case to the extent provided by such
security agreement and by applicable nonbankruptcy law, except
to any extent that the court, after notice and a hearing and
based on the equities of the case, orders otherwise.
* * * * * * *
Sec. 553. Setoff
(a) Except * * *
* * * * * * *
(b)(1) Except with respect to a setoff of a kind described
in section 362(b)(6), 362(b)(7), [362(b)(14)] 362(b)(17),
365(h), 546(h), or 365(i)(2) of this title, if a creditor
offsets a mutual debt owing to the debtor against a claim
against the debtor on or within 90 days before the date of the
filing of the petition, then the trustee may recover from such
creditor the amount so offset to the extent that any
insufficiency on the date of such setoff is less than the
insufficiency on the later of--
* * * * * * *
CHAPTER 7--LIQUIDATION
Subchapter I--Officers and Administration
Sec.
701. Interim trustee.
* * * * * * *
[707. Dismissal.]
707. Dismissal of a case or conversion to a case under chapter 13.
Sec. 706. Conversion
(a) The debtor * * *
* * * * * * *
(c) The court may not convert a case under this chapter to
a case under chapter 12 or 13 of this title unless the debtor
requests or consents to such conversion.
* * * * * * *
[Sec. 707. Dismissal]
Sec. 707. Dismissal of a case or conversion to a case under chapter 13
(a) The court may dismiss a case under this chapter only
after notice and a hearing and only for cause, including--
* * * * * * *
(b)(1) After notice and a hearing, the court, on its own
motion or on a motion by the United States trustee, [but not]
or at the request or suggestion of any party in interest, may
dismiss a case filed by an individual debtor under this chapter
whose debts are primarily consumer debts, or, with the debtor's
consent, convert such a case to a case under chapter 13 of this
title, if it finds that the granting of relief would be a
[substantial abuse] abuse of the provisions of this chapter.
[There shall be a presumption in favor of granting the relief
requested by the debtor.] In making a determination whether to
dismiss a case under this section, the court may not take into
consideration whether a debtor has made, or continues to make,
charitable contributions (that meet the definition of
``charitable contribution'' under section 548(d)(3)) to any
qualified religious or charitable entity or organization (as
the term is defined in section 548(d)(4)).
(2) In considering under paragraph (1) whether the granting
of relief would be an abuse of the provisions of this chapter,
the court shall consider whether--
(A) under section 1325(b)(1), on the basis of the
current income of the debtor, the debtor could pay an
amount greater than or equal to 20 percent of unsecured
claims that are not considered to be priority claims
(as determined under subchapter I of chapter 5); or
(B) the debtor filed a petition for the relief in bad
faith.
(3)(A) If a panel trustee appointed under section 586(a)(1)
of title 28 brings a motion for dismissal or conversion under
this subsection and the court grants that motion and finds that
the action of the counsel for the debtor in filing under this
chapter was not substantially justified, the court shall order
the counsel for the debtor to reimburse the trustee for all
reasonable costs in prosecuting the motion, including
reasonable attorneys' fees.
(B) If the court finds that the attorney for the debtor
violated Rule 9011, at a minimum, the court shall order--
(i) the assessment of an appropriate civil penalty
against the counsel for the debtor; and
(ii) the payment of the civil penalty to the panel
trustee or the United States trustee.
(C) In the case of a petition referred to in subparagraph
(B), the signature of an attorney shall constitute a
certificate that the attorney has--
(i) performed a reasonable investigation into the
circumstances that gave rise to the petition; and
(ii) determined that the petition--
(I) is well grounded in fact; and
(II) is warranted by existing law or a good
faith argument for the extension, modification,
or reversal of existing law and does not
constitute an abuse under paragraph (1) of this
subsection.
(4)(A) Except as provided in subparagraph (B), the court may
award a debtor all reasonable costs in contesting a motion
brought by a party in interest (other than a panel trustee)
under this subsection (including reasonable attorneys' fees)
if--
(i) the court does not grant the motion; and
(ii) the court finds that--
(I) the position of the party that brought
the motion was not substantially justified; or
(II) the party brought the motion solely for
the purpose of coercing a debtor into waiving a
right guaranteed to the debtor under this
title.
(B) A party in interest that has a claim of an aggregate
amount less than $1,000 shall not be subject to subparagraph
(A).
(5) However, a party in interest may not bring a motion under
this section if the debtor and the debtor's spouse combined, as
of the date of the order for relief, have current monthly total
income equal to or less than the national median household
monthly income calculated on a monthly basis for a household of
equal size. However, for a household of more than 4
individuals, the median income shall be that of a household of
4 individuals plus $583 for each additional member of that
household.
(c)(1) Notwithstanding subsection (a), and subject to
paragraph (2), if an individual debtor in a voluntary case
under chapter 7 or 13 fails to file all of the information
required under section 521(a)(1) within 45 days after the
filing of the petition commencing the case, the case shall be
automatically dismissed effective on the 46th day after the
filing of the petition.
(2) With respect to a case described in paragraph (1), any
party in interest may request the court to enter an order
dismissing the case. The court shall, if so requested, enter an
order of dismissal not later than 5 days after that request.
(3) Upon request of the debtor made within 45 days after
the filing of the petition commencing a case described in
paragraph (1), the court may allow the debtor an additional
period of not to exceed 20 days to file the information
required under section 521(a)(1) if the court finds
justification for extending the period for the filing.
* * * * * * *
Subchapter II--Collection, Liquidation, and Distribution of the Estate
* * * * * * *
Sec. 726. Distribution of property of the estate
(a) Except as provided in section 510 of this title,
property of the estate shall be distributed--
* * * * * * *
(b) Payment on claims of a kind specified in paragraph (1),
(2), (3), (4), (5), (6), (7), or (8) of section 507(a) of this
title, or in paragraph (2), (3), (4), or (5) of subsection (a)
of this section, shall be made pro rata among claims of the
kind specified in each such particular paragraph, except that
in a case that has been converted to this chapter under section
[1009,] 1112, 1208, or 1307 of this title, a claim allowed
under section 503(b) of this title incurred under this chapter
after such conversion has priority over a claim allowed under
section 503(b) of this title incurred under any other chapter
of this title or under this chapter before such conversion and
over any expenses of a custodian superseded under section 543
of this title.
* * * * * * *
Sec. 727. Discharge
(a) The court shall grant the debtor a discharge, unless--
(1) the debtor is not an individual;
* * * * * * *
(9) the debtor has been granted a discharge under
section 1228 or 1328 of this title, or under section
660 or 661 of the Bankruptcy Act, in a case commenced
within six years before the date of the filing of the
petition, unless payments under the plan in such case
totaled at least--
(A) 100 percent of the allowed unsecured
claims in such case; or
(B)(i) 70 percent of such claims; and
(ii) the plan was proposed by the debtor in
good faith, and was the debtor's best effort;
[or]
(10) the court approves a written waiver of discharge
executed by the debtor after the order for relief under
this chapter[.]; or
(11) after the filing of the petition, the debtor
failed to complete an instructional course concerning
personal financial management described in section 111
that was administered or approved by--
(A) the United States trustee; or
(B) the bankruptcy administrator for the
district in which the petition is filed.
* * * * * * *
(c)(1) The trustee, a creditor, or the United States
trustee may object to the granting of a discharge under
subsection (a) of this section.
(2) On request of a party in interest, the court may order
the trustee to examine the acts and conduct of the debtor to
determine whether a ground exists for denial of discharge.
(3)(A) A creditor may not request a determination of
dischargeability of a consumer debt under subsection (a)(2)
if--
(i) before the filing of the petition, the debtor
made a good faith effort to negotiate a reasonable
alternative repayment schedule (including making an
offer of a reasonable alternative repayment schedule);
and
(ii) that creditor refused to negotiate an
alternative payment schedule, and that refusal was not
reasonable.
(B) For purposes of this paragraph, the debtor shall have
the burden of proof of establishing that--
(i) an offer made by that debtor under subparagraph
(A)(i) was reasonable; and
(ii) the refusal to negotiate by the creditor
involved to was not reasonable.
* * * * * * *
(e) The trustee, a creditor, or the United States trustee
may request a revocation of a discharge--
(1) under subsection (d)(1) of this section within
one year after such discharge is granted; or
(2) under subsection (d)(2) or (d)(3) of this section
before the later of--
(A) one year after the granting of such
discharge; and
(B) the date the case is closed.
(f)(1) The court may award the debtor reasonable attorneys'
fees and costs in any case in which a creditor files a motion
to deny relief to a debtor under this section and that motion--
(A) is denied; or
(B) is withdrawn after the debtor has replied.
(2) If the court finds that the position of a party filing
a motion under this section is not substantially justified, the
court may assess against the creditor such damages as may be
required by the equities of the case.
* * * * * * *
CHAPTER 9--ADJUSTMENT OF DEBTS OF A MUNICIPALITY
Subchapter I--General Provisions
* * * * * * *
Sec. 901. Applicability of other sections of this title
(a) Sections 301, 344, 347(b), 349, 350(b), 361, 362,
364(c), 364(d), 364(e), 364(f), 365, 366, 501, 502, 503, 504,
506, 507(a)(1), 509, 510, 524(a)(1), 524(a)(2), 544, 545, 546,
547, 548, 549(a), 549(c), 549(d), 550, 551, 552, 553, 557,
1102, 1103, 1109, 1111(b), 1122, 1123(a)(1), 1123(a)(2),
1123(a)(3), 1123(a)(4), 1123(a)(5), 1123(b), 1123(d), 1124,
1125, 1126(a), 1126(b), 1126(c), 1126(e), 1126(f), 1126(g),
1127(d), 1128, 1129(a)(2), 1129(a)(3), 1129(a)(6), 1129(a)(8),
1129(a)(10), 1129(b)(1), 1129(b)(2)(A), 1129(b)(2)(B), 1142(b),
1143, 1144, and 1145 of this title apply in a case under this
chapter.
* * * * * * *
CHAPTER 11--REORGANIZATION
Subchapter I--Officers and Administration
* * * * * * *
Sec. 1104. Appointment of trustee or examiner
(a) At any time * * *
* * * * * * *
(b)(1) Except as provided in section 1163 of this title,
on the request of a party in interest made not later than 30
days after the court orders the appointment of a trustee under
subsection (a), the United States trustee shall convene a
meeting of creditors for the purpose of electing one
disinterested person to serve as trustee in the case. The
election of a trustee shall be conducted in the manner provided
in subsections (a), (b), and (c) of section 702 of this title.
(2)(A) If an eligible, disinterested trustee is elected at
a meeting of creditors under paragraph (1), the United States
trustee shall file a report certifying that election. Upon the
filing of a report under the preceding sentence--
(i) the trustee elected under paragraph (1) shall be
considered to have been selected and appointed for
purposes of this section; and
(ii) the service of any trustee appointed under
subsection (d) shall terminate.
(B) In the case of any dispute arising out of an election
under subparagraph (A), the court shall resolve the dispute.
* * * * * * *
Subchapter IV--Railroad Reorganization
* * * * * * *
Sec. 1170. Abandonment of railroad line
(a) The court, after notice and a hearing, may authorize
the abandonment of all or a portion of a railroad line if such
abandonment is--
* * * * * * *
(e)(1) In authorizing any abandonment of a railroad line
under this section, the court shall require the rail carrier to
provide a fair arrangement at least as protective of the
interests of employees as that established under [section
11347] section 11326(a) of title 49.
* * * * * * *
Sec. 1172. Contents of plan
(a) In addition to the provisions required or permitted
under section 1123 of this title, a plan--
* * * * * * *
(c)(1) In approving an application under section (b) of
this section, the Board shall require the rail carrier to
provide a fair arrangement at least as protective of the
interests of employees as that established under [section
11347] section 11326(a) of title 49.
* * * * * * *
CHAPTER 12--ADJUSTMENT OF DEBTS OF A FAMILY FARMER WITH REGULAR ANNUAL
INCOME
* * * * * * *
Subchapter II--The Plan
* * * * * * *
Sec. 1228. Discharge
(a) As soon as practicable after completion by the debtor
all payments under the plan, other than payments to holders of
allowed claims provided for under section 1222(b)(5) or
[1222(b)(10)] 1222(b)(9) of this title, unless the court
approves a written waiver of discharge executed by the debtor
after the order for relief under this chapter, the court shall
grant the debtor a discharge of all debts provided for by the
plan allowed under section 503 of this title or disallowed
under section 502 of this title, except any debt--
(1) provided for under section 1222(b)(5) or
[1222(b)(10)] 1222(b)(9) of this title; or
* * * * * * *
(c) A discharge granted under subsection (b) of this
section discharges the debtor from all unsecured debts provided
for by the plan or disallowed under section 502 of this title,
except any debt--
(1) provided for under section 1222(b)(5) or
[1222(b)(10)] 1222(b)(9) of this title; or
* * * * * * *
CHAPTER 13--ADJUSTMENT OF DEBTS OF AN INDIVIDUAL WITH REGULAR INCOME
Subchapter I--Officers, Administration, and the Estate
Sec.
1301. Stay of action against codebtor.
* * * * * * *
1307. Conversion or dismissal.
1307A. Adequate protection in chapter 13 cases.
Sec. 1301. Stay of action against codebtor
(a) Except * * *
* * * * * * *
(b)(1) A creditor may present a negotiable instrument, and
may give notice of dishonor of such an instrument.
(2)(A) Notwithstanding subsection (c) and except as provided
in subparagraph (B), in any case in which the debtor did not
receive the consideration for the claim held by a creditor, the
stay provided by subsection (a) shall apply to that creditor
for a period not to exceed 30 days beginning on the date of the
order for relief, to the extent the creditor proceeds against--
(i) the individual that received that consideration;
or
(ii) property not in the possession of the debtor
that secures that claim.
(B) Notwithstanding subparagraph (A), the stay provided by
subsection (a) shall apply in any case in which the debtor is
primarily obligated to pay the creditor in whole or in part
with respect to a claim described in subparagraph (A) under a
legally binding separation or property settlement agreement or
divorce or dissolution decree with respect to--
(i) an individual described in subparagraph (A)(i);
or
(ii) property described in subparagraph (A)(ii).
(3) Notwithstanding subsection (c), the stay provided by
subsection (a) shall terminate as of the date of confirmation
of the plan, in any case in which the plan of the debtor
provides that the debtor's interest in personal property
subject to a lease with respect to which the debtor is the
lessee will be surrendered or abandoned or no payments will be
made under the plan on account of the debtor's obligations
under the lease.
* * * * * * *
Sec. 1307. Conversion or dismissal
(a) The debtor may convert a case under this chapter to a
case under chapter 7 of this title at any time. Any waiver of
the right to convert under this subsection is unenforceable.
* * * * * * *
(f) Notwithstanding any other provision of this section, a
case may not be converted to a case under another chapter of
this title unless the debtor may be a debtor under such
chapter.
Sec. 1307A. Adequate protection in chapter 13 cases
(a)(1)(A) On or before the date that is 30 days after the
filing of a case under this chapter, the debtor shall make cash
payments in an amount determined under paragraph (2)(A), to--
(i) any lessor of personal property; and
(ii) any creditor holding a claim secured by personal
property to the extent that the claim is attributable
to the purchase of that property by the debtor.
(B) The debtor or the plan shall continue making the adequate
protection payments until the earlier of the date on which--
(i) the creditor begins to receive actual payments
under the plan; or
(ii) the debtor relinquishes possession of the
property referred to in subparagraph (A) to--
(I) the lessor or creditor; or
(II) any third party acting under claim of
right, as applicable.
(2) The payments referred to in paragraph (1)(A) shall be
determined by the court.
(b)(1) Subject to the limitations under paragraph (2), the
court may, after notice and hearing, change the amount and
timing of the dates of payment of payments made under
subsection (a).
(2)(A) The payments referred to in paragraph (1) shall be
payable not less frequently than monthly.
(B) The amount of a payment referred to in paragraph (1)
shall not be less than the reasonable depreciation of the
personal property described in subsection (a)(1), determined on
a month-to-month basis.
(c) Notwithstanding section 1326(b), the payments referred
to in subsection (a)(1)(A) shall be continued in addition to
plan payments under a confirmed plan until actual payments to
the creditor begin under that plan, if the confirmed plan
provides--
(1) for payments to a creditor or lessor described in
subsection (a)(1); and
(2) for the deferral of payments to such creditor or
lessor under the plan until the payment of amounts
described in section 1326(b).
(d) Notwithstanding sections 362, 542, and 543, a lessor or
creditor described in subsection (a) may retain possession of
property described in that subsection that was obtained in
accordance with applicable law before the date of filing of the
petition until the first payment under subsection (a)(1)(A) is
received by the lessor or creditor.
Subchapter II--The Plan
[Sec. 1321. Filing of plan
[The debtor shall file a plan.]
Sec. 1321. Filing of plan
The debtor shall file a plan not later than 90 days after
the order for relief under this chapter, except that the court
may extend such period if the need for an extension is
attributable to circumstances for which the debtor should not
justly be held accountable.
Sec. 1322. Contents of plan
(a) The plan shall--
* * * * * * *
(b) Subject to subsections (a) and (c) of this section, the
plan may--
(1) designate a class or classes or unsecured claims,
as provided in section 1122 of this title, but may not
discriminate unfairly against any class so designated;
however, such plan may treat claims for a consumer debt
of the debtor if an individual is liable on such
consumer debt with the debtor differently than other
unsecured claims[;] and provide for the payment of any
claim entitled to priority under section 507(a)(7)
before the payment of any other claim entitled to
priority under section 507(a), notwithstanding the
priorities established under section 507(a);
* * * * * * *
Sec. 1324. Confirmation hearing
[After] (a) Except as provided in subsection (b) and after
notice, the court shall hold a hearing on confirmation of the
plan. A party in interest may object to confirmation of the
plan. That hearing shall be held not later than 45 days after
the filing of the plan, unless the court, after providing
notice and a hearing, orders otherwise.
(b) If not later than 5 days after receiving notice of a
hearing on confirmation of the plan, a creditor objects to the
confirmation of the plan, the hearing on confirmation of the
plan may be held no earlier than 20 days after the first
meeting of creditors under section 341(a).
Sec. 1325. Confirmation of plan
(a) Except as provided in subsection (b), the court shall
confirm a plan if--
(1) the plan complies with the provisions of this
chapter and with the other applicable provisions of
this title;
* * * * * * *
[(5) with respect to each allowed secured claim
provided for by the plan--]
(5) with respect to an allowed claim provided for by
the plan that is secured under applicable non-
bankruptcy law by reason of a lien on property in which
the estate has an interest or is subject to a setoff
under section 553--
(A) the holder of such claim has accepted the
plan;
[(B)(i) the plan provides that the holder of
such claim retain the lien securing such claim;
and]
(B)(i) the plan provides that the holder of
such claim retain the lien securing such claim
until the debt that is the subject of the claim
is fully paid for, as provided under the plan;
and
* * * * * * *
(C) the debtor surrenders the property
securing such claim to such holder; [and]
(6) the debtor will be able to make all payments
under the plan and to comply with the plan[.]; and
(7) if the debtor is required by a judicial or
administrative order to pay alimony to, maintenance
for, or support of a spouse, former spouse, or child of
the debtor, the debtor has paid all amounts payable
under that order for alimony, maintenance, or support
that are due after the date on which the petition is
filed.
For purposes of paragraph (5), section 506 shall not apply to a
claim described in that paragraph.
* * * * * * *
Sec. 1328. Discharge
(a) As soon as practicable after completion by the debtor
of all payments under the plan, and with respect to a debtor
who is required by a judicial or administrative order to pay
alimony to, maintenance for, or support of a spouse, former
spouse, or child of the debtor, only after the debtor certifies
as of the later of the date of that completion or the date of
certification that all amounts payable under that order for
alimony, maintenance, or support that are due before the date
of that certification have been paid in accordance with the
plan if applicable, or if the underlying debt is not treated by
the plan, paid in full, unless the court approves a written
waiver of discharge executed by the debtor after the order for
relief under this chapter, the court shall grant the debtor a
discharge of all debts provided for by the plan or disallowed
under section 502 of this title, except any debt--
[(1) provided for under section 1322(b)(5) of this
title;
[(2) of the kind specified in paragraph (5), (8), or
(9) of section 523(a) of this title; or
[(3) for restitution, or a criminal fine, included in
a sentence on the debtor's conviction of a crime.]
(1) provided for under section 1322(b)(5);
(2) of the kind specified in paragraph (2), (4), (5),
(8), or (9) of section 523(a);
(3) for restitution, or a criminal fine, included in
a sentence on the debtor's conviction of a crime; or
(4) for restitution, or damages, awarded in a civil
action against the debtor as a result of willful or
malicious injury by the debtor that caused personal
injury to an individual or the death of an individual.
* * * * * * *
(f) The court shall not grant a discharge under this
section to a debtor, unless after filing a petition the debtor
has completed an instructional course concerning personal
financial management described in section 111 that was
administered or approved by--
(1) the United States trustee; or
(2) the bankruptcy administrator for the district in
which the petition is filed.
* * * * * * *
TITLE 18--CRIMES AND CRIMINAL PROCEDURE
* * * * * * *
PART I.--CRIMES
* * * * * * *
CHAPTER 9--BANKRUPTCY
* * * * * * *
Sec. 156. Knowing disregard of bankruptcy law or rule
(a) Definitions.--In this section--
(1) the term ``bankruptcy petition preparer'' means a
person, other than the debtor's attorney or an employee
of such an attorney, who prepares for compensation a
document for filing[.]; and
(2) the term ``document for filing'' means a petition
or any other document prepared for filing by a debtor
in a United States bankruptcy court or a United States
district court in connection with a case under [this
title] title 11.
* * * * * * *
TITLE 28--JUDICIARY AND JUDICIAL PROCEDURE
* * * * * * *
PART I--ORGANIZATION OF COURTS
* * * * * * *
CHAPTER 6--BANKRUPTCY JUDGES
Sec.
151. Designation of bankruptcy courts.
* * * * * * *
158. Appeals.
159. Bankruptcy statistics.
* * * * * * *
Sec. 152. Appointment of bankruptcy judges
(a)(1) [The United States court of appeals for the circuit
shall appoint bankruptcy judges for the judicial districts
established in paragraph (2) in such numbers as are established
in such paragraph.] Each bankruptcy judge to be appointed for a
judicial district as provided in paragraph (2) shall be
appointed by the United States court of appeals for the circuit
in which such district is located. Such appointments shall be
made after considering the recommendations of the Judicial
Conference submitted pursuant to subsection (b). Each
bankruptcy judge shall be appointed for a term of fourteen
years, subject to the provisions of subsection (e). However,
upon the expiration of the term, a bankruptcy judge may, with
the approval of the judicial council of the circuit, continue
to perform the duties of the office until the earlier of the
date which is 180 days after the expiration of the term or the
date of the appointment of a successor. Bankruptcy judges shall
serve as judicial officers of the United States district court
established under Article III of the Constitution.
* * * * * * *
Sec. 156. Staff; expenses
(a) Each * * *
* * * * * * *
(f) For purposes * * *
(g)(1) In this subsection, the term ``travel expenses''--
(A) means the expenses incurred by a bankruptcy judge
for travel that is not directly related to any case
assigned to such bankruptcy judge; and
(B) shall not include the travel expenses of a
bankruptcy judge if--
(i) the payment for the travel expenses is
paid by such bankruptcy judge from the personal
funds of such bankruptcy judge; and
(ii) such bankruptcy judge does not receive
funds (including reimbursement) from the United
States or any other person or entity for the
payment of such travel expenses.
(2) Each bankruptcy judge shall annually submit the
information required under paragraph (3) to the chief
bankruptcy judge for the district in which the bankruptcy judge
is assigned.
(3)(A) Each chief bankruptcy judge shall submit an annual
report to the Director of the Administrative Office of the
United States Courts on the travel expenses of each bankruptcy
judge assigned to the applicable district (including the travel
expenses of the chief bankruptcy judge of such district).
(B) The annual report under this paragraph shall include--
(i) the travel expenses of each bankruptcy judge,
with the name of the bankruptcy judge to whom the
travel expenses apply;
(ii) a description of the subject matter and purpose
of the travel relating to each travel expense
identified under clause (i), with the name of the
bankruptcy judge to whom the travel applies; and
(iii) the number of days of each travel described
under clause (ii), with the name of the bankruptcy
judge to whom the travel applies.
(4)(A) The Director of the Administrative Office of the
United States Courts shall--
(i) consolidate the reports submitted under paragraph
(3) into a single report; and
(ii) annually submit such consolidated report to
Congress.
(B) The consolidated report submitted under this paragraph
shall include the specific information required under paragraph
(3)(B), including the name of each bankruptcy judge with
respect to clauses (i), (ii), and (iii) of paragraph (3)(B).
* * * * * * *
Sec. 159. Bankruptcy statistics
(a) The clerk of each district shall compile statistics
regarding individual debtors with primarily consumer debts
seeking relief under chapters 7, 11, and 13 of title 11. Those
statistics shall be in a form prescribed by the Director of the
Administrative Office of the United States Courts (referred to
in this section as the `Office').
(b) The Director shall--
(1) compile the statistics referred to in subsection
(a);
(2) make the statistics available to the public; and
(3) not later than October 31, 1998, and annually
thereafter, prepare, and submit to Congress a report
concerning the information collected under subsection
(a) that contains an analysis of the information.
(c) The compilation required under subsection (b) shall--
(1) be itemized, by chapter, with respect to title
11;
(2) be presented in the aggregate and for each
district; and
(3) include information concerning--
(A) the total assets and total liabilities of
the debtors described in subsection (a), and in
each category of assets and liabilities, as
reported in the schedules prescribed pursuant
to section 2075 of this title and filed by
those debtors;
(B) the current total monthly income,
projected monthly net income, and average
income and average expenses of those debtors as
reported on the schedules and statements that
each such debtor files under sections 111, 521,
and 1322 of title 11;
(C) the aggregate amount of debt discharged
in the reporting period, determined as the
difference between the total amount of debt and
obligations of a debtor reported on the
schedules and the amount of such debt reported
in categories which are predominantly
nondischargeable;
(D) the average period of time between the
filing of the petition and the closing of the
case;
(E) for the reporting period--
(i) the number of cases in which a
reaffirmation was filed; and
(ii)(I) the total number of
reaffirmations filed;
(II) of those cases in which a
reaffirmation was filed, the number in
which the debtor was not represented by
an attorney; and
(III) of those cases, the number of
cases in which the reaffirmation was
approved by the court;
(F) with respect to cases filed under chapter
13 of title 11, for the reporting period--
(i)(I) the number of cases in which a
final order was entered determining the
value of property securing a claim in
an amount less than the amount of the
claim; and
(II) the number of final orders
determining the value of property
securing a claim issued;
(ii) the number of cases dismissed
for failure to make payments under the
plan; and
(iii) the number of cases in which
the debtor filed another case within
the 6 years previous to the filing; and
(G) the extent of creditor misconduct and any
amount of punitive damages awarded by the court
for creditor misconduct.
* * * * * * *
PART II--DEPARTMENT OF JUSTICE
* * * * * * *
CHAPTER 39--UNITED STATES TRUSTEES
* * * * * * *
Sec. 581. United States trustees
* * * * * * *
[HISTORICAL AND STATUTORY NOTES]
* * * * * * *
``SEC. 302. EFFECTIVE DATES; APPLICATION OF AMENDMENTS.
``(a) General Effective Date.--* * *
* * * * * * *
``(d) Application of Amendments to Judicial Districts.--
``(1) Certain * * *
* * * * * * *
``(3) Judicial districts for the states of alabama
and north carolina.--(A) Notwithstanding paragraphs (1)
and (2), and any other provision of law, the amendments
made by subtitle A of title II of this Act [enacting
section 307 of Title 11, amending sections 101, 102,
105, 303, 321, 322, 324, 326, 327, 330, 341, 343, 345,
701, 703, 704, 705, 707, 727, 1102, 1104, 1105, 1112,
1129, 1163, 1202, 1302, 1307, and 1326 of Title 11, and
repealing sections 1501 to 151326 of Title 11], and
section 1930(a)(6) of title 28 of the United States
Code (as added by section 117(4) of this Act) [section
1930(a)(6) of this title], shall not--
``(i) become effective in or with respect to
a judicial district specified in subparagraph
(E) until, or
``(ii) apply to cases while pending in such
district before,
such district elects to be included in a bankruptcy
region established in section 581(a) of Title 28,
United States Code, as amended by section 111(a) of
this act [subsec. (a) of this section], [or October 1,
2002, whichever occurs first,] except that the
amendment to section 105(a) of title 11, Unites States
Code [section 105(a) of Title 11], shall become
effective as of the date of the enactment of the
Federal Courts Study Committee Implementation Act of
1990 [Dec. 1, 1990].
* * * * * * *
``(F)(i) Subject to clause (ii), with respect to
cases under chapters 7, 11, 12, and 13 of title 11,
United States Code [section 701 et seq., 1101 et seq.,
1201 et seq., and 1301 et seq., respectively, of Title
11]--
``(I) commenced before the effective date of
this act, and
``(II) pending in a judicial district in the
State of Alabama or the State of North Carolina
before any election made under subparagraph (A)
by such district becomes effective [or October
1, 2002, whichever occurs first],
the amendments made by section 113 [amending section
586 of this title] and subtitle A of title II of this
Act, and section 1930(a)(6) of title 28 of the United
States Code (as added by section 117(4) of this Act)
[section 1930(a)(6) of this title], shall not apply
until [October 1, 2003, or] the expiration of the 1-
year period beginning on the date such election becomes
effective, whichever occurs first.
``(ii) For purposes of clause (i), the amendments
made by section 113 [amending section 586 of this
title] and subtitle A of title II of this act, and
section 1930(a)(6) of title 28 of the United States
Code (as added by section 117(4) of this Act) [section
1930(a)(6) of this title], shall not apply with respect
to a case under chapter 7, 11, 12, or 13 of title 11,
United States Code [sections 701 et seq., 1101 et seq.,
1201 et seq., and 1301 et seq., respectively, of title
II], if--
``(I) the trustee in the case files the final
report and account of administration of the
estate, required under section 704 of such
title [section 704 of Title 11], or
``(II) a plan is confirmed under section
1129, 1225, or 1325 of such title [section
1129, 1225, or 1325, respectively of Title 11],
[before October 1, 2003, or] the expiration of the 1-
year period beginning on the date such election becomes
effective[, whichever occurs first.]
* * * * * * *
Sec. 586. Duties; supervision by Attorney General
(a) Each United States trustee, within the region for which
such United States trustee is appointed, shall--
(1) establish, maintain, and supervise a panel of
private trustees that are eligible and available to
serve as trustee in cases under chapter 7 of title 11;
* * * * * * *
(5) perform the duties prescribed for the United
States trustee under title 11 and this title, and such
duties consistent with title 11 and this title as the
Attorney General may prescribe; [and]
[(6) make such reports as the Attorney General
directs.]
(6) make such reports as the Attorney General
directs, including the results of audits performed
under section (f); and
(7) on or before January 1 of each calendar year, and
also not later than 30 days after any change in the
nonprofit debt counseling services registered with the
bankruptcy court, prescribed and make available on
request the notice described in section 342(b)(3) of
title 11 for each district included in the region.
* * * * * * *
(e)(1) The Attorney General, after consultation with a
United States trustee that has appointed an individual under
subsection (b) of this section to serve as standing trustee in
cases under chapter 12 or 13 of title 11, shall fix--
* * * * * * *
(f)(1)(A) The Attorney General shall establish procedures for
the auditing of the accuracy and completeness of petitions,
schedules, and other information which the debtor is required
to provide under sections 521 and 1322 of title 11, and, if
applicable, section 111 of title 11, in individual cases filed
under chapter 7 or 13 of such title.
(B) The audits described in subparagraph (A) shall be made in
accordance with generally accepted auditing standards and
performed by independent certified public accountants or
independent licensed public accountants. Those procedures
shall--
(i) establish a method of selecting appropriate
qualified persons to contract with the United States
trustee to perform those audits;
(ii) establish a method of randomly selecting cases
to be audited according to generally accepted auditing
standards, except that not less than 1 out of every 500
cases in each Federal judicial district shall be
selected for audit;
(iii) require audits for schedules of income and
expenses which reflect greater than average variances
from the statistical norm of the district in which the
schedules were filed; and
(iv) establish procedures for--
(I) reporting the results of those audits and
any material misstatement of income,
expenditures, or assets of a debtor to the
Attorney General, the United States Attorney
and the court, as appropriate;
(II) providing, not less frequently than
annually, public information concerning the
aggregate results of such audits including the
percentage of cases, by district, in which a
material misstatement of income or expenditures
is reported; and
(III) fully funding those audits, including
procedures requiring each debtor with
sufficient available income or assets to
contribute to the payment for those audits, as
an administrative expense or otherwise.
(2) The United States trustee for each district is authorized
to contract with auditors to perform audits in cases designated
by the United States trustee according to the procedures
established under paragraph (1).
(3) According to procedures established under paragraph (1),
upon request of a duly appointed auditor, the debtor shall
cause the accounts, papers, documents, financial records, files
and all other papers, things, or property belonging to the
debtor as the auditor requests and that are reasonably
necessary to facilitate the audit to be made available for
inspection and copying.
(4)(A) The report of each audit conducted under this
subsection shall be filed with the court, the Attorney General,
and the United States Attorney, as required under procedures
established by the Attorney General under paragraph (1).
(B) If a material misstatement of income or expenditures or
of assets is reported under subparagraph (A), a statement
specifying that misstatement shall be filed with the court and
the United States trustee shall--
(i) give notice thereof to the creditors in the case;
and
(ii) in an appropriate case, in the opinion of the
United States trustee, that requires investigation with
respect to possible criminal violations, the United
States Attorney for the district.
* * * * * * *
PART IV--JURISDICTION AND VENUE
* * * * * * *
CHAPTER 85--DISTRICT COURTS; JURISDICTION
* * * * * * *
Sec. 1334. Bankruptcy cases and proceedings
(a) Except as provided in subsection (b) of this section,
the district court shall have original and exclusive
jurisdiction of all cases under title 11.
* * * * * * *
(d) Any decision to abstain or not to abstain [made under
this subsection] made under subsection (c) other than a
decision not to abstain in a proceeding described in subsection
(c)(2) is not reviewable by appeal or otherwise by the court of
appeals under section 158(d), 1291, or 1292 of this title or by
the Supreme Court of the United States under section 1254 of
this title. [This subsection] Subsection (c) and this
subsection shall not be construed to limit the applicability of
the stay provided for by section 362 of title 11, United States
Code, as such section applies to an action affecting the
property of the estate in bankruptcy.
* * * * * * *